South African Business 2018 edition

Business expands into Africa Manufacturing and services are targeted for export growth. Shoprite is a household name for many South Africans who buy their weekly groceries at one of hundreds of outlets across the country, but that is an experience which many Africans living in other parts of the continent are sharing more and more frequently, and in large numbers. Retailers and bankers from South Africa have been exploring opportunities north of the Limpopo River for many years, and they have been followed by engineering firms, consulting companies and, more recently, automotive manufacturers. They key attraction is the size of the market, and the potential of that market to grow and to grow more sophisticated in its tastes. Africa has a population of 1.2-billion. South African and international hotel brands are investing strongly in Africa. Tsogo Sun has hotels in Zambia, Tanzania, Kenya, Nigeria and Mozambique. Sun International operates in six countries outside South Africa. Marriott International’s acquisition of Protea Hotels has given it an expanded footprint in Africa. Hyatt Hotels & Resorts will double its presence in Africa by 2020, with new investments in Cameroon, Senegal and Algeria, to go with its existing hotels in Morocco and Tanzania. The group is eyeing East Africa, citing increased infrastructure spending there as a reason to consider investing. While South Africa is still seen as a good staging post for international firms to base their Africa strategies, some industries have refined that process. In the automotive industry, for example, head offices in Europe and the US have mandated their South African operations to lead the drive into Africa. According to the CEO of Sanlam Africa Investments, St John Bungey, the subtleties of investing in Africa should be respected. The growth path and the demographics are solid reasons to invest in Africa but specific strategies are needed. He notes three key ingredients: respect for local knowledge, understanding the local environment and partnering with the right local people (Sunday Times). SOUTH AFRICAN BUSINESS 2018 22

SPECIAL FEATURE Fully 30% of South Africa’s exports are to other countries in Africa, but a massive 83% of this volume is into Southern Africa. This means that the potential for South Africa to grow its exports into other parts of Africa is enormous. The Export Credit Insurance Corporation of South Africa (ECIC) exists to help trade and investment across borders. ECIC provides insurance for bank loans that are taken by investors and South Africans can get insurance for investments, and for small and medium enterprises there is a product available (performance bonds) to anyone exporting capital goods and services. The South African Department of Trade and Industry (dti) plays a key role in promoting trade between South Africa and the rest of Africa. South African exporters can enroll in the dti’s training programme, Global Export Passport Programme (GEPP). The dti wants to expand South African exports in manufacturing (which it wants to double in 10 years) and services (40% of the export basket by 2030). The Integrated National Export Strategy (INES) is managed by a unit called Trade and Investment South Africa (Tisa), which is targeting emerging markets, including the BRIC states (Brazil, Russia, India and China). Connecting Intra-African trade currently stands at 16% of trade volumes. This is in contrast to the continent of Europe, where 60% of all trade is conducted among European nations, and in Asia, where the figure is 40%. Border delays, tariffs and infrastructure are the biggest barriers to expanding this trade. Shoprite spends about R20 000 per week in permits, and long waits at border posts are routine. The revamped Chirundu one-stop border post in Zambia has reduced transit times by a third. There are plans to create a Tripartite Free Trade Area covering three regional groupings across 26 countries. Extending from South Africa in the south to Uganda and Kenya in the north, the proposed free trade area would encompass more than 620-million consumers in three regional organisations: the Southern African Development Community (SADC), the Common Market for East and Southern Africa (Comesa) and the East African Community (EAC). The Sustainable Development Investment Partnership (SDIP) comprises 30 institutions and aims to fund 16 African infrastructure projects, valued at more than -billion. The founders of the SDIP were the World Economic Forum (WEF) and the Organisation for Economic Co-operation and Development (OECD). China has pledged to support the rehabilitation of the railway line between Zambia and Tanzania while the Industrial and Commercial Bank of China is to invest R20-billion in renewable energy in Africa. Railway upgrades will probably reap the quickest rewards in the push to promote intra-African trade. Fully 70% of the freight that arrives in South Africa is delivered by road: this is both a problem and an opportunity. One of the companies eyeing that opportunity is South African rail operator Sheltam Group. It has created a rail track infrastructure funding vehicle with a dedicated African mandate. The Development Bank of Southern Africa and Transnet have developed a financing scheme for selected buyers of rail rolling stock and port equipment. Transnet is already very active in African countries north of the South African border. This is part of Transnet’s Market Demand Strategy (MDS), which aims to sell it products and services around the world. Transnet Engineering’s Trans- Africa Locomotive (for branch lines and shunting yards) is being marketed to other African countries and mining companies. Transnet Engineering plans is establishing Maintenance Repair and Operations centres in four African countries. 23 SOUTH AFRICAN BUSINESS 2018