Galore commercial opportunities within African continent

In order to avoid losing out on potential returns gained from investment in Africa, South African companies need to collaborate with each other, as well as national government and key trade and industry bodies, to create mutually beneficial investment climates.

This is according to Michael Lalor, Director: Strategy and Innovation at Ernst & Young who spoke at the latest Leaders Angle hosted by the University of Stellenbosch Business School (USB). Lalor believes that South African companies are rapidly losing ground to other emerging markets such as Brazil and China in terms of market share in Africa.

“Many local companies believe that they have an intrinsic right to invest into Africa due to proximity and have rested on their laurels when it comes to the level of activity on the continent. International companies have also recognised the investment potential of the continent and are moving much quicker into territories than their South African counterparts,” says Lalor.

According to Ernst & Young research, the value of Chinese investment into Africa has grown significantly over the last few years and is likely to grow at an increasing rate for the next five years.

“Korea, South Africa’s fifth biggest retail partner looks set to increase its market share of the African continent. Meanwhile, Turkish investment into North and West Africa is growing steadily and Brazil has clearly identified Africa as the next investment frontier.”

Lalor points to the recent large-scale expansions of multinational organisations such as Unilever, IBM and Nestlé. He believes these brands could create very intimidating competition for South African companies hoping to compete in other African countries. “First-mover advantage is a key factor in the success of brands in Africa. While this increased investment is very heartening for the future of Africa, it is something that South Africa business needs to get to grips with very quickly if they want a piece of the action.”

He urges South African companies to engage with each other, government and industry bodies such as the Department of Trade and Industry in order to create operational and legislative efficiencies conducive to investment into Africa. “Success in Africa requires operational excellence and many companies would gain this by forming strategic alliances that could compliment their African operations.”

According to Lalor, the decision to expand a company’s operations into Africa should be a detailed and strategic one. He urges business owners not to get caught up in popular opinion or hype when selecting which African countries to invest in. “One cannot base a decision to invest or not to invest on the experience that someone else had in a certain country. Surprisingly, this is how the majority of market selections are conducted by South African business owners.”

Lalor says business investors need to choose African markets that suit their type, size and capabilities of their business. “Look at regional trade blocks and decide which are more or less coherent according to your objectives. Existing and developing transport corridors are also an important indication of where current investment is going and ultimately how easy it will be to move your products or services between countries.”

Finally, Lalor says anyone considering where to invest in Africa must cross compare the relative ease of doing business in a country with the potential returns and their risk appetite. “Some countries, such as Angola, are displaying potential for huge returns. However, the country is still considered a high risk investment and operational success in this economy will require large amounts of initial investment.”

Despite the obvious challenges of doing business in Africa, Lalor is optimistic about the investment potential of the continent and he firmly believes that they are key to South African businesses successfully expanding into the region is in the formation of strategic partnerships, both locally and in Africa.

 

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