Retail giant Shoprite has added Uganda to its list of African exits after selling its business in Nigeria of 15 years and closing Kenyan stores in March.
Until recently, Shoprite had been the poster child for African expansion. As early as 1990 it began its foray into the rest of the continent by opening an outlet in neighbouring Namibia’s capital Windhoek. By December 2005, Shoprite had entered Nigeria in West Africa, with a supermarket in a new shopping centre in Lagos.
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Now Shoprite’s footprint on the continent has been reduced to Angola, Zambia, Malawi, Namibia, Mozambique, Botswana, Lesotho, Ghana and the Democratic Republic of Congo.
This is a reversal of the long-term strategy of expansion pushed by former chief executive Whitey Basson. Referring to the countries from which Shoprite has retreated during the unveiling of the company’s results for the 53 weeks to 4 July, current chief executive Pieter Engelbrecht said the African region “remains challenging”.
The Shoprite story is not unique. Many South African companies have retreated from the continent, specifically Nigeria. Mr Price closed its last store there in early 2021, stating difficulties doing business because of inflation, volatility, and weak economic growth. Truworths pulled out of Nigeria in 2016 and Woolworths left as far back as 2011, both citing complex supply-chain processes, high duties, and the high cost of rent.
Walmart-owned Massmart recently said as part of its turnaround plan to stabilise the business it would dispose of 14 Game stores across Ghana, Nigeria, Uganda, Kenya and Tanzania to stem losses in that struggling business.
Chantal Marx, the head of investment research and content at FNB Wealth and Investments, said one common thread to the failures was that some companies had tried to apply South Africa-specific formulas elsewhere on the continent.
“There have been companies that have been very successful abroad but in terms of those unsuccessful ones … it is probably a factor of thinking that the market is similar to South Africa,” Marx said. “And once you get there you realise that the nuances are very different to South Africa.”
Telecoms also fare poorly
The problem exists beyond the retail sector. Companies in the telecommunications industry have been bruised by hostility in Africa, with Telkom pulling out of struggling mobile operation Multi-Links in Nigeria in 2020.
MTN has also struggled in Nigeria, where it has encountered numerous regulatory challenges, including a $5.2-billion fine by the Nigerian Communications Commission in 2015 for failing to disconnect unregistered SIM card users.
Local companies’ misfortunes abroad have extended beyond Africa to Europe, Australia and the US. In 2020 Investec bowed out of Australia, some 23 years after expanding its footprint to that market. The bank said the decision to leave Australia reflected a shift in the group’s broader strategy and was in line with its aim to clarify, simplify and focus the business.
Woolworths is also struggling in the same country after the ill-fated acquisition of David Jones by former chief executive Ian Moir in 2014, while Sasol appears to be mishandling its Lake Charles project in the US.
The most recent South African corporation to return home with its tail between its legs is Sanlam. The insurance company last week announced that it would abandon several of its UK-based operations in order to free up capital for its expansion in various African markets and in India.
Alec Abraham, a senior equity analyst at Sasfin Wealth, believes South African companies fail abroad because they often try to apply “an understanding of how they’ve developed in South Africa, how the market has developed, but for a large part of that time the market was a closed market so it was not really representative”.
The likes of Shoprite, he said, also have an unrealistic way of looking at Africa as a growth opportunity.
“It’s easy to look at the population dividend … but not understand the dynamics. Companies went into Africa naively and didn’t really follow aggressively whether the country was developing in such a way that people will afford what they’re selling,” said Abraham.
Covid-19 has also delivered a unique set of challenges as companies navigate the pandemic domestically and in their respective investment territories.
“Some of these markets are very much impacted by restrictions, some [countries] have very slow vaccine roll-outs which could impact on the viability of those businesses,” said Marx.
According to Abraham, companies retract to their core businesses when they experience pressure on their performance and that has been evident among firms pulling out of certain markets.
“Another trend is the onshoring of activities. Because of the concerns with supply chains, more companies are trying to source closer to home, so that you don’t have long supply chains that can get disrupted”.
Onshoring refers to the transferring of a business that had been moved overseas back to the country from which it was originally relocated.
“Retracting to the core business and shortening your supply chain are the two main things that will come out from Covid-19,” said Abraham, adding that another result of the pandemic was that companies would focus on exporting when they were not able to be present in foreign countries.
“If you look at just the South African demand, the outlook is not very rosy but a lot of companies that have export businesses are starting to see the benefits of the rest of the world starting to open up,” he said.
But as these companies return home, what are the prospects for domestic growth?
For Marx, South Africa still has a large informal market that offers opportunities, particularly in retail.
“And you still have a possibility that we could finally see some sort of growth coming through if structural reforms are implemented timeously and properly,” she said.
“If you can get a situation where employment and incomes start to grow there is absolutely more scope for growth in South Africa. And probably a lot more than what you would find in developed markets.”
Abraham believes returning companies can only experience growth if they go to an adjacent market.
“If you look at Mr Price, they’ve always been in a particular [lower] income category and now they’re extending to the upper market and bought YuppieChef. They want to expand their penetration of the market. If you’ve got good market share already in a particular market then it can be difficult to get additional growth,” said Abraham.
“My view on growth in South Africa in the 2022-23 term: I think it is muted. To get growth you are going to have to move in adjacent markets, both from an income view and from a product point of view.”
Anathi Madubela is an Adamela Trust business reporter at the Mail & Guardian