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Keys to business success in Africa

| Economic factors

It seems every South African company has an African strategy. Whether it is a few lines in an annual report, a statement at a results presentation or a comment to a journalist, many companies aver that they have a strategy for expanding into Africa.

The reasons for this are obvious — stagnant growth in SA and a continent stretching north that seems to provide new opportunities to feed the voracious growth appetites of companies.

Africa’s Pulse, a World Bank publication, notes that there has been substantial investment in infrastructure with capital inflows into sub-Saharan Africa significantly above that of comparable developing countries. There has also been an increase in agricultural production and the services sector has shown considerable growth, especially in transport, tourism, telecommunications and financial services.

The spur to this growth appears to come from two sources — Chinese investment and, possibly allied to that, the growth in the exploitation of the vast mineral resources, unfettered by myriad laws that impede growth in the South African mining industry.

If these growth and investment opportunities are there to be developed, then the question must be why so few large South African companies appear to be successful in taking advantage. If one were to name obviously successful South African companies in Africa, only two come to mind — MTN and Shoprite.

Mining companies have limited operations in specific African countries such as Zambia, Ghana or the Democratic Republic of Congo, but none really has an African "presence" in the true sense of the word.

The two banks that claim to have the largest African presence are Standard Bank and Absa/Barclays. In terms of profits, Standard Bank’s African operations (largely trading as Stanbic) contributed 0.5% to group profits last year. Barclays reports that turnover in its non-South African operations made up 19.4% of total African turnover last year and about 15% of African profits, so possibly that could be regarded as successful.

Among retailers, Woolworths says it has stores in 11 countries in Africa, but gives no indication of profit or turnover so one cannot ascertain how well it is doing. The only other company that is successful in Africa is SABMiller, but its success has been based on acquisitions, not expansion.

Brand Africa rates MTN, Shoprite and Woolworths as the three most valuable brands in Africa. However, that valuation includes SA, so there is no real indication of the remaining African element. There must be, of course, other companies that are successful in the rest of Africa; they just do not readily come to mind.

What are the successful South African companies doing in the rest of Africa that differentiates them? Discussions with executives and comments by the panel at the recent launch of the Africa Survey by Good Governance Africa highlight key learnings.

First on everyone’s list is to understand the environment and the local business culture. The rest of Africa is different — not only from SA, but there are enormous differences between countries. What works in one does not necessarily work elsewhere.

Companies that believe they can replicate their South African operations northwards are making a substantial strategic mistake.

You cannot "Tigerise" Africa.

Even at a governance level, there are differences. King III is not a requirement for African countries and in many countries companies have an executive chairman and comply with good governance. SA does not have a monopoly on governance models and there is a different context in each country.

Governance in Africa used to be driven by funders and donors, but this is no longer acceptable, which means companies have to change the way they do everything. As simple an issue as sending e-mails was regarded in one company as exhibiting a lack of trust, reducing everything to writing instead of having face-to-face meetings.

A South African company struggling to obtain foreign currency in a North African country expected an approach to the central bank would be a solution. Some South African companies are arrogant, and denigrate foreign institutions that do not jump at their whim.

This leads to the second important learning point — build political capital. This has nothing to do with bribery or "facilitation fees", although this is common throughout Africa, SA included.

Political capital has to do with understanding the history of countries, having a sense of their colonial and post-colonial past, and working to team up with governments and local business people to achieve mutually beneficial objectives. One of the reasons for MTN’s success in Nigeria is the fact that it has Nigerian shareholders in that operation. Allied to this is the employment of local skills. Many African countries have a surfeit of highly skilled and qualified people who would add value to local operations and build political capital to facilitate successful businesses.

Another important element is having the appropriate business model. MTN and Shoprite have realised they are not reproducing their South African operations in Africa, they have understood what it is that makes the business successful and they have exploited that.

Shoprite seems to understand that it is selling other people’s brands that its brand is not the driver, but that its ability to manage logistics and distribution is essentially what it is doing with superior skill in Africa. In essence, it is selling a commodity — management excellence — in a market that is price driven and reliant on first-class delivery.

Shoprite has 14 store brands operating across 15 African countries and, in many instances, the brands compete with each other. Shoprite’s African businesses generate about 16% of group turnover and an estimated 13% of group profit.

MTN, too, is selling a commodity, albeit that it also has a well-established brand. There are numerous companies in Africa selling airtime but MTN has proved superior at delivering airtime to phones and is the number one or number two cellular network in every country in which it operates.

SA produces 27% of MTN group turnover, Nigeria produces 37% and the remaining 36% comes from the rest of Africa and the Middle East. Nigeria produces 48% of group profit, with SA producing 19%.

What can we learn from these companies? In the first instance, they have understood that they are selling a commodity into the African market that sits quite low on the Maslow hierarchy of needs, either in the form of groceries or in the form of cellular airtime.

That is not to say that companies selling different products cannot be successful in future, but the commoditisation of products and services is certainly appropriate for the African market at present.

They have drawn on their inherent management skill of delivering the commodity to the widest range at the lowest possible price. Shoprite’s logistic abilities will grow its business in Africa, while MTN — through its networking and marketing capabilities as well as through acquisitions — has become the dominant cellular company in Africa.

Third, these companies have not tried to replicate their South African operations, but have gone out of their way to understand local culture and management practices, they have adapted their operations to meet those requirements — they have built political capital.

So it appears that success in Africa will come from getting the four Cs right – culture, compromise, capital and commoditise

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