President Obama’s US-Africa Business Summit in August drew a top-notch group of African heads of state, business leaders, financiers, and ministry officials.
But did the event bring in new potential investors? Some, but not enough. Rooms were full of familiar faces during our three days in Washington DC, but many US companies and investors still say “it is too early for Africa: the continent is too dangerous, and markets are too small”.
We think this approach — often based on anecdotes or media articles instead of fact-based research — actually elevates risk rather than mitigating it.
Africa appears set to drive global growth in coming decades. Better governance, improving infrastructure, and an expanding middle class are likely to drive corporate and investor performance beyond what statistics or current market sizes indicate. Quite a few US companies are already operating profitably on the continent. These firms were visible in DC:
AGCO is entrenched through its Massey-Ferguson and GSI brands. Agriculture mechanization in Africa is low, and lack of crop storage capacity hurts sector productivity. Expanding access to agriculture finance could provide tailwinds here.
Coca-Cola plans to invest $5bn with its African bottling partners. Coke is expanding local sourcing while supporting investment in technical training, processing, and distribution capabilities, boosting local spending power while reducing currency risk.
Auto demand is rising with incomes. Ford is reportedly looking to expand African manufacturing capacity. Nigeria is encouraging OEMs to import complete knocked-down sets for local assembly. In our travels, Toyota appears dominant, because of distribution, price, reliability, and availability of aftermarket parts.
GE is taking an aggressive, visible and, we believe, profitable approach in Africa. We think Africa’s contribution will be increasingly noticeable at GE’s bottom line over the next several years. GE’s products line up neatly with Africa’s needs: advanced and flexible technology for power, healthcare, transportation, water, aviation, mining, and oil and gas.
Most think HIV, Ebola and malaria are the African healthcare story. However, non-communicable diseases like cancer, hypertension, and diabetes are rising rapidly. Medtronic, GE, and IT innovators are developing sustainable healthcare systems for Africa—possible templates for healthcare services delivery in developed markets.
Hotel companies are highly visible—notably, Marriott (new owner of South Africa’s Protea), Hilton, and Starwood. Global and African business travelers demand two- and three-star hotels as well as top-tier properties.
IBM sees practically every major trend in Africa as relevant to its business—with sales ranging from coordination of traffic signals to voting technology, utility load management and billing, e-delivery of government services, and cloud computing for African enterprise customers.
Industrial activity is on the rise, and capital is flowing. In Washington, Blackstone and Carlyle announced plans to invest with Nigeria’s Dangote Industries in oil and gas, power and infrastructure.
MasterCard and Visa were visible in Washington, describing innovation and growth of their services. We see a push toward cashless societies, the rise of mobile financial services, and rapid technology uptake across the continent.
P&G is investing in manufacturing to serve African consumption growth. With much of Africa’s fast moving consumer goods activity taking place at the very low end, we believe P&G sees intense competition from global and local firms.
Walmart controls South African retailer, Massmart. Modern retail represents a small but rising portion of African retail sales.
What’s holding US firms back?
Some cite risk-averse boards, fear of earnings dilution, the relentless quarterly performance focus of Wall Street and shareholders, and the (in our view, incorrect) belief that Africa doesn’t stack up well against growth opportunities elsewhere.
We believe investors and companies must improve their understanding of what is happening in Africa, as a fundamental risk mitigation tool. Why?
1. The continent includes 54 countries with disparate opportunities and risks. For every war-torn Central African Republic, there’s a Nigeria, a Kenya, or a Rwanda—relatively stable, open and welcoming of investors. Nations like Ethiopia, the DRC, Cameroon, Côte D’Ivoire, Mozambique, and Angola are becoming more investable.
2. Demand exceeds supply for virtually everything. Firms which wait until markets are mature to plant boots on the ground and establish a market position run the risk of missing out.
3. Funds are surging into infrastructure: roads, power, communications, airports, and ports. Electricity is increasingly available. Physical, regulatory, and political bottlenecks are receding.
4. Competition is already on the move. Well-funded African firms are expanding their skill, scale, and ambitions. Chinese companies engineer products to a price optimized for African customers. Brazilian businesses develop African workers in agriculture, construction, and healthcare.
Melissa Cook
