Private sector should seize African opportunities

DEBATE over how to boost South Africa’s flagging economic fortunes usually focuses on how government policy can, or should, or must change. Amid the gloomy finger-pointing, this week’s McKinsey Global Institute report identifying a “big five” set of opportunities for South African growth comes as a breath of fresh air.

To be sure, the report makes policy recommendations that should be seriously considered by the government – not least the proposition that natural gas should be prioritised for power generation.

But the most exciting passages regard opportunities not for new state-run programmes, but for private-sector growth in the so-called “rest of Africa”.

Long gone are the days when South African businesses only played at home. Anyone who regularly travels to various African capitals knows that familiar brands like Pick n Pay and Food Lover’s Market aren’t hard to find in most new shopping centres.

And as we know, some of our betterknown telecoms and banking outfits like MTN and Standard Bank are also doing well – in some cases better than they are doing here – in the “rest of Africa”. Among the African middle class, our brands are largely seen as reliable and high quality.

But as Business Day reported, South Africa has managed to capture just 2 percent of the sub-Saharan market when it comes to construction and financial services, two leading growth sectors.

Networking

As skylines and infrastructure networks are transformed from Lusaka to Lagos, firms from the most industrialised nation on the continent barely register (with a few notable exceptions such as Pretoria Portland Cement, or PPC).

McKinsey estimates that more active engagement from local construction firms could net a R43 billion boost to gross domestic product (GDP) and create 78 000 jobs by 2030. South Africa’s financial sector is strong and trusted beyond our borders, but in that sector too there is great potential, with personal and investment banking experiencing explosive growth in the big west and east African markets.

With key sub-Saharan markets like Kenya, Nigeria, Rwanda, Tanzania and the Democratic Republic of Congo (DRC) projected to grow at above 5 percent in coming years, now is the time for South African businesses to launch new projects, enter new markets, acquire or restructure, or simply raise awareness and understanding of existing products and services.

But succeeding outside South Africa is easier said than done. Understanding existing market opportunities and risks, as well as the political, regulatory and policy environments is absolutely critical to doing business in sub-Saharan Africa.

As advisors working exclusively with organisations doing business in Africa, we are often called in when things have already gone wrong. When an expatriate executive is deported for some small offence, and the real reason has more to do with well-connected local competitors.

Or when a building or exploration licence is held up at the last minute for impossible-to-understand reasons. Or when a shipment sits at a port for days, then weeks, then months, while shelves sit empty and sales forecasts evaporate.

New environments

There’s a difference between Durban and Dar es Salaam – and business strategy must reflect the new operating environment. It sounds obvious to say that each market in Africa is different, but many companies pay lip-service to the continent’s diversity and then try to manage their Nigerian business with the same model they used in Nairobi.

At a recent business round-table event, we co-hosted with law firm Webber Wentzel on Nigerian growth opportunities, many participants admitted that South African chief executives would ensure they knew the intricacies of local customs prior to dealing with a Japanese company, but would not do the same when dealing with other African markets.

The key success factor is access to deep, locally informed and locally-developed analysis of the risks (and opportunities). It is not enough to helicopter in and out, believing that true insight can be gleaned from scanning the papers and speaking to taxi drivers, or that honest answers will necessarily come from untested contacts.

A proper understanding of complex and often very opaque markets requires relationships of trust and access that are not available to the outsider.

The second critical success factor is the ability to apply that analysis to the development of an effective risk mitigation and management strategy – again, with local relevance being central.

Searching for answers to South Africa’s growth dilemma is an international sport. The government is urged to adopt the “Chinese Model”, spurn the “Washington Consensus”, or beware of the “Zimbabwean Path”.

But as Tuesday’s report shows, perhaps we should be looking to private enterprise, outside of the depressed commodity sector, to seize the “African Opportunity”. With the right approach, expansion in South African service exports could be a key contributor to growth and job creation.

McKinsey estimates that more active engagement from local construction firms could net a R43 billion boost to GDP and create 78 000 jobs by 2030.

Felix Eldridge is an associate director with Pan-African strategic advisory firm africapractice.