Many South African companies are looking to pursue business in the rest of Africa. WALLS & ROOFS takes a look at the opportunities.
At the same time as celebrating successful projects, most companies are already working on something else and thinking what is next. With many South African businesses expanding their operations into Africa, WALLS & ROOFS takes a closer look at opportunities on the rest of the continent.
While the local gross domestic product (GDP) slowed down to 1.5% in 2014, several countries’ economies are growing rapidly. According to Vuyi Hlabangane, Managing Principal at GIBB Capital, indications are that Africa’s GDP growth is expected to strengthen to 4.5% in 2015 and 5% in 2016, after a limited growth of 3.5% and 3.9% in 2013 and 2014 respectively.
“Some of these emerging and fast-growing markets are also attracting increased foreign direct investments and interests from private investors, looking for stronger return prospects compared to some of the traditional investment markets that have experienced limited growth over the last few years,” he says. “Indications are that foreign investments are expected to reach USD 73.5 billion in 2015, underpinned by increasing green-field investment from China, India and South Africa,” he further explained.
“However, one has to keep in mind that this exceptional growth in some of these markets comes from a low base, which may somewhat distort the picture. And although growth in South Africa has slowed down, there are still many opportunities locally, albeit more challenging in terms of investment size and time to market. Globally, financial markets have been tough all round, with some experiencing negative growth.”
Need for infrastructure
“However, compared to South Africa, most of these countries are in huge need for infrastructure development and investment, which opens up business opportunities for companies that have the track record and experience in markets that traditionally don’t have those,” Hlabangane adds.
He points out that Sub-Saharan Africa needs about $93 billion per annum to finance infrastructure development necessary meet mounting demand, address existing backlogs and also sustain Africa’s plans for growth. This lack of infrastructure comes at enormous economic and social cost.
Newly discovered resources
Jaco Maritz, publisher of How we made it in Africa and head of Maritz Africa, a business information company focused on the continent, says much of the recent growth is driven by the discovery of resources or the start of new mining projects.
“In Africa, opportunities not only exist in the main cities such as Lagos, Nairobi or Lusaka. Across the continent there are smaller cities and towns that are experiencing fast economic growth on the back of new mining and oil projects or other opportunities. These towns are seeing an influx of people and business activities, which creates a need for services and products, shopping centres, hotels and office spaces, in turn creating opportunities for companies operating in the property space,” he explains.
Maritz, however, warns that since this growth is very dependent on resources, it will be negatively affected by lower commodity prices, so there is no guarantee for sustained growth.
In areas that are quickly urbanising, commercial property is probably the first and biggest requirement. According to Hlabangane, two cities that are seeing a lot of activity in this regard are Accra in Ghana and Kampala in Uganda.
Maritz adds that similar to the rest of the world, in these booming African cities, the popularity of innovation hubs or co-working spaces is growing. “This gives small companies access to a more affordable option for office space with benefits of access to facilities such as boardrooms and services such as Wi-Fi and cleaning, as well as an instant network of peers,” he explains.
Over the last decade, Africa has seen a lot of retail growth. Maritz notes that South African retailers are quite active in English-speaking countries such as Zambia, Tanzania, Nigeria and Ghana.
“However, despite many new shopping malls, 90% of trade in the majority of sub-Saharan countries, with the possible the exception of South Africa and Angola to an extent, is still through informal channels such as kiosks, table-top sellers and open-air markets,” states Maritz. “This is not likely to change anytime soon since the upper and middle-class class still frequent these open-air air markets, even though they can probably afford to buy from shopping centres.”
Another factor holding back retailers is the lack of retail space. According to Maritz, some are now taking it upon themselves to develop their own malls, such as Shoprite, who has partnered with Resilient Africa to develop malls in Nigeria.
Housing is a horse of another colour. Hlabangane explains that this is because in some of these markets, the mortgage financing landscape and legislative framework are very different to South Africa’s, especially when it comes to affordable housing.
The best opportunities are connected to mining developments, for example, where there is an immediate off-taker of the development and a sustainable time period. Rental is also a good option, where the development is owned by a housing agency or pension fund. This makes it easier for a South African corporate to deliver on a turnkey basis and secure financing on the back of a guarantee from the client.
Competition and agreements
Hlabangane further notes that many African nations have kept strong ties with their colonial countries, which are also competing for opportunities in Africa. In addition, China is also establishing a footprint on the continent, concluding many bilateral agreements at government level in some of these countries.
“South Africa also has done that, but we don’t leverage those as much. Most of us just jet off quietly, not understanding the context within which South Africa has a bilateral relationship with that country,” he says.
South Africa and Mozambique, for example, entered into a Promotion and Reciprocal Protection of Investments Agreement in February 2000, as well as a Memorandum of Understanding (MoU) on Economic Co-operation, signed in 2005. The MoU covers areas such as technical capacity building, industry collaboration, spatial development initiative programme implementation and trade facilitation. Furthermore, the Avoidance of Double Taxation Agreement and the Agreement on One-Stop Border Posts were signed in September 2007.
Tax and legislation
Before embarking on any project in another country, it is also necessary to analyse the risk profile for financing, the legislative framework and laws around tax and the repatriation of profits, advises Hlabangane. “You may complete a project and fail to repatriate your profit. Or there may be tax laws that may end up rending your project unprofitable,” he warns.
Business rules apply
While the incredible growth across Africa definitely creates many business opportunities and property developers import many services to fill the gaps in terms of experience and quality, it doesn’t mean instant success for just any South African company.
“You have to be smart about it and know what is happening in these places, because it is not always publicised,” notes Maritz. “Be proactive, go there and keep your eyes open. What is important, is that normal principles of business still apply. In the same way that you would go about gaining new clients or new business locally, you need to connect with the right people over there.”
Full thanks and acknowledgement are given to Maritz Africa, GIBB and the SA Government News Agency for the information given to write this article.
Opportunities in Africa
Drivers of growth:
– Discovery and mining of resources.
– Connecting regional hubs.
– Infrastructure requirements.
– Not just in main cities, but also in smaller boom towns that are developing on the back of new activities.
– Be cognitive of bilateral agreements.
– Investigate legislative frameworks.
– Analyse laws around tax and repatriation of profits.
– Go there and see what is happening.
– Build up a network of contacts.