South Africa’s President Ramaphosa and Nigeria’s Muhammadu Buhari. South Africa businesswise behaves like a new colonial master

By Jude Fejokwu

South Africa is Africa’s second largest economy, but its most advanced economy. South Africa is competing perennially as the second largest investor (foreign direct investment) in Africa typically behind the United States of America.

South Africa has continually made it difficult for other African countries’ companies to break into its market or export products into South Africa that these African countries have an absolute and/or comparative advantage over South Africa in through protectionist policies and high import tariff barriers.

South Africa’s foray into the continent creates relatively few new job opportunities. This is despite the country being the second largest FDI investor in Africa and its massive investment outlay across the African continent from Morocco to Mozambique.

There are over 60 successful South African companies in Kenya and very few Kenyan companies in South Africa. Tiger Brands owns Haco Industries which is a FMCG company in Kenya established in the early 1970’s. South African insurer Sanlam has a majority stake in Kenyan life insurer: Pan African Insurance Company which is listed on the Nairobi Stock Exchange. Sanlam also acquired a majority stake (50.3%) in Niko Group Uganda in 2014. This deal also gave Sanlam a 49 per cent stake in Niko Group’s insurance business in Uganda, Tanzania, Malawi and Zambia.

South African businesses have benefited a lot from doing business in Mozambique. South Africa’s state-owned Industrial Development Corporation owns 24% of Mozambique’s MOZAL aluminum smelter in Maputo which is the largest foreign direct investment in Mozambique. Mozal is responsible for about a third of Mozambique’s exports. The Development Bank of South Africa and Eskom (South Africa’s power company) provided resources for road and power supply infrastructure to ensure success of the smelter. The total capacity of the Mozal Smelter is about 600,000 tons and is the second largest aluminum smelter in Africa. Guess which country has the largest? South Africa! The Hillside Aluminum Smelter has a capacity of about 720,000 tons. South Africa ensured its aluminium smelter kept the top position and took a quarter of the ownership in its nearest rival. The only word that comes to my mind is: SWEET!

Mozambique issued an $850m ‘tuna’ bond in 2013 which was restructured in March 2016 because Mozambique was struggling to meet repayments. During restructuring negotiations, Credit Suisse and VTB of Russia lent money to the Maputo government. Where was South Africa to help its neighbor that is rich in aluminum and offshore natural gas fields? Corporations from another continent had to come through while South Africa and its corporations looked on with arms akimbo. Things just got worse for Mozambique as the IMF has suspended a $55 million loan disbursement for budgetary assistance. The World Bank has also suspended direct financial aid, holding back $40 million in payments. The United Kingdom is also delaying all financial aid payments to Mozambique’s government. As mentioned earlier, South African businesses have benefited a lot from doing business in Mozambique. Mozambique is pretty much in a ‘debt trap’ presently with foreign debt equating to 77% of GDP and its currency (Metical) depreciated by 40% in 2015. We see South Africa excited to invest in Mozambique’s resources. South Africa has reaped a lot from Mozambique and still is. Now, it is time to sow in a different way. We wait…

Naspers (whose market capitalization exceeds that of all the listed companies on The Nigerian Stock Exchange) owns DSTV and GoTV the monopolistic cable companies that permeate most of Anglophone Africa. The company has increased its prices three times in less than five years across its territory of influence. Consumer protection companies are nowhere to be found.

Naspers (whose market capitalization exceeds that of all the listed companies on The Nigerian Stock Exchange) owns DSTV and GoTV the monopolistic cable companies that permeate most of Anglophone Africa. The company has increased its prices three times in less than five years across its territory of influence. Consumer protection companies are nowhere to be found.

SAB Miller bought a majority stake in International Breweries based in Ilesa, Nigeria in late 2012 and has brewing and/or beverage interests in about 32 other African countries. SAB Miller also owns Pabod Breweries in Port-Harcourt, Nigeria and opened a ‘Greenfield’ brewery in Onitsha in 2012 which costs over $100 million to build and created 180 jobs at inception. SAB Miller also bought Standard Breweries, Ibadan and Voltic (produces bottle water.) All this is being done to get a strong foothold in Africa’s second largest beer market; South Africa is the largest beer market in Africa.

