Manufacturers look for growth by pushing African corporate integration

The need for corporate organisations owned by Africans to integrate across the continent has been touted as the solution to the underdevelopment of the continent as it’s believed that the solution to Africa’s problems can only be solved by Africans. But African countries prefer to trade with foreign nations rather than fellow African countries, which fuels fragmentation as it is said that it costs more to import from an African nation to the other than from Europe. Ajose Sehindemi examines what some companies are doing.

A recent report by the Boston Consulting Group (BCG) that 150 African heavyweights are pioneering the integration of businesses across the continent to hasten the development process did not come as a surprise to some observers since Aliko Dangote and Thambo Mbeki launched a similar initiative, called Afrochampions last year in Lagos.

What must have been surprising to many observers, however, is that only six Nigerian companies made the list among the multitudes that have branches across the continent.

Many observers spoken to by business a.m. about the report, said it was comforting that African corporate heavyweights have realized the need to integrate across the countries that make up the continent, rather than the quest for fragmentation that has been disrupting the growth of business for many decades.

A successful actualisation of the integration effort, experts say, could reduce the amount of money that is being repatriated from African nations often hired ahead of Africans because of lack of integration.

The Dangote Group, Nigerian Breweries and Jumia, along with Globacom, Guaranty Trust Bank and United Bank for Africa are the Nigerian organisations, joined by 144 other corporate heavyweights, including multinationals, who have realized that growth in their business entails growth of the African continent, which can be achieved by expanding across their home borders to tackle the various geographical, economic and logistical obstacles that plague the African business environment.

At the launch of the Afrochampions initiative, jointly chaired by African’s richest man, Aliko Dangote, and Thabo Mbeki, a former President of South Africa, prominent African leaders that included Yemi Osinbajo, Nigeria’s vice president, Olusegun Obasanjo, former Nigeria president, Albert Muchanga, commissioner for trade and industry of the African Union, Aig Imokhuede, chairman of Coronation Capital Nigeria Ltd., and Segun Awolowo, executive secretary of Nigerian Export Promotion Council (NEPC) among others, called for greater integration of African economies to enable the continent develop free trade among African Union member nations.

It was agreed that regional integration was a necessary requirement for the continent’s development, but it has remained at a very low level because Africa has one of the lowest trade integration levels under-20 percent while Asia is at 40 per cent and European integration is very much further ahead at about 60 per cent due to the fact that other regions play as a bloc but Africa is still largely splintered into several economies and the ease of doing business across the region remains a significant challenge.

Osinbajo said then that African leaders will like to see greater synergy and collaboration in the Africa champions while all the organs of the AU get involved in economic integration issues as in the past few years, it had become obvious to many African countries that both the momentum and common sense were in favour of the private sector leading the economies of the continent.

He further said the private sector was championing the initiative to drive intra-African trade and commerce as the role of the public sector is to catalyse the umpire, to incentivise but, whether it is liked, or not, the private sector in Africa is already building world class grounds and trading everywhere as it was obvious that African giants had sprang up in manufacturing, banking sector and in telecommunications.

Obasanjo said the inaugural meeting was good but noted that one of the things that had not been done well in Africa was to sustain initiatives, as he cited the Lagos Plan of Action, the Abuja treaty, NEPAD as initiatives which had not achieved their purposes before going under.

But instead of complaining about the difficulties in growth across countries for the betterment of the continent, the report by BCG that the companies have seized the initiative and have been working underground for a while evident in the result achieved so far, as between 2006–2007 and 2015–2016, the average annual amount of African foreign direct investment—money that African companies invested in African countries—nearly tripled, from $3.7 billion to $10 billion, shows that the economic integration is at an alarming speed.

It also revealed that the average number of intraregional mergers and acquisitions (M&A) deals each year also jumped from 238 to 418, with African-led transactions representing more than half of all African deals in 2015; average annual intra-African exports increased from $41 billion to $65 billion, and the average annual number of African tourists (Africans traveling in Africa) rose from 19 million to 30 million as African tourists made up more than half of all tourists on the continent in 2015–2016.

The report said the companies which consisted of 75 Africa-based and an equal number of Multinational Corporations (MNCs) that have established impressive track records in Africa, gives credit to African corporate entrepreneurs who, by investing early in building a footprint on the continent, are giving a sense of reality to the integration of the continent.

The MNCs are a global group, with France, the United Kingdom, and the United States most strongly represented as well as a dozen MNCs from China, India, Indonesia, Qatar, and the UAE.

It highlighted changes in the financial institutions on the continent that has developed more innovations to tackle the glut in the economies of the continent and expanded as three major Moroccan banks expanded their operations from three countries in 2005 to 14 countries by 2016 and have financed a fivefold increase in Moroccan exports to those nations; improvements in the telecoms and media industry that have opened up the continent to technological growth and advance pan-African connectivity and communications; and an increase in African airlines routes to different parts of the continent with more Africans tapping in to the services provided by the African corporates which is reducing the influence of multinationals through various homegrown strategies.

It highlighted eight factors that explain how these companies are making an impact, which includes, that they actively expand their footprint across several African countries; they dare to make significant greenfield investments; they use Mergers and Acquisitions (M&A) as a way to accelerate their expansion and they build strong African brands.

Others are, that they innovate locally to adapt to the African consumer; they invest in local talent and develop a people advantage; they build local ecosystems and they connect Africa by facilitating the movement of people, goods, data, and information.

Patrick Dupoux, BCG senior partner and co-author of the report said: “Fragmentation in Africa is much greater than anywhere else in the world, and it adds significantly to the economic challenges facing countries that typically lack the critical mass to compete globally.

Despite these barriers, we see more signs of economic integration with each passing month, quarter, and year.

The primary drivers come from within the continent, led by African business. Africa invests more in Africa, Africa trades more with Africa, and Africans travel more to Africa.”

While some observers are skeptical of the integration due to barriers that could arise from different levels of technological advancements and government policies among the African countries, notably Nigeria and South African governments refusal to sign the African Continental Free Trade Agreement (ACFTA), most believed that comparative advantage should play its part and each country should seek where it truly needs to grow rather than delve into different areas not critical to their development.