Saturday, December 6, 2008

South African Companies Unlock Sub-Saharan Africa

South African Companies Unlock Sub-Saharan Africa

Name a global economic woe, and chances are Charles Needham is dealing with it. Market turmoil has knocked 80% off the shares of South Africa's Metorex, the mining company he runs. The plunge in global commodities is slamming prices for the copper, cobalt, and other minerals Metorex unearths across Africa. The credit crisis makes it harder to raise money. And fighting has again broken out in the Democratic Republic of Congo, where Metorex has a mine and several projects in development.

Such problems might send many executives to the window ledge. Yet Needham appears unruffled as he sits down at a conference table in the company's modest offices in a Johannesburg suburb. The combat in northeast Congo, he notes, is far from Metorex's mine. Commodity prices are still high, in historical terms. And Needham is confident he can raise enough capital, drawing on relationships with South African banks. "These are the kinds of things you deal with, doing business in Africa," he says.

That kind of resolve is typical of South African companies. All told, South Africans have plowed more than $8.5 billion into the Sub-Saharan region, the U.N. estimates, making the country the biggest investor there. Ever since South African Breweries pioneered the African beer market—and then went on to become the global titan known as SABMiller—South African companies have led the way on risky turf. Johannesburg cellular provider MTN was one of a handful of companies to defy conventional wisdom and prove that Africa could be a huge market for mobile phones. South African retailers such as Massmart, Shoprite, and packaged-food maker Tiger Brands are bringing Western-style shopping to Malawi, Nigeria, Uganda, and other far-flung locales. And Standard Bank has opened branches in 16 African countries that in many cases lacked even basic financial services. "South African companies are more open than ever to the opportunities in Africa," says Sonal Pandit, portfolio manager for African equities at JPMorgan Funds (JPM).

Now the South Africans are taking their emerging-market expertise well beyond Africa's coastline. MTN has moved into Afghanistan and Iran. Standard Bank in 2007 bought control of BankBoston Argentina. And Anglo American, now based in London but with South African roots, has become the world's fourth-biggest mining company, with operations from Chile to Australia.

The knowhow South Africans have gained on the continent is making their companies attractive to foreigners with ambitions in the region. In March, Industrial & Commercial Bank of China bought a 20% stake in Standard Bank. Britain's Vodafone (VOD) in November took control of Vodacom, a pan-African cellular carrier based near Johannesburg. "Africa is the next China," says Malcolm Perrie, who oversees sub-Saharan Africa for U.S. auto parts maker Federal-Mogul, which aims to double its sub-Saharan sales within five years.

South Africans carry a detailed understanding of the quirks of the local market. Perrie, for instance, grew up in Zimbabwe and South Africa and knows that goods are often unloaded from trucks by hand because retailers can't afford forklifts. So Federal-Mogul ships its Champion-brand spark plugs and other parts in boxes one person can carry. Knowing Nigerians feel insulted when bank tellers sit behind bulletproof glass, Standard instead stations armed guards at its bank entrances in crime-plagued Lagos, which doesn't bother customers. And in Uganda, where many people have little access to mass media, MTN advertises its phone service by painting roadside buildings yellow and blue, the company's colors. Such common-sense solutions may seem obvious, yet South Africans have been faster than others to recognize the opportunities—and more willing to take a risk. French-speaking Democratic Republic of the Congo, for instance, might well have been a logical market for a French carrier, but South Africa's Vodacom jumped in early and is now the leader.

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