Jorge Camarate, Peter Hoijtink, Miles Puttergill
November 4, 2015
Companies from around the world have begun to make expansion across Africa a priority, recognising that, despite many problems, it is among the fastest-growing regions in the world. But their attempts often lack an understanding of local market dynamics and the associated skills required for success. As a result, many of these companies have destroyed value instead of benefitting from growth opportunities. At the same time, part of the problem is that companies often embark on their expansion plans without first looking inward, examining what they can bring to these new markets. A capabilities-driven strategy, which builds on and enhances a company’s existing capabilities, will create more shareholder value than an approach that seeks out markets based purely on their intrinsic attractivenes.
Africa’s markets are too diverse for one business model to be successful everywhere. Companies venturing in can pick the markets that are most suitable by being more conscious of their own distinct capabilities, and by adding new capabilities that will complement them. As successful firms have shown, strong human capital development, partnering, and cross-border coordination are also needed to successfully execute such a strategy in Africa.
As the bright sun emerges over the horizon and morning rush-hour traffic reaches its horn-blaring stationary peak, executives in Johannesburg, Lagos, Casablanca, Nairobi, and other African cities are already at their desks. The mood in those executive offices is noticeably buoyant and dynamic. This atmosphere reflects the invigorating day-to-day unpredictability of African business and the confidence that opportunities are coming, and fast.
Africa’s long-term economic potential has never been in doubt. The continent has 600 million hectares of uncultivated arable land, 40 percent of the world’s gold, 90 percent of its platinum, 8 percent of its oil, 26 percent of its liquid natural gas, and abundant additional resources. 1 Historically, however, it was generally seen as a region of frontier nations, mostly too risky or ill-developed to invest in — except as a source of commodities.
But businesses are finally recognizing the potential in this region. Since 2000, Africa has been growing consistently at about 1 percent above the global average, 2 and the ambitious, consumption-hungry middle class has tripled in the last three decades to around 400 million people. 3 Demand is booming in less-developed African countries, while more established economies around the world, including South Africa, stagnate. As a result, companies around the globe — in the U.S., Europe, China, Japan, and even Africa itself — are looking to build powerful pan-African enterprises. If only it were that easy.
Since 2000, Africa has been growing consistently at about 1 percent above the global average.
The study considered 82 deals of significant value (more than 10 percent of buyer market capitalisation) in sub-Saharan Africa for the period 2007 to 2013. The performance of each deal was measured using the buyer’s total shareholder return (TSR) — growth in share value plus dividends — two years after the deal was completed, minus the TSR of the national industry index. The relevant JSE index was used for South Africa–based buyers, while national all-share indexes were used for other African countries. This normalization allowed us to identify company-specific factors as opposed to changes in the macroeconomic and stock market environments. Arm’s-length investments by asset management firms were excluded from the analysis as nonrelevant. The classification of the capability fit of each deal was based on PwC Strategy& knowledge and additional analysis of the deal.
Begin this entire process by understanding the capabilities that have driven your success at home, and then look for other geographies where these capabilities are relevant. If you can navigate all of the challenges, you will have an enviable position: architect of one of the first pan-African powerhouses, something your shareholders have been dreaming of.
1See PwC’s report, “From fragile to agile: Africa Oil & Gas Review 2015”; Mbendi Information Services, “Mining in Africa”; and the New Partnership for Africa’s Development (NEPAD).
2Strategy& analysis of World Bank GDP annual growth data, comparing “world” with “sub-Saharan Africa (all income levels.)
3See PwC’s report, “The African Business Agenda 2014.” The 2010 estimate from the report was extrapolated using GDP growth.