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.
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.