By NJIRAINI MUCHIRA
In Summary
- Bleak economy has forced South African companies to explore opportunities away from home, and East Africa has emerged as one of its most promising destinations.
- Although the experience of South African companies in East Africa in the past, particularly in the late 1990s and early 2000s, was marked by failure, the region’s positive economic growth, political stability, an improved regulatory environment and a big market of 120 million people is still attracting them.
- There are about 300 South Africa companies that have invested in East Africa.
Faced with a crisis at home, South African companies are
looking to spread their reach across Africa in efforts to sustain
growth.
Once christened the Rainbow Nation and economic jewel of Africa,
South Africa has in recent years plunged into an economic crisis that
has recently seen it downgraded to junk status by international rating
agencies.
With a public debt nearing 50 per cent of GDP at $140 billion, a
currency in a freefall and an economy expected to expand by a paltry
1.1 per cent this year, from 0.7 per cent last year, South Africa is
expected to remain in the red at least in the immediate future.
This bleak picture has forced South African companies to explore
opportunities away from home, and East Africa has emerged as one of its
most promising destinations.
President Jacob Zuma has visited the region twice in quick
succession, first Kenya in October 2016 and Tanzania last week, an
indication that East Africa has become an important region.
Last week, the region witnessed a big corporate deal after UK
giant Vodafone transferred its 35 per cent stake in East Africa’s most
profitable company, Safaricom, to Vodacom of South Africa in a
transaction worth $2.5 billion.
The deal came only weeks after Distell Group took control of
Kenya Wine Agencies Ltd, buying 26.43 per cent of KWA Holding East
Africa Ltd from Centum Investment, thereby increasing its shareholding
to 52.43 per cent.
Still attractive, wiser entry
In March, the Johannesburg Stock Exchange and the Namibian Stock
Exchange-listed financial services group Sanlam acquired a majority
stake in PineBridge Investments East Africa, signalling its intention to
leverage its insurance business to battle for the asset management
market.
Junior Ngulube, Sanlam Emerging Markets’ chief executive
officer, said they aimed to expand geographically and develop other
investment products in East Africa.
Although the experience of South African companies in East
Africa in the past, particularly in the late 1990s and early 2000s, was
marked by failure, the region’s positive economic growth, political
stability, an improved regulatory environment and a big market of 120
million people is still attracting them.
Ken Gichinga, chief economist at Mentoria Consulting, said that
the South African companies flocking to East Africa are now wiser, with
better market research and entry strategies.
“We are seeing a willingness by the South African companies to collaborate with local players,” he said.
There are about 300 South Africa companies that have invested in
East Africa in key sectors such as financial services, manufacturing,
retail, information and communications technology, tourism and
hospitality.
A majority of these companies, 150, are in Tanzania due to
its membership of the Southern African Development Community along with
South Africa. Another 60 are in Kenya.
Vodacom dominates Tanzania’s telecoms market and now it has a
presence in Kenya through Safaricom. MTN, another South Africa telecoms
giant, continues to command the market in Uganda and Rwanda.
Protracted battle
In Tanzania, beer maker SABMiller, through Tanzania Breweries,
controls the beer market. But its foray in Kenya ended in failure,
following a protracted battle with East Africa Breweries Ltd, which is
majority owned by Diageo of UK.
Other South African companies that have seen their fortunes
blossom in East Africa are Old Mutual, CfC Stanbic Bank, Liberty, South
Africa Airways, MultiChoice and Dimensions Data. However, MultiChoice
has recently scaled down its operations and staff in Kenya.
While these companies have been in the region for years, the new
entrants, particularly in the retail sector, are looking to make
inroads into the market and compete with local firms and multinationals.
Game, a subsidiary of Massmart, is seeking a piece of the Kenyan retail
market, which is already in a slowdown.
“Despite constraints in Kenya, such as the decline in spending
due to capping of interest rates, a majority of South African companies
remain optimistic,” Mr Gichinga said.
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