DOZENS of international fund managers gathered in a Harare hotel this month to watch Zimbabwean companies parade their wares. They were not disappointed. Myriad PowerPoint presentations showed steep curves of growth, production, volumes and many other measures of economic success — albeit off a low base. The event was Imara Africa Securities’ Zimbabwe road show, which aims to show the world what the country’s companies have to offer investors.Emerging from the economic black hole that preceded “dollarisation” of the economy in 2009, Zimbabwean managers have moved quickly to rebuild operations and take advantage of improvements in the economy.
A key constraint has been the lack of liquidity in the market and limited take-up of rights issues on the Zimbabwe Stock Exchange. There are other problems, not least high political risk. Nevertheless, the historical underlying strength of Zimbabwe’s private sector was clear at the Harare event. Rather than waiting for substantive political change, companies are finding innovative ways to build capacity, court investment and grow market share.
Despite the battering of the past decade, Zimbabwe is home to a growing number of African conglomerates and multinationals — beneficiaries and drivers of the continent’s growth. A 2010 survey by the US-based Boston Consulting Group claimed that investment by African companies had increased by more than 80% a year over the past decade. Regardless of the accuracy of this figure, it is clear that Africans are now grasping the opportunities foreigners have exploited.
Although South African companies and their cross-border subsidiaries still dominate the proliferation of lists ranking sub-Saharan Africa’s companies, new names are emerging. One of these is Nigeria’s Dangote Group, a conglomerate that sells everything from salt and pasta to cement. Its fortunes have been boosted by local protectionist measures but it has used this advantage to expand regionally. Another is Nigeria’s oil and gas company, . The aggressive expansion of Nigerian banks has swamped West Africa; the economic giant is now the biggest investor in Ghana outside the resources sector.
In East Africa, regional integration drives indigenous private sector growth. A strong regional framework under the East African Community has seen banks, retailers and hotel groups from Kenya lead the charge into neighbouring member states.
A significant driver of African private sector growth is private equity. According to Ernst & Young’s annual survey of merger and acquisitions, last year there was a 406% jump in total proceeds of initial public offerings (IPOs) across Africa. Although this was dominated by just four South African deals, there has been IPO activity on other large African stock exchanges. The emergence of an increasing number of well-capitalised dedicated African funds is driving portfolio investment in African stocks. The African diaspora is also playing a role — many international funds and investment banks are headed by Africans, who have a nose for good investments in their former homes, and some are bringing their professional skills back to build African companies. African parastatals are also building international operations, particularly national oil companies such as Angola’s Sonangol, and Sonatrach in Algeria. SA’s parastatals have not fared well in Africa and most have pulled back to focus on local operations.
West African banking group Ecobank Transnational, with operations in 29 countries, reflects the view of its CEO, Arnold Ekpe, that African- owned companies have a competitive advantage on the continent as they understand Africa’s particular risks better than foreign investors. This is changing as new investors from other developing countries invest in Africa as they, too, understand the nature of such markets given the similarity of Africa’s typical operating conditions to their own.
SA is a market most African companies have avoided due to stiff competition and high barriers to entry.
The growth of African conglomerates presents new competition to SA’s companies in other markets. But it also provides them with a better potential choice of sound acquisition targets to help them fend off rising competition from outside the continent.