By Lucretia Khumalo
The adage high risk, high rewards aptly describe the African market. And pace setting South African companies that bet their risk on markets to the north of our boarders are reaping their rewards.
While the majority have been successful, there is a caution to this experience – which is, not all South African companies that ventured into the continent, have had a rosy experience. Some have had to abandon their respective markets with bloodied noses.
Business extortion, civil strife and low intensity conflict are characteristic of some of these markets. Africa is not for the faint hearted so goes a popular refrain. Just how an entity mitigates these challenges ultimately determines its success as can be seen by some of the more successful companies trading in this market.
After all, this is a market that offers investors access to an integrated single trade and investment market of more than 1.3 billion people and with a gross domestic product (GDP) that is projected to exceed $3.5 trillion (R65trl) by 2025. Despite its lustre, it’s disappointing that trade between African countries has consistently remained low. Intra-trade is estimated at around 15%, compared to 67% in Europe, 61% in Asia and 47% in North America.
Retail behemoth Shoprite, telecoms entities MTN and Vodacom, pay-television purveyor DStv and banking giants Absa, FNB and Standard bank, rank amongst a host of other South African companies that have become adept at doing business in the rest of the continent - having successfully managed to navigate the contours of the continent.
Enter the African Continental Free Trade Area (AfCFTA), which is a trade bloc comprising 54 member states of the African Union and whose objective is to grow intra-continental trade and boost Africa’s economic standing in the global market.
Currently prospects for a more structured marketplace with less risks are emerging.
And this bodes well for South African companies, including black industrialists (BI) looking for market opportunities beyond South Africa’s borders. While competition is fierce in the local South African market in which consumers are spoilt for both choice and options, the African market remains untapped.
By creating an enlarged regional market, AfCFTA also offers long-term economic benefits by among others: catalysing greater development of cross-border infrastructure; incentivising economic diversification; and boosting institutional quality.
Other potential benefits and opportunities that will be derived from the AfCFTA include: opening up new markets for South Africa in terms of both trade and investment; improved access to raw materials and intermediate inputs; additional opportunities for in-country value addition, thus elevating the positioning of individual economies in global value chains; expanding industrial capacity and job creation; and, among others, opportunities to develop strong regional value chains; Improved access to markets across Africa will result in increased competition and innovation.
For BIs that have interests in mining and are looking for critical minerals such as nickel, graphite, lithium and copper among others, the southern, east and west African markets are perfect for mining such opportunities – as these have these minerals in abundance. Even more exciting for entrepreneurs that have exposure to infrastructure development, the lack of decent infrastructure across the continent is certainly a boon.
Since inception, AfCFTA has managed to create a free trade area that may eventually develop into a continent-wide customs union to facilitate the movement of capital and people between countries. This trade bloc is expected to increase intra-African trade in transport services by nearly 50%, according to the latest estimates by the Economic Commission for Africa (ECA).
For the Industrial Development Corporation (IDC), AfCFTA symbolises the emergence of a more assertive continent which no longer largely exports raw materials and imports finished goods. The bolstering of trade ties between countries will strengthen Africa’s industrial base and opens up opportunities for the continent to become more self-sufficient.
The IDC’s confidence in the continent is demonstrated by its large investments into the continent. IDC’s portfolio of investment on the African continent, outside of South Africa’s borders, is currently valued at R19.5 billion (market cost) across 17 countries and spans several sectors of economic activity.
Over the years, the corporation has also helped pave the way for several South African companies drawn from the telecoms, retail, agriculture, manufacturing, and mining sectors, among others, to establish a strong presence on the continent.
Mozal, an aluminium smelter located in Maputo’s Beluluane Industrial Park ranks as one of the IDC’s flagship projects in the continent. Such is the significance of this company that it has not only grown to become the single largest contributor to Mozambique’s GDP, but is that country’s single largest employer. Alphamin Bisie in the Democratic Republic of Congo (DRC) and Tanzania’s Mtibwa Sugar among others form part of our investments in the rest of Africa.
Experience has informed us of the potential of this market. It is endowed with vast untapped resources and opportunities that our entrepreneurs can harness for their growth. This is largely the reason for our optimism in AfCFTA’s objectives and benefits.
Khumalo is the Divisional Executive for Client Services Group at the Industrial Development Corporation.
BUSINESS REPORT