April 2, 20215
Businesses operating across Africa are looking for opportunities in other smaller countries on the continent as economies in the regions favorite investment destinations Nigeria and South Africa struggle to maintain a positive growth in the face of tough challenges.
Multinational companies operating in the two largest economies, such as Shoprite, Distell, Diageo, SABMiller and MTN Group, are juggling cost-cutting and aggressive marketing pushes there, while plotting to boost their business in smaller but promising African countries like Angola, Ethiopia and Kenya, the Wall Street Journal reported.
“These are risky markets but it would be riskier not to be there,” Konrad Reuss, Standard & Poor’s Ratings Services’ managing director for sub-Saharan Africa, told WSJ.
While South Africa’s economy has slowed down since last year due to frequent mining workers strikes and a recent energy crisis, Nigeria is contending with increased insecurity cases from the Islamic militants Boko Haram and falling oil prices on global market.
Nigeria is Africa’s largest oil producer and earners over 70 percent of its revenue from exporting the commodity.
Consumer focused companies such as Shoprite see an opportunity in the growing middle class in a number of countries as a chance to diversify from their main markets in South Africa and Nigeria.
But this two countries still remain the key focus for many multinationals due to the spending power that their people have. It is estimated that it may take at least a decade for consumers in other African countries to amass the spending power of South Africans.
“There’ve been a lot of negatives [in South Africa and Nigeria] but these hopefully are short-term,” South Africa’s Sunday Times newspaper quoted Shoprite Chief Executive Whitey Basson saying in March.
Liquor conglomerate Distell, which has investment house Remgro and beer giant SABMiller as major shareholders, said earlier this year it was hiring 250 sales staff across various African markets, like Kenya, Ghana and Angola, to help it built its business outside South Africa.
While expanding in Africa is a good hedging bet for these companies, it is not “an overnight play” as Corneleo Keevy of Ashburton Investments, an arm of Johannesburg-based banking group FirstRand, puts it.
Investments in these other African countries may take a while before they break even, leave alone start contributing to the group’s profit. This might take a couple of years at least.
During that time “there might be less money to go around for a while,” Reuss said.
Source: AFK Insider