How multinationals have seized the African opportunity

Telecom, insurance and oil companies have seen growth across the continent.

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.

Throughout the 1990s, Tullow expanded rapidly and acquired licences in other countries, and in 2004 bought Energy Africa. Tullow has also made onshore discoveries in largely uncharted territories. In 2007 the company made its largest ever discovery in Ghana – the Jubilee Field – which moved into production in 2010. It has also made major oil discoveries in Uganda and Kenya. In 2012, Tullow sold a share in its rights in Uganda to the China National Offshore Oil Corporation and Total for US$2.9bn.

SKF

Swedish bearing multinational SKF entered Africa in 1914 and later established a factory in South Africa to supply local and multinational manufacturers. However, its business suffered during the apartheid sanctions era of the 1980s.

SKF’s post-apartheid reinvestment has made it a market leader, serving clients via more than 40 distributors across several Southern African countries, including Namibia, Botswana, Zimbabwe, Malawi and Mozambique. It has also expanded to other parts of Africa.

SKF has traditionally managed markets in a fairly fragmented manner, with different countries and sub-regions having different reporting lines into European countries. However, this has changed dramatically over the last few years. In 2011 SKF consolidated the entire African region under a single, dedicated management team. Its focus has now shifted to scaling up some existing operations and expanding into several sub-Saharan markets.

Mara Group

Mara Group started out as a small IT business in Uganda nearly two decades ago. It now has a presence in 19 African countries, as well as in India and the United Arab Emirates. Through its investments and operations the group employs more than 8,000 people.

Founder Ashish Thakkar started the business when he was 15. He dropped out of school and began flying to Dubai on weekends to purchase computers and sell them to friends in Uganda. Over a period of 18 years that initial foray into IT has expanded into one of Africa’s largest tech companies in terms of footprint. Today Mara Group has evolved into an investment company.

Nestlé

Switzerland-based consumer company Nestlé started doing business in Africa in the 1880s and established its first production facility in South Africa in 1927. Since 1957 the company has expanded its presence in virtually every African country.

Nestlé generates revenues of more than $3bn in Africa, and employs more than 15,000 people across the continent. However, it aims to double revenue by 2020, and has scaled up investment in recent years. More than $1bn has been invested in more than 20 foreign direct investment projects over the past decade, building up local manufacturing capabilities, expanding distribution networks and developing products that cater to local tastes.

Local relevance is a critical element of Nestlé’s success in Africa. In 2008 the company set up its Equatorial Africa Region, combining 21 countries with growth potential to better understand consumer insights and develop these countries faster. The company currently has 30 manufacturing facilities across the continent.

Other companies featured in EY’s report include Africa Infrastructure Investment Managers, British American Tobacco, Bharti Airtel, Coca-Cola Sabco, DHL Express, Ecobank and General Electric.