Another beer company took interest in SAB Miller and got its attention. Anheuser-Busch InBev (the world’s largest brewer with about 25% global market share.) In October 2015 AB InBev announced that an all-cash bid worth $106 billion for SAB Miller had been accepted. Since then, the deal has not yet been finalized as South Africa’s competition watchdog continues to raise concerns. South Africa’s competition watchdog received an extension for the FIFTH (5th) time on Thursday, May 5, 2016 to further study the planned merger of the world’s largest brewers. The spokesman for the commission said there are still “several outstanding issues that should be considered.” The new deadline expires on May 12, 2016. The spokesman also added that an additional five days may not be enough to address all the outstanding issues.

SAB Miller bought a majority stake in International Breweries based in Ilesa, Nigeria in late 2012 and has brewing and/or beverage interests in about 32 other African countries. SAB Miller also owns Pabod Breweries in Port-Harcourt, Nigeria and opened a ‘Greenfield’ brewery in Onitsha in 2012 which costs over $100 million to build and created 180 jobs at inception. SAB Miller also bought Standard Breweries, Ibadan and Voltic (produces bottle water.) All this is being done to get a strong foothold in Africa’s second largest beer market; South Africa is the largest beer market in Africa.

AB InBev in its quest to speed up the regulatory approval process had already agreed to freeze layoffs for five (5) years and invest $66m to support small farmers. Please go and ask employees of IBTC Chartered Bank if there was an unhealthy amount of involuntary turnover within the first year of Standard Bank (Stanbic) acquiring a majority stake in the bank in 2007. South Africans believe their commitment to making Africa work is long-term. The ‘light bulb’ question is: is South Africa making Africa work for the benefit of South Africa or the benefit of Africa? Are these investment/trade relationships symbiotic or predatory in nature?

In 2011, Wal Mart in its bid to acquire Massmart (owners of Game stores) had to agree to freeze layoffs for two years and this delayed finalization of the deal for more than two months. How many African countries have applied the same standards to South African companies venturing into their markets to generate profit to repatriate back home? South Africa’s unemployment rate is about 25% and these agreements help to ensure its unemployment rate does not get worse. South Africa is standing up to global players while fellow African countries are not standing up to one African player that is becoming more dominant by the day.

Is South Africa just savvy or are other African countries just vapid? What is at play here? Inferiority complex to a country that was integrated back into global markets twenty-two years ago or lack of effective decision making implemented by African leaders for the collective goodwill of their people?

Since the deal was announced, AB InBev has already completed a secondary listing on the Johannesburg Stock Exchange. MTN has been in Nigeria for fifteen years and still has no clear plans to list on the Nigerian Stock Exchange. This is despite Nigeria being the company’s largest market in terms of customers and contribution to the top-line. The country also refused to obey its telecom regulator (AB InBev is obeying the SA regulator and even going above and beyond) in Nigeria (Nigeria Communications Commission) and switch off over five million phone lines that were not properly registered and widely used by criminals, kidnappers and Boko Haram terrorists to communicate without identification.

MTN actually had the audacity to sue its regulator in a foreign market for fining it $5.2B which was later reduced to $3.9B! I learned in elementary school that wonders shall never end. Many, many years later, I finally have to take a bow and agree. MTN has only paid $250 million and based on its FY 2015 fine provision, is apparently negotiating to pay only $750 million more which is less than 20% of the original fine. MTN is the largest telecom network in Africa and has also had run-ins with regulators in Cameroon and a license bribery scandal in Iran. Discussions with the Nigerian authorities continue and has reached the executive arm of government in South Africa (Zuma visited Buhari) and Nigeria.

South Africa’s National Ports Authority – Portcon, manages the terminals at Ghana’s Tema port under a twenty-five year agreement. Shoprite is building and renting stores in Nigeria at a faster rate than the company can clear its goods at Nigeria’s ports. The company does not disclose its profit margins. Most stores in Nigeria that sell cooked food do not weigh the food to place a value on it. Shoprite sells its cooked food based on weight and this is not self service. A quick rundown of some other South African companies (not yet mentioned) taking Africa by storm.

1. Protea Hotels
2. JHI Real Estate
3. Telkom
4. Vodacom

5. South African Airways (bought a 49% stake in Air Tanzania in 2002 which was reacquired by the Tanzanian government in 2006.) The Tanzania Civil Aviation Authority said that Air Tanzania was worse off after the acquisition by SAA than before. The joint venture collapsed due to both countries’ divergent interests in the business.

