Which countries and sectors should firms be active in?
Signe (2020) provides a comprehensive examination of the trends, opportunities, risks and strategies to “Unlocking Africa’s business potential”. Gopaldas (2020) identifies sectors that stand to benefit over the medium-term owing specifically to the AfCTA. Their analysis could be relied upon to identify opportunities in the sectors germane to the AfCFTA. In choosing the attractive countries or markets, we rely on demography, number of NTBs, and GDP.
The pre-AfCFTA attractiveness of a country/market based on the number of non-tariff barriers may be germane. While the AfCFTA secretariat put in place an online mechanism to deal with NTBs, it may take a long while for significant changes to emerge. In sum, firms come away from the analysis with a set of optimum choices on markets and sectors they could consider for investment ventures based on the AfCFTA. Nigeria, South Africa, Egypt and Morocco consistently rise to the top.
Firms that are already realising their pan-African ambitions are likely to forge ahead under the AfCFTA. Thus, mergers and acquisitions are probably the quickest entry route to these markets
| Market size vs competitiveness for Africa’s top 10 manufacturing countries | ||
| Large market | Small market | |
| High competitiveness | Egypt, South Africa, Morocco | Tunisia, Kenya, Ivory Coast, Ghana |
| Low competitiveness | Nigeria | Zambia, DR Congo |
| Source: Signe (2020) | ||
Support for AfCFTA by the AfroChampions Initiative signals the tremendous enthusiasm towards the huge pan-African business opportunity offered by the pact. Chaired by former South African president Thabo Mbeki and Africa’s richest man Aliko Dangote, the AfroChampions initiative seeks to invest $1 trillion between 2020 and 2030 in local firms with the potential to become African champions. Individual firms are already on the move. Nigerian conglomerate BUA Group, with interests in foods, mining, manufacturing, and infrastructure, has indicated a keen interest in the 56,600 km Trans-African highway project. BUA CEO Abdul-Samad Rabiu says he is “personally ready to mobilise like-minded businesses across the continent with the resources required (steel, cement, etc.) to do these roads at a concession and guaranteed by sovereign African nations.”
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What should firms do to succeed in their chosen markets and sectors?
According to the Boston Consulting Group (BCG), investments by African firms in African countries almost tripled to $10 billion in 2016, from $3.7 billion in 2006. Intra-African exports also increased to $65 billion from $41 billion in the period. They have been able to do this via organic expansion, greenfield investments, mergers & acquisitions, brand recognition, local innovations, people advantage, and building local ecosystems(BCG, 2018). BCG identifies the four competitive advantages of these pan-African firms. First, their laser focus on Africa (“Focus”); Second, on-the-ground experience (“Field”); Third, superior grasp of data and information on local markets (“Facts”); and finally, the ability to adapt quickly to unique business circumstances (“Flexibility”).
It is important to understand how these remarkable pan-African firms have succeeded in spite of the complexities. Their strategies are precisely what firms should copy to succeed in their chosen markets and sectors. They also demonstrate that economic integration on the continent precedes the AfCFTA. To quote BCG, “African integration is actually happening.” Thus, the continental trade pact should be seen as an enhancer, which as it comes into full effect in five, ten or fifteen years time, would make it easier for firms to target the entire continent at far lower costs than PAFs & MNCs have been forced to spend to get to where they are today.
Many firms are already blazing the pan-African business trail. There are numerous multinational companies on the trail as well. These firms clearly had to decide which countries to invest in, which strategies to deploy for success, and the speed and sequence of moves. As they already have a head start, these firms would be the ones to beat by potential new entrants to the continent that follow the AfCFTA. But they also serve as potential targets for mergers and acquisitions in light of their vintage and on-the-ground advantages.
BCG reports that Nigeria’s Dangote Group, which built cement factories in six African countries between 2014 and 2015 alone, earns at least 30 per cent of its revenue from its African operations outside Nigeria. Morocco’s Groupe Addoha not only invests in myriad African countries but is expanding across its value chain, buying land, building houses, and investing in building materials and cement factories (BCG, 2018). South Korea’s Samsung invested in a computer and air conditioner assembly plant in Egypt, a television assembly plant in South Africa and customer service and training academies in Kenya, Nigeria and Ethiopia (BCG, 2018). These examples are noteworthy, especially in view of the tough conditions from which their successes emerged. They highlight the tangible potential of the continent should the AfCFTA’s ambitions come to pass.
Firms that are already realising their pan-African ambitions are likely to forge ahead under the AfCFTA. Thus, mergers and acquisitions are probably the quickest entry route to these markets. There are already early success stories. According to BCG, French dairy conglomerate Danone moved smartly by acquiring Brookside and Fan Milk to expand its operations in both East and West Africa (BCG, 2018). In 2010, Indian telecom giant Bharti Airtel acquired more than 40 million new subscribers in 17 African countries, simply by acquiring Zain’s Africa business(BCG, 2018). Brand recognition is another motive for acquisitions. From Samsung and Apple to Unilever, “African consumers tend to prefer global brands to brands from regional companies (BCG, 2018)”.
Some greenfield investments achieved lasting success, vindicating this alternative. For example, “a locally-focused marketing strategy backed by a continuous investment turned Indofood’s Indomie brand into Africa’s most popular noodle brand(BCG, 2018)”. Before Indomie, the noodle was part of a dish eaten only by the well-to-do in posh restaurants. It was not seen as a staple food. Today, Indomie noodles are consumed across the continent. That Dufil Prima Group continues to thrive amid a fiercely competitive African noodles market, speaks to the viability of organic growth strategies. Under the AfCFTA, however, there may be a need for fewer manufacturing facilities than Indofood built in Morocco, Nigeria, Egypt, Sudan, Kenya & Ethiopia, according to BCG reports.
Local innovations by Kenya’s Safaricom, Netherlands’ Vlisco and South Africa’s Promasidor are noteworthy (BCG, 2018). Safaricom pioneered mobile money transactions in Kenya, spreading throughout East Africa, with many copycats across the continent and abroad since its debut. Though based in The Netherlands, Vlisco sells high-end African prints, with more than 90 per cent of its sales in Africa (BCG, 2018). South Africa’s Promasidor pioneered breaking bulk in milk consumption, selling milk in small sachets – a product once viewed as the preserve of the rich – at significantly lower prices, with longer shelf life, while eliminating the need for a cold supply chain.
The article was first published by the NTU-SBF Centre for African Studies at Nanyang Business School, Singapore. Figures, tables, & references are in original article viz. https://nbs.ntu.edu.sg/Research/ResearchCentres/CAS/Publications/Documents/NTU-SBF%20CAS%20ACI%20Vol.%202020-39.pdf
