Pan-African cooperation beyond the lens of xenophobia
Following the break-out of xenophobic attacks targeted at African nationals living and working in South Africa in the Durban area of the country, which was sparked off by the retrenchment of some South African blue-collar workers and their replacement with foreigners from other African countries, trade and mutual cooperation agreements such as the NEPAD have been threatened. But beyond this crisis, what clearly stands out is the need to encourage intra-Africa cooperation rather than allow this crisis to destroy it, in order to boost shared growth and prosperity on the African continent. Apart from this, beyond the trumpeted black empowerment programme which has done very little to bridge the inequality in the rainbow country, South Africa also needs to check growing inequality through an affirmative action which places an emphasis on compulsory education and a development programme directed at opening up slum areas and creating cottage industries.
However, to overcome the vestige of Africa as the Dark Continent, Africa needs to integrate on the economic front in order to drive growth and boost shared prosperity. If China, with a population of 1.2 billion people, can build an economic powerhouse, Africa, with a combined population of 903 million people, can do the same thing.
The paradox of a huge economy with weak infrastructure and uncoordinated policies
With a population of 170 million out of Africa’s 903 million people, which represents one-fifth of the continent’s population, Nigeria is a huge paradox for global investors looking for opportunities in Africa.
When Nigeria’s huge potential is juxtaposed with unsavoury conditions which are detrimental to investment, such as corruption, excessive bureaucratic bottlenecks and infrastructure challenges, an investor is likely to face a huge dilemma. For instance, the World Bank’s 2013 “Doing Business” survey puts Nigeria at 185th out of the 189 countries it surveyed on ease of getting electricity. In addition to shortfalls in power generation, transmission and distribution, transportation systems and other critical support infrastructure are also relatively under-developed. This, coupled with the endemic corruption and the bureaucratic red-tape, makes doing business in Nigeria tougher than in other climes.
Beyond these challenges, however, Nigeria offers a basket of opportunities for the intrepid. Nigeria is currently rated as the biggest economy in Africa, accounting for 26 percent of the economic output in sub-Saharan Africa and over 70 percent of the economic output in the ECOWAS region. Except for the year 2015, which has seen a reduction in growth projections because of falling oil prices and the anticipated crisis from the general elections, Nigeria has maintained an average year-on-year economic growth of 6 percent in the last 10 years. Other macro-economic variables have also remained relatively stable over this period.
Despite these positive indices, business in Nigeria is admittedly tricky, hence the departure of a lot of European and American trans-national corporations and the refusal of others to operate in Nigeria. Aside from core investors in commodity and extractive industries and a couple of players in manufacturing, who had been operating in Nigeria before its independence in 1960, a lot of European and American technology and consumer goods businesses do not dare to take the plunge.
It is therefore no surprise that the likes of Starbucks, McDonald’s, and a host of other companies involved in retail and distributive trade are missing the huge opportunities presented by Africa’s biggest and most populous economy. To these companies, the risks outweigh the possible benefits, a clear case of seeing the cup as half-empty. The loss of these European and American companies is the gain of South African companies. Operating in Nigeria despite the huge challenges, they are reaping huge returns on their investment.
From the foregoing, it is glaring that navigating Nigeria’s interesting investment paradox borders on differences in perspective. While the West sees the glass as half-empty, Chinese and South African companies see it as half-full and are therefore coming to the party with enthusiasm and a “can-do” spirit. This positive perspective informed MTN’s huge investment in the Nigerian telecommunications industry in 2001 – at a time when Nigeria was perceived as one of the low-value ends of the frontier markets.
Given that MTN’s was a Greenfield investment in a newly-liberalized industry, the huge risk which MTN took at its market entry into Nigeria was such that the company’s share price initially plummeted on the Johannesburg Stock Exchange. However, as if it knew what others did not know, MTN was undeterred and continued to inject the liquidity needed to shore up its Nigeria operations. The investment paid off and as the cliché goes, the rest is history.
Beyond half-full: how have South African investments fared in Nigeria?
Despite the infrastructure challenges, bureaucratic bottlenecks and corruption often cited as the bane of investing in Nigeria, South African businesses appear better suited to the Nigerian business environment than their Western counterparts. From the retail end, with players such as Shoprite and Game, to hotel and hospitality with the Protea Hotel chain (which was recently acquired by Marriot, the American hotel chain), on to media and cinema with companies like MultiChoice and Nu-Metro, banking and financial services with Stanbic IBTC Bank, First Rand Bank, Old Mutual and Nedbank (which recently acquired a sizeable stake in Ecobank, the Nigeria-led pan-African banking franchise), and other mid-size businesses dotting the Nigerian business landscape, South Africa today stands as one of the major players in the Nigerian economy.
Following the restoration of democracy in Nigeria in 1999 and the adoption of the New Partnership for Africa Development (NEPAD) statute in the early 2000s, South Africans were quick to identify opportunities in Nigeria and were bold in their market entry. First to make a statement with its entry was MultiChoice, which had arrived well before the return of democratic governance and adoption of the NEPAD Agreement, and its entry re-invented the media, cable and pay-TV industry in Nigeria. Offering unparalleled value within the local market, MultiChoice quickly became a monopoly, dominating the Nigerian market and making it difficult for the local players to compete in this capital-intensive industry.
Following the MultiChoice example, MTN also rolled out its services as the second player within the newly-liberalized Nigerian telecoms market, immediately asserting its leadership of the industry, rolling out critical infrastructure across Nigeria and making huge investments in brand building. Unsurprisingly, MTN became the market leader in less than one year of its operations.
While MTN was growing value in the telecoms sphere, the Protea Hotel chain was also planting its presence in Nigeria’s major cities. Today, Protea is the largest hotel chain in Nigeria, operating through a unique franchise model which seeks out Nigerian hotel and hospitality investors as partners, while bringing in its own brand franchise and management expertise.
Furthermore, South Africa also registered its presence in the Nigerian financial market with the entry of Stanbic Bank, a wholly-owned local subsidiary of South Africa’s Standard Bank. Seeing the need to grow its presence in Nigeria, it soon acquired a mid-size local Universal Bank with a huge investment banking franchise – the IBTC Chartered Bank. It is on record that the deal is the first-ever tender offer in Nigeria and with it came a $525 million Foreign Direct Investment, the biggest single investment in Nigeria’s financial industry till date. Through this investment, South Africa was able to make inroads into the Nigerian Stock Exchange (NSE) given the fact that IBTC Chartered Bank was then the largest equity trader by volume and value on the Nigeria exchange as well as the largest portfolio manager and is represented on the council of the NSE. Furthermore, this strategic acquisition also brought South Africa into Nigerian government bond management because the acquired bank is the sole broker for the Federal Government of Nigeria and was picked by the government to be the settlement bank for the electronic warehouse receipt system introduced by the Nigerian Commodity Exchange.
Aside from the Stanbic IBTC success story in the banking sector, South Africa is also deepening its participation in the Nigerian manufacturing and consumer goods sector. Tiger Brands, a South African company, recently bought a majority stake in UAC Foods and Dangote Foods. This strategic acquisition comes as a move to shore up the earnings of Tiger Brands, which has flattened at home, given Nigeria’s huge consumer market.
Bolaji Okusaga
