Ventures into the interior

South African business has become one of the 10 top investors and trading partners in Africa in less than a decade, despite the many risks and a sometimes hostile environment.

Commentators insist, however, that South Africa should reciprocate by opening its markets to the continent more rapidly.

A report entitled The Experience of South African Firms Doing Business in Africa by Dianna Games, director of conference and publishing company Africa @ Work, captures both the progress and the challenges facing local businesses on the continent.

The report states that ”South Africa has become one of the top 10 investors in, and trading partners of, African countries”. Between 1991 and 2001 South Africa’s exports to the continent soared from R5-billion to R35-billion.

Games pointed out that investments now stretch beyond traditional sectors such as mining and construction to include banking, telecommunications and retail. In addition, South Africa has become a leading provider of skills training for Africa.

Among the major problems she identified were political and fiscal risk, a weak private sector, high donor dependency, poor infrastructure, pervasive corruption and misgovernment.

Games suggested the African business environment could be improved by upholding the rule of law, stabilising the macroeconomic environment, resolving conflict and strengthening regional ties. Also critical were a decisive approach to tackling corruption and improved corporate governance.

SABMiller now brews the leading brand of Mozambique, 2M. The cellular phone networks Vodacom and MTN, are practically sewing up the continent — now operating in widely separated countries such as Tanzania, Cameroon and Egypt and the hotly contested Nigeria.

Shoprite Checkers is the continent’s largest retailer, with outlets in 15 countries and a turnover of R25-billion. Eskom has investments in the Democratic Republic of Congo and a joint venture in Morocco.

The continent’s potential is vast. In banking, Games estimated that the returns on capital were about 30%, with the potential to rise to 50%, compared to 16% to 20% locally.

Phuthuma Nhleko, CEO of MTN, describes the continental market as showing ”youthful vigour and capacity for significant growth”.

Sim Tshabalala, MD of Stanbic Africa, saw entry into the continent as a logical progression because businesses needed to develop new rev-enue streams while ”exploiting [South Africa’s] competitive advantage”.

For companies like Stanbic the advantage hinged on the relatively high level of skills available in South Africa and the existence of support industries, most notably in information technology.

”Our growth in the continent is also driven by trade and the need for liquidity,” Tshabalala said. Allied to this was the need to service clients expanding into the continent.

Tshabalala acknowledged the hurdles facing South African business, chiefly solvency risk, inadequate reporting methods, currency fluctuations and HIV/Aids.

But he noted two positives that were not readily appreciated. First, war was a declining risk, particularly within central Africa. In addition, more African economies were liberalising than was generally recognised. Standard Bank’s acquisition of state-owned banks in Malawi and Uganda was evidence of this.

However, Games noted that some state assets were of such poor quality that they should be liquidated, not privatised.

Stanbic has also bought private concerns in other African countries, including Investec in Botswana and a Portuguese shareholder in Banco Standard Totta in Mozambique.

Tshabalala said the bank’s retail operation was leading the penetration of African markets. Its merchant banking arm had also backed several projects, notably the $1,1-billion Temane pipeline in Mozambique and MTN Nigeria’s investment, expected to reach $900-million.

Stanbic Africa was now valued at R1,6-billion, with assets of between R20-billion and R25-billion.

There is some ambivalence in Africa about South Africa’s growing role. Peter Ondeng, CEO of the New Partnership for Africa’s Development (Nepad) secretariat in Kenya, noted the perception in East Africa that ”we have a one-sided relationship with South Africa”, which was unwilling to open its markets. South Africans were seen as arrogant and condescending.

”A strong country like South Africa should position itself in a supporting role to allow private-sector interaction,” Ondeng said. This was where Nepad’s intervention was crucial.

Kenya itself has a record of hostility to outside investors. In the 1990s SABMiller tried to penetrate the monopolised beer market, investing in manufacturing infrastructure. Owing to a lack of investor protection, the operation did not get off the ground.

When Vodacom recently launched in Mozambique in competition with with M Cell, journalist Paul Fauvet expressed scepticism about how it would turn a profit, given that margins are ”ground to the bone”.

In addition, Vodacom is locked in a dispute with Econet Wireless International (EWI) after being accused of trying to prevail on subsidiary Econet Wireless Nigeria to rescind an agreement with EWI.

Darlene Miller, a researcher into South African multinationals in Africa, found contrasting attitudes in Shoprite stores in Zambia and Mozambique. Workers were in awe of the grocery outlet’s standing. Yet some worked 60 hours a week of overtime, sometimes unpaid. Workers in these countries expected to earn the same as their South African counterparts, Miller said. White managers were seen as having ”imperialist” attitudes.

Brian Weyers, marketing director of Shoprite Holdings, retorted that Shoprite was one of the first companies in Zambia to recognise trade unions and provide contracts of employment. It was not possible to pay Zambian workers the same as South Africans as cost structures were not the same.

Key investors

Major South African investments in the region and continent include: