TOP 500 AFRICAN COM­PA­NIES

The Africa Report - - EDITORIAL - By PIERRE-OLIVIER ROUAOUD for Je­une Afrique and HONORÉ BANDA

The con­ti­nent’s ma­jor cor­po­rates have turned a cor­ner and returned to growth in our new Top 500 rank­ings. The oil and gas sec­tor is likely to see the most pos­i­tive growth in 2019

The con­ti­nent’s ma­jor cor­po­rates have turned a cor­ner and returned to growth in our new Top 500 rank­ings. Turnover in 2017 was still below 2012’s record gures, hin­dered by cur­rency pres­sures and weak de­mand for com­modi­ties. The oil and gas sec­tor is likely to see the most pos­i­tive growth in 2019 and a con­ti­nen­tal trade deal o ers op­por­tu­ni­ties in many sec­tors.

The con­ti­nent’s growth and the turnover of its Top 500 com­pa­nies are on the rise. In dol­lar terms, the turnover of our Top 500 com­pa­nies grew by 11.9% year-on-year in the fis­cal year 2017. This is wel­come news af­ter the rev­enue re­ported by the top com­pa­nies dropped by 6.7% in our last rank­ings. Dis­cussing Mckin­sey & Com­pany’s ‘Africa’s Over­looked Busi­ness Revo­lu­tion’ report, co-au­thor Acha Leke told re­porters: “You need to have pa­tience and a long-term mind­set, as you will face the in­evitable storms. But you will be able to see these through if you have an un­der­stand­ing of the con­text and have de­vel­oped re­silience.”

Weak cur­ren­cies and low com­mod­ity prices are ob­sta­cles to Africa’s biggest corporatio­ns getting back to past highs. The to­tal turnover of the Top 500 com­pa­nies ac­cord­ing to our rank­ing is still 15.7% – and $99.8bn – lower than the record of $736.8bn re­ported in the year 2012 (see chart below).

Against a back­drop of weaker macroe­co­nomic growth, the main ex­pla­na­tions for this drop in turnover are twofold: the price of raw ma­te­ri­als and cur­rency ef­fects. On the com­mod­ity side, in 2016 the price per bar­rel of West Texas In­ter­me­di­ate (WTI) crude reached its low­est level since 2004, at $43.20 per bar­rel as an an­nual av­er­age, ac­cord­ing to World Bank data. This hurt national oil com­pa­nies such as So­nan­gol (#3) or Sona­trach (#1) and all oil-de­pen­dent economies, in­clud­ing Al­ge­ria, Nigeria, An­gola and Gabon.

Met­als such as cop­per, nickel, plat­inum and alu­minum also fol­lowed this trend, due to fears of a sharp slow­down in the Chi­nese econ­omy. The av­er­age an­nual cop­per price re­bounded by nearly 27% in 2017 and by 5.8% in 2018. As for the oil price, as an an­nual av­er­age, WTI in­creased by nearly 18% in 2017, then by more than 27% in 2018 to reach $64.80. Oil com­pa­nies are set to rise in our rank­ing next year, and Sona­trach recorded a turnover in­crease of 10% in dol­lar terms in 2018.

Cur­rency pres­sures, which had been sig­nif­i­cant for sev­eral years, par­tic­u­larly due to in­fla­tion and in­ter­est-rate dif­fer­en­tials be­tween Africa and the ad­vanced economies, reached a peak in 2016 with the bru­tal de­val­u­a­tion of the naira in Nigeria (30%) and the Egyp­tian pound (48%). The sit­u­a­tion has since sta­bilised.

The im­pact of these two fac­tors – cur­ren­cies and raw ma­te­ri­als – weak­ened in 2017. Thus, the ac­tiv­ity, ex­pressed in US dol­lars, of sev­eral Egyp­tian groups is on the rise again. Egyptair Hold­ings (#99) rose 22 places. It is im­por­tant to keep these de­val­u­a­tions in mind when com­par­ing across cur­ren­cies: ex­pressed in naira, Dan­gote Sugar Re­fin­ery (#237)’ s turnover, for ex­am­ple, jumped by more than 310% in three years; ex­pressed in dol­lars, it in­creased by only about 10% over the pe­riod. But some coun­tries con­tinue to struggle with some of these chal­lenges. For ex­am­ple, the Ghana­ian cedi is still fal­ter­ing and An­gola will only emerge from re­ces­sion this year, ac­cord­ing to the In­ter­na­tional Mon­e­tary Fund.

