Cape Town companies should “take their role in Africa more seriously”

Members of the Cape Town business think tank Accelerate Cape Town, representing over 45 of Cape Town’s top corporate organisations met with other key regional stakeholders on Friday to discuss investment opportunities in Africa for local companies.

Accelerate Cape Town chief executive Guy Lundy said that, while the Chinese, Indians and Brazilians have been expanding rapidly across the continent, it has taken most South African businesses a while to fully grasp the economic opportunities of doing business in the rest of Africa, having traditionally focused on Europe and the United States. “The time has come”, he stated, “for Cape Town companies especially to take their role in Africa more seriously.”

“Corporate Cape Town can help position Cape Town as a hub for doing business in Africa,” Lundy said.

Guest speakers Goolam Ballim, group chief economist at Standard Bank, and Hinré Smit, Africa development manager for Distell, shared their knowledge of doing business in Africa with the audience.

Ballim said there has been a remarkable economic turnaround in a number of African economies over the past decade, from lagging behind the world from the 1950s to turn of the millennium, to outperforming many developed countries in the wake of the global recession.

Referring to Africa’s “resource curse”, Ballim said resource-rich African economies traditionally showed parallel levels of illiteracy and low secondary school enrolment, because these economies used mining as a cash cow and invested very little in developing their people and infrastructure. This “overt neglect” of other sectors of the economy impacted negatively on many countries’ productivity rates.

However, he maintained, many African countries, such as Nigeria, Zambia and Angola, are turning the corner. This is largely due to greater macro-economic stability, better economic and political governance, lower levels of government debt, the investment in education and infrastructure, and dramatically increased bilateral trade with strong emerging economies, such as those of the BRICS (Brazil, Russia, India, China, South Africa) countries. This meant that these economies are moving away from relying exclusively on developed countries, which are showing slow growth rates at the moment.

“Supply side forces and themes have been sweeping the continent, enabling some economies to grow by 6% per annum, dare I say, into perpetuity,” said Ballim.

Ballim said Africa’s population of 1 billion would double by 2050. Most of this population would by then be living in cities, and this could be used to the continent’s economic benefit. Africa has a growing middle class and skilled workforce, which has been shown to stimulate economic activities and consumerism. Standard Bank, for example, is already seeing a dramatic deepening in the financial services sector in countries such as Nigeria. Mobile phone technology is already extensively embraced by Africans, with over 600 million active connections on the continent. “The next decade will be about broadband and the growth of data,” Ballim said.

Echoing Accelerate Cape Town CEO Guy Lundy, Ballim said cities would be becoming more important than nation states in the coming decades. He pointed to powerful economic corridors that are being formed between big cities on the continent, such as Lagos and Accra.

However, he cautioned that the world is still in a precarious economic state and anyone doing business in Africa has to focus on staying solvent. South Africa and Cape Town also could not assume that they could be the world’s gateway into Africa, as other countries such as Brazil and China had better diplomatic relations than South Africa in a number of high-growth African markets.

Smit said Distell have been very successful in the past few years in creating a footprint in a number of African economies, including Ghana, Nigeria and Angola. Although distribution remains a challenge, efficiency in the port of Luanda in Angola has improved to a degree recently, and Distell has managed to find good business partners on the continent to assist with local production in some countries and imports into other countries.

Sharing some lessons learnt from doing business in Africa, Smit said it was important to find the right local business partner with sufficient cash flow, to get to know the preferences of African consumers, to rethink packaging and marketing strategies to adapt to consumers in each country, to employ skilled locals, to make use of local advisers such as attorneys and auditors with local knowledge, and to have huge patience with the permit and other processes.