African companies moving outside their home markets
Sub-Saharan African companies are making strides in becoming multinational corporations.
Last Thursday, Reuters reported that Nigerian cement manufacturer, Dangote Cement, had signed an agreement to set up a US$400 million cement plant in Ethiopia. The deal was signed between Dangote’s group president and CEO Aliko Dangote and officials from Ethiopia’s Oromiya region where the plant will be constructed, with the aim of producing two million tons per year. The project is scheduled to be finalised in two years’ time.
On the same day, Reuters also reported that the company will spend $4 million to build a cement plant in the Republic of the Congo. “This plant will have an initial capacity of around 1.5 million tons per year but it will be able to produce 2.5 million tons if demand grows,” said Dangote. Congo currently has one cement plant operated by Societe Nouvelle des Ciments du Congo, which does not produce enough to meet domestic demand. Dangote said the new plant would allow Congo to become a regional exporter. Congo is one of Africa’s top crude oil producers, but its president Denis Sassou N’Guesso says the economy needs to diversify into other sectors as fields mature. Dangote has also invested in Ghana’s 1.2 million tons per year Tema Cement Factory, and other plants in Senegal, Zambia, Tanzania, DRC and Equatorial Guinea.
In similar cross border expansion news, Kenya’s Business Daily recently reported that advertising firm Scangroup had formed two advertising firms in Ghana and acquired the business of a partner agency to boost its regional presence and reduce reliance on the East African market. “The entry into Ghana increases our footprint and marks another milestone towards our vision of becoming a leading marketing services company in Sub-Saharan Africa,” said Mr Bharat Thakrar, the CEO of Scangroup. “This will also enable us to service our pan-African clients better with in-market infrastructure.” Ghana’s economy may expand by 20% this year as oil production, along with high prices for cocoa and gold, boost revenue, according to the World Bank.
The Nairobi Stock Exchange listed firm last year bought a 50% stake in Ogilvy East Africa and a 51% stake in Ogilvy Africa, which gave it minority stakes in eight media agencies in Southern and West Africa. Consequently, these deals allowed it to tap into a long list of multinationals including beer giant SABMiller, Unilever and BAT. Others are MultiChoice, Zain and Sun International. In Kenya, the firm gained access to equally high net worth clients such as Barclays Bank, Kenya Airways, India’s Bharti Airtel, and Telkom Kenya.
We believe that as Sub-Saharan African companies move beyond their home markets, they will be able to increase scale as well as diversify risk that maybe highlighted by any negative domestic events. The secret to doing it successfully will be in the implementation, however, a key factor being the fact that a “one size fits all strategy” that involves deploying the base country strategy simply does not work, as many South African companies in particular have found to their detriment.
Imara is an investment banking and asset management group renowned for its knowledge of African markets.