The African econ­omy as a whole is clearly in a re­cov­ery phase. The African Devel­op­ment Bank (AFDB) es­ti­mated that con­ti­nen­tal gross do­mes­tic prod­uct growth was 3.5% in 2018, the same fig­ure as in 2017.

Play­ing catch-up

Growth is ex­pected to ac­cel­er­ate to 4% this year and 4.1% in 2020. This year the economies most likely to record the high­est growth – ac­cord­ing to the IMF – of be­tween 7.5% and 8.8% are Ghana, South Su­dan, Ethiopia, Rwanda and Côte d’ivoire. But the AFDB in­di­cated in its lat­est macroe­co­nomic out­look of early 2019 that this level of growth re­mains in­suf­fi­cient ‘to ab­sorb per­sis­tent bud­get and cur­rent-account deficits and debt that has some­times be­come un­sus­tain­able. Coun­tries must there­fore ac­cel­er­ate their growth rates and strengthen [their] ef­fec­tive­ness in cre­at­ing de­cent jobs.’ And those rosier growth pre­dic­tions do not take into account the im­pact of a Us-china trade war, es­pe­cially if it drags on.

All African re­gions, and al­most all sec­tors, showed growth in their 2017 re­sults. The biggest jump in turnover was in the oil and gas sec­tor, at $13.6bn. Manufactur­ing, tele­coms and fi­nance all recorded dou­ble-digit rises in turnover. Di­ver­si­fied com­pa­nies and ‘others’ were the only sec­tors to drop in our Top 500 rank­ing.

This year, 46 com­pa­nies dropped out of the Top 500, a fairly typ­i­cal num­ber. The three largest dis­ap­pear­ances in terms of turnover are the South African brewer Sab­miller, which no longer pub­lishes de­tailed national or even re­gional ac­counts since its in­te­gra­tion into the

11.9 19 Per­cent­age turnover growth of the Top 500 African com­pa­nies year-onyear in the scal year 2017 (US$)

Abin­bev group. Fel­low South African cor­po­rate JD Group was ac­quired by Stein­hoff In­ter­na­tional. Fi­nally, the Egyp­tian state-owned Mid­dle East Oil Re­fin­ery has not pub­lished its account for two years. But it but should do so soon: the gov­ern­ment has planned to wel­come a new in­vestor among its share­hold­ers or to list it on the stock ex­change.

In our rank­ing of oil and gas com­pa­nies, Al­ge­ria’s Sona­trach and An­gola’s So­nan­gol main­tained their spots in the top thre e com­pa­nies. Both firms are in the midst of big changes. The lead­er­ship of Sona­trach hangs in the bal­ance of elec­tions planned af­ter the res­ig­na­tion of long-serv­ing pres­i­dent Ab­de­laziz Boute­flika. And in An­gola, So­nan­gol was in the midst of huge re­forms when P re sident João Lourenço sacke d its lead­er­ship in early May. That raises ques­tions about whether the new bosses will agree to the sell­ing off of the as­sets deemed as non-strate­gic by the pre­vi­ous team. With fields ma­tur­ing and production drop­ping, the gov­ern­ment plans to award 55 li­cences for oil blocks over the next six years to im­prove So­nan­gol’s bot­tom line.

Min­ing is an­other sec­tor of cycli­cal busi­nesses re­cov­er­ing from re­cent lows. Sibanye Gold (#35) re­ported the biggest rev­enue rise amongst its peers in 2017, due in part to its ac­qui­si­tion of Us-based miner Stillwater that year. Despite long worker strikes in 2019 and rising elec­tric­ity, Sibanye is con­tin­u­ing with its strat­egy of growth through takeovers. It is mak­ing a big­ger move into the plat­inum met­als group with the pur­chase of Lon­min (#117), which is due to be com­pleted be­fore the end of this year. At the 2019 Min­ing Ind­aba, Sibanye-stillwater chief ex­ec­u­tive Neal Frone­man voiced wor­ries about the firm’s home base: “The in­vest­ment climate in South Africa is not yet con­ducive to in­vest­ing in projects with a 10-year time hori­zon.”

On the whole, sub-sa­ha­ran Africa is prof­it­ing from the re­cent down­turn in com­mod­ity prices in or­der to make re­forms to im­prove the busi­ness climate. In the World Bank’s 2019 ‘Doing Busi­ness’ report, sub-sa­ha­ran Africa ac­counted for about a third of the world’s busi­ness-focused gov­ern­ment ini­tia­tives. Top re­form­ers included sev­eral of the coun­tries where economies have been grow­ing strongly, in­clud­ing Côte d’ivoire, Kenya and Rwanda. Rwanda, for ex­am­ple, is on par with New Zealand in terms of trans­fer­ring own­er­ship of prop­erty. Gabon is one of the few African oil ex­porters to en­act a series of mea­sures to boost the pri­vate sec­tor.

