TOP 500 AFRICAN COMPANIES
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.
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.