Are there more export opportunities into Africa?
09 March 2016
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Hello and welcome to another edition of Old Mutual Live Business, my name is Chris Gibbons. For a variety of well-known reasons, South Africa’s economy is in a difficult place. But it would help a great deal if we imported less and exported more and focusing on the latter, exports, we have to ask: does Africa hold the key?
It’s all well and good sending shiploads of coal and iron ore to China and India, but don’t the rapidly growing middle class consumer markets of Africa need more attention? Are we doing enough to exploit this opportunity? We’re joined now on Old Mutual Live Business by someone who is an expert in South Africa’s international trade, the MD of Tutwa Consulting, Peter Draper.
Peter, thank you for being with us on Old Mutual Live Business; first off, is the African opportunity real? We keep hearing about it, but when I look north I also continue to see vast pockets of poverty, no consumers anywhere in sight. Is there a real opportunity here?
The two sides to the African market
Peter Draper: Thanks Chris. I think the short answer is that there is and there isn’t. So that opportunity is concentrated in a few urban locations, I would say. So in East Africa particularly, with cities like Nairobi, Mombasa, Addis Ababa and behind that very rapidly growing populations, albeit still predominantly poor; but substantial numbers of which are becoming urban and middle class. Then of course West Africa, it’s a similar story in countries like Nigeria and Ghana, markets that we’re already accessing.
Having said that, I think the so-called Africa rising narrative has been shown to be somewhat of a paper target, particularly because of what’s happened to commodity prices. The impact of that on various commodity exporters of which there are many in Africa. Of course the slow-down in Chinese growth and all of that, the effects of all of that are still working their way through African markets.
CG: Do we make a mistake when talking about Africa as if it’s a single country? I’m guessing the needs of consumers in Lagos and Accra are very different from their counterparts in Nairobi and Dar es Salaam?
DP: I think we do, I think you have to differentiate firstly by country and then by key cities within countries. Generally the focus of South Africans value added exports would be towards urban consumer markets. You’ve got to go where the big relatively well-heeled populations are.
Those are generally, I would say, in East Africa or emerging in East Africa and also in West Africa and to some extent in neighboring southern African states, one thinks of Angola for instance. The problem, of course, is how to crack those markets because they can be very difficult, as you know.
Why it is so difficult to break into other African markets
CG: Why so? What are the barriers?
DP: Where do we start? Take Angola as an example, one could start just generally with governance as a barrier. Poor governance, lots of corruption, many, many barriers to trade. You mentioned for instance that we need to, in your introduction, that we need to import less. I think many African governments are taking that lesson to heart.
So they’re putting all sorts of barriers in place. Nigeria, for example, those kinds of barriers don’t come from the obvious sources, well, actually they do come from the obvious sources. But also from non-obvious sources such as the Central Bank. Which recently rationed foreign currency for imports, out of the blue. Just sent a letter to 40 companies saying we’re no longer going to import your products, you can’t get the foreign exchange required.
Those kinds of obstacles can come from anywhere, but generally you could put them under the category of plate facilitation. I know the well-known suspects, customs barriers, corruption at border posts, just difficulties moving goods by road or even by air, lots of problems with transport connections and so on and so forth.
CG: Some sectors are already trading extensively with the rest of Africa, they have been doing so for a good few years. I’m thinking SAB Miller, I’m thinking Shoprite Checkers, I’m thinking MTN, three names that spring immediately to mind, I’m sure there are many more.
Varied cultures present export barriers
DP: Absolutely, but if you look at the data and what you’ll find that South Africa’s exports are fairly concentrated. Particularly in Southern Africa, to some extent West Africa particularly Nigeria and Ghana. Not much in Francophone Africa at all, which is interesting. Mozambique on the east side is an obvious exception, but then it’s geographically proximate and very well known to South African business.
I would say there’s quite an interesting cultural barrier, what in the international business literature is called the ‘liability of foreigners.’ So basically we don’t understand really Francophone markets. So all those kinds of barriers we were talking about in the context of Angola are multiplied.
Because it’s an Anglophone country with a particular culture of its own that’s not really well known to us. Having said that, of course, as you’ve pointed out, some South African corporates have succeeded well, but generally I would say in the Anglophone countries.
CG: We hear tales Peter, of how the rest of Africa sees us, the foreigners. You talk about one hears tales of South African business leaders behaving with considerable arrogance, that doesn’t play well, surely?
DP: It doesn’t. Look, I don’t know how much of a problem that is these days, it was certainly a problem post 1994 and for quite a while. I mean I teach at a business school and I know you have engagements with GIBS as well.
I think there’s a lot more sensitivity to these kinds of issues, but of course you’re always going to find your bad apples, people who are not culturally aware. I think a lot of it is about being sensitive to the domestic culture, one, but also being sensitive to the recipient market spheres of domination.
I mean we worry about imports from China and being dominated by China, but they feel the same way about us. The South Africans are coming, so put up the barriers and it’s an understandable reaction. Which means you have to be even more sensitive in doing business in those markets essentially.
Is export only for big businesses?
CG: I know government has been talking about small business targeting Africa, is that a realistic stance?
DP: Just about every analysis that’s been done of successful South African exporters shows convincingly that it’s basically about 200 big firms. A pretty consistent sample over a period of time that dominates South Africa’s export profile.
So where do small firms fit into that? Well, it’s going to be difficult for small firms generally to engage in export markets. Because of all these kinds of barriers that we’re talking about and it can be very costly to invest and overcoming those barriers.
A way around that is to plug into the big firms value chains, so look to export into a Shoprite value chain in Nigeria, for instance. So sourcing from South African small firms by bigger firms I think is part of the way around that problem.
CG: Looking very broadly Peter, would you say there are any particular sectors which still have significant opportunity, north of our borders?
DP: Well, I think so, I don’t know about significant, but certainly substantial and bearing in mind that growth rates are dropping and that’s likely to be a structural phenomenon for the foreseeable future. Because it’s basically driven by the China phenomenon and ongoing problems in Europe particularly.
Which are two very important markets as well as sources of investment. In terms of the sectorial breakdown of opportunities, I think those will reflect South African advantages and those generally these days lie in the service sector.
For example, you mentioned MTN telecommunications, that’s service, banking, finance, so these are clear South African advantages. Logistics, supply chain management, all of that are very clear South African advantages and maybe more maintenance related activities such as servicing oil and gas platforms in the Western Cape.
I think that service’s proposition and retail, by the way, you also mentioned. So distribution services, these are areas of clear South African strength and where there’s quite a big game still to be played in many of these evolving African markets. Which tend not to have well-developed services.
CG: If you happen to have a couple of executives who speak French of Portuguese, you might just have an advantage there?
DP: I think so, yes, definitely. So those language and cultural barriers are very important and you need to be sensitive to them, but also to understand them.
CG: There we’ll leave it, MD of Tutwa Consulting, Peter Draper, Peter, thank you for being with me on Old Mutual Live Business.