Con­ti­nen­tal trade bloc

Ar­eas where the con­ti­nent con­tin­ues to lag be­hind its peers in­clude ac­cess to elec­tric­ity and fa­cil­i­tat­ing cross-border trade. The African Con­ti­nen­tal Free Trade Agree­ment is due to come into force at the end of May, hav­ing reached the re­quired 22 rat­i­fi­ca­tions. It is set to keep boost­ing in­tra-african trade for years to come.

22 coun­tries had rati ed the Con­ti­nen­tal Free Trade Agree­ment by the end of April – su cient for it to come into force

Com­pany lead­ers in many coun­tries have long com­plained about the lack of di­a­logue with African gov­ern­ments. At the 2019 Africa CEO Fo­rum in Ki­gali, Rwanda’s Pres­i­dent Paul Kagame had this in mind when he said, on the sub­ject of con­ti­nen­tal eco­nomic in­ge­tra­tion: “The full in­volve­ment of the African busi­ness com­mu­nity is crit­i­cal to keep us on track.”

In our Top 500 rank­ing, South Africa re­mains the heavyweigh­t in terms of its share of turnover and the num­ber of com­pa­nies rep­re­sented. South African firms took 170 out of 500 spots and rep­re­sented 58% of the to­tal turnover, a rate that has re­mained steady over the past few years. The elec­tion of Pres­i­dent Cyril Ram­phosa as head of the coun­try raises many hopes in terms of re­cov­ery, gov­er­nance and also the re­form of pub­lic com­pa­nies such as South African Air­ways (#43), and es­pe­cially Eskom (#4). Eskom’s dys­func­tions have been plagu­ing the econ­omy for years, par­tic­u­larly the min­ing sec­tor.

The South African pri­vate sec­tor is also in need of re­form. Stein­hoff In­ter­na­tional (#2) re­mains in its po­si­tion at the top of the list, but it has yet to re­cover from its ac­count­ing cri­sis. It pub­lished the re­sults of its au­dited ac­counts in May 2019 for the 2017 fi­nan­cial year, which pro­duced a loss of $4.5bn and write­downs of $17bn. The au­dit also re­vealed a num­ber of un­re­ported trans­ac­tions at the com­pany with firms linked to mem­bers of the Stein­hoff board. The full im­pact of the scan­dal has not yet been re­vealed and there are many share­holder suits cur­rently in the courts.

Tanger Med steams ahead

Morocco had the sec­ond-largest num­ber of com­pa­nies in the Top 500 with 64, and 8.5% of the to­tal turnover. The Moroc­can econ­omy is grow­ing thanks to its wellor­gan­ised pri­vate sec­tor, its close­ness and ac­cess to Euro­pean mar­kets and key in­vest­ments in lo­gis­tics and en­ergy in­fra­struc­ture. The Tanger Med Port Au­thor­ity (#473), which in 2018 took first place in Africa for con­tainer traf­fic, sur­pass­ing Dur­ban, is in­au­gu­rat­ing its ex­pan­sion this year.

Hurt by its re­ces­sion, Nigeria had just 28 com­pa­nies in the Top 500 this year, down three from the pre­vi­ous rank­ing. Those com­pa­nies’ turnover was down to 2.9% of the to­tal, com­pared to 4.2% last time. MTN Nigeria (#48) hopes that its plans to list shares on the Nige­rian Stock Ex­change be­fore July of this year will be a ma­jor step to im­prov­ing re­la­tions with the gov­ern­ment. The sub­sidiary of the South African tele­coms gi­ant re­solved con­flicts with the Abuja gov­ern­ment over unregister­ed SIM cards and unau­tho­rised div­i­dend pay­ments. How­ever, MTN Nigeria says it will not list un­til it has re­solved an­other $2bn tax dis­pute with the gov­ern­ment of Muham­madu Buhari.

Mean­while, Sa­fari­com (#64) is set to re­main Kenya’s top cor­po­rate. Bob Col­ly­more is set to re­tire in Au­gust, hav­ing over­seen the firm for the most cru­cial years of mo­bile-money plat­form M-pesa’s growth. A new leader will set Sa­fari­com’s strat­egy as it tries to fend off the global tech com­pa­nies aim­ing for the pay­ments space.

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