6. Randgold resources
7. Sun International Hotels (took over and refurbished Ikoyi Hotel in Nigeria)
8. Anglo American
9. Mr. Price
10. Pick N’ Pay
11. Nando’s (1,100 locations in 22 countries)
12. Famous Brands (owners of Debonair’s Pizza and Steers)
13. First Rand
14. Absa Bank

15. Nedbank (fourth largest bank in South Africa owns 20% of Africa’s largest bank by reach: ETI)

16. Sybase
17. Sasol
18. Nampak (delisted from the Nigerian Stock Exchange in 2010)
19. Pretoria Portland Cement (wholly owned subsidiary in Zimbabwe)

20. Illovo Sugar is Africa’s leading sugar producer (owns sugar company listed on the Lusaka Stock Exchange in Zambia.) Also has operations in Malawi, Swaziland, Tanzania and Mozambique. Has 16 manufacturing plants located across Sub-Saharan Africa. Associated British Foods (ABF) has made a tender offer to acquire all the remaining issued shares of Illovo Sugar that is does not already own. ABF took a majority stake in Illovo in 2006.

ABF is a diversified international food, ingredients and retail group with annual sales of $19.5 billion and 124,000 employees in 48 countries. The group operates through five business segments: Sugar, Agriculture, Retail, Grocery and Ingredients. ABF intends to delist Illovo Sugar from the Johannesburg Stock Exchange.

Once again, we see how a non-African company is given the path to fully own a South African company while other African companies look on with hope. When South Africa allows inroads into its economy under tough regulatory scrutiny, the parent companies are usually, European, American, Chinese or Australian.

South Africa is looking down at all African countries from an advanced economy perspective and from an economic size perspective (except for Nigeria.) South Africa may also be looking down on all African countries based on antecedents which should be very worrisome to the fifty-four other African countries and Western Sahara.

A company bought a 20% stake bought in Standard Bank, SA. Name? ICBC of China. Standard Bank sells its subsidiaries in Argentina and U.K to the same company. Name? ICBC of China. Wal-Mart of America buys a 51% stake in Massmart. AB InBev (European, Brazilian and American brewer) buys over SAB Miller. Barclays U.K. bought a 62.2% stake in Absa Bank over time.

Dangote Cement completed a deal to acquire a 64% majority stake in Sephaku Cement in the fourth quarter of 2010 for 779 million Rand. Hooray! Not so fast… The remaining 36% of Sephaku Cement is held by JSE listed Sephaku Holdings. The cement company is not called Dangote Cement despite the majority ownership held. Barclays has a majority stake in Absa Bank. Absa Bank did not still change its name to Barclays in South Africa across its branch network.

The Barclays name already existing in locations outside South Africa was maintained while the parent company refused to remove its South African identity. Standard Bank added its Stanbic brand name to IBTC Nigeria and CFC Kenya immediately after acquisition. How about Dangote-Sephaku Cement? What is good for the goose should also be good for the gander.

Barclays Africa (Absa Bank) applied for an investment banking license from the Central Bank of Nigeria to enable the bank expand its footprint across the continent over a year ago. Once approved, the bank will join other South African banks: Rand Merchant Bank and Standard Bank that already possess investment banking licenses in Nigeria.

South African companies continue to venture into Nigeria in droves for the same reason. They all want to expand outside of South Africa where the market is saturated and consumer spending remains under pressure. Nigeria with about 4X the population of South Africa is the market of dreams. Some take off licking their wounds like Woolworths, Truworths, Telkom, Nando’s and Tigerbrands (hasty exit out of Dangote Flour.) Others like Shoprite, DSTV and MTN continue to dig in their heels and smile to the bank. Quietly, their level of success in a short period must be mind boggling to them. Pick N’ Pay is queuing up to get into Nigeria also. Nigeria is the milking ground with open doors and open arms. What about the reverse situation?

Nigerian companies have tried and frankly given up in their quest to make a market in South Africa across multiple industries. South Africa continues to shield Nigeria (its closest economic sparring partner) and pretty much the rest of Africa from taking big pieces of companies in its key sectors. We milk Africa, Africa does not milk us.

