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How multinationals have seized the African opportunity

Africa is still viewed by a large number of potential foreign investors as a high risk destination. The 2014 EY Africa Attractiveness Survey indicates that Africa’s standing as an investment destination is improving, but those with no business presence on the continent continue to view Africa as the world’s least attractive investment destination.

EY notes that while Africa is a challenging place to do business, some investors’ perceptions are based on “ill-informed opinion which is completely divorced from on-the-ground realities”.

To dispel the myths associated with doing business in Africa, EY’s report features stories of companies that are successfully seizing the African opportunity. EY analysed how they have addressed key challenges and exploited opportunities to grow their businesses. Here are some examples of “growth leaders in Africa”.

IBM

When Indian teleco Bharti Airtel acquired assets across 16 markets in Africa in 2010 it tapped US tech multinational IBM to integrate the different IT environments. Bharti Airtel’s US$1.5bn contract doubled IBM’s footprint across the continent almost overnight. This rapid expansion and Africa’s diversity presented new challenges for the company. IBM had to quickly get people on the ground in new markets, register and file various papers and ensure compliance with regulations.

Today IBM has employees in more than 20 African countries. The company uses expatriates to accelerate the process of embedding IBM values and culture as it enters new countries and hires new staff. The US tech giant is also tapping into the African diaspora and relocating IBM employees with African roots from other parts of the world to the continent.

Sanlam

In 1918 Sanlam started as a traditional insurance company focused on a predominantly white middle market in South Africa. Today it is a diversified financial services group operating across Africa and beyond. The 2005 acquisition of African Life was a game changer for Sanlam’s international growth ambitions. The acquisition immediately gave it a presence in six other African countries: Botswana, Lesotho, Zambia, Kenya, Tanzania and Ghana. Prior to this, Sanlam’s only business outside South Africa was in Namibia.

Over the years Sanlam has adopted a deliberate approach of entering and expanding in new markets via local partnerships. This has helped the company to navigate diverse markets with unique cultures, consumer preferences and business environments. Through this approach Sanlam now has a direct and growing presence in 11 African countries.

Its interests span life and general insurance, asset management, credit and banking in Africa and recently Southeast Asia. Sanlam’s annual profits have almost tripled over the past decade, and the share price has outperformed its sector peers.

“Africa has really done well for us… particularly in terms of return metrics… if you get a return on equity of 35% or so, it’s something to be proud of,” says Sanlam CEO Johan van Zyl.

Tullow Oil

British explorer Tullow Oil’s growth strategy is increasingly focused on Africa. The company has almost 60 licences across 15 different countries on the continent and half of its 2,000 global labour force work in African operations.

Right from when it was founded in 1985, Tullow has had an interest in Africa. Founder and CEO Aidan Heavey says he was inspired to start the company after a conversation with a friend “about small oil fields in Africa” which had been left behind by leading firms. Tullow’s first licence was acquired in Senegal in 1986 and two years later commenced gas sales.

“I knew nothing about the oil and gas industry at the time, which made it more challenging. No one thought Tullow would succeed, because of my lack of knowledge of the industry, the absence of major backers and the fact that I was starting a company in a country with no oil industry,” recalls Heavey.

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