A few years ago, I met a South African who told me point blank that South Africans do not like Nigerians. He even added that including a Nigerian company in a consortium or part of a deal syndicate will probably lead to a rejection once spotted by the South Africans reviewing the bid or deal. I was surprised to hear this but, not shocked. Not only do I respect his opinion, I unfortunately have to agree. This may very well explain why some South African companies treat Nigerian regulatory institutions with contempt while operating in Nigeria.

Here are a couple to wet your appetite. A Nigerian court ordered DSTV (Naspers) to cease from hiking its subscription prices. DSTV ignored the court order to put it succinctly. MTN and other telecommunication companies operating in Nigeria, were warned by the Nigerian Communications Commission to disconnect subscribers on their network who do not properly register their SIM cards by a certain deadline. All other telecommunication companies obeyed, except MTN. After getting an astronomical fine, MTN sued the regulator early in 2016. MTN later withdrew its suit. Stanbic IBTC is flexing muscles with the Financial Reporting Council of Nigeria that asked the bank to withdraw and restate its FY 2013 and 2014 financial statements in accordance with the law. Stanbic IBTC according to the Financial Reporting Council also violated Nigeria’s NOTAP Act of 1979. NOTAP is National Office for Technology Acquisition and Protection and has a national mandate to ensure that obsolete and inappropriate technology is not dumped in Nigeria and to raise revenue for the Nigerian government.

NOTAP declined to register certain technology as presented to it by Stanbic IBTC. Stanbic IBTC went ahead to utilize the technology without appropriate permission by NOTAP. The case is currently on appeal as Stanbic IBTC lost the first case. The judge stated that Stanbic IBTC tried to circumvent the registration requirements of NOTAP. You see a clear sense of contempt and disdain for oversight bodies in a country that South African companies should be grateful to on a daily basis despite the lack of reciprocity. How would South Africa feel if AB InBev sues the competition regulator in South Africa for extending its oversight deadline for the 5th time and delaying its acquisition of SAB Miller among other roadblocks?

Barclays U.K. has started selling down its stake in Absa Bank (Barclays Africa Group.) Guess who showed up to protect national interests? Public Investment Corporation by buying 10% of the 12.2% stake sold, leaving 99 other entities to take up the remaining 2.2% on offer. PIC now owns 7.2% of Barclays Africa Group. On June 10, 2013, the Public Investment Corporation (PIC) (South Africa’s government pension fund) bought a 1.5% stake in Dangote Cement for $289.3 million. PIC has a board seat on Dangote Cement despite owning just 1.5% of the company which is not a large enough stake to actually merit a board seat. The board representative (last time I checked) is Fidelis Madavo, a General Manager, Public Equities at PIC.

Smile Communications provides 4G LTE mobile broadband services. The company aims to be the broadband provider of choice for super-fast mobile broadband services in all its African markets: Tanzania, Uganda, Nigeria and DR Congo – upcoming. The company is doing well and expanding gradually across the continent. Will South Africa allow Smile Communications of Tanzania acquire a 49% stake in Internet Solutions of South Africa?

The largest bank by assets in Africa is Standard Bank. The largest bank by reach in Africa is Ecobank Transnational Incorporated (ETI). What did South Africa do to this ‘other’ largest African bank? Nedbank acquired 20% of ETI in 2014 and PIC acquired almost 20% of ETI in 2012. In a nutshell, South Africa owns approximately 40% of the largest African bank by reach. The Nigeria cluster of ETI makes up almost 40% of ETI’s assets while South Africa took up almost 40% of ETI’s equity. Which boat will you rather be in? ETI could only open a representative office in South Africa despite all its efforts to establish a full banking customer relationship.

Emerging Capital Partners (ECP) sold its majority stake in Continental Reinsurance in September 2015 to Saham Finances of Morocco. Saham Finances is the largest insurance group in Africa outside of South Africa and has a presence in twenty-six countries and a consolidated turnover in excess of $1 Billion writing mostly, non-life business. Saham Finances is the insurance business arm of the Saham group of Morocco.

Two months later after the exit by ECP, Sanlam of South Africa and its short-term subsidiary, Santam buy a 30% stake in Saham Finances from the IFC, Abraaj and the IFC ALAC fund for $375 million. The Group CEO of Sanlam said “We believe that Africa presents us with a unique, long-term growth opportunity. This partnership with Saham Finances will provide the Sanlam Group with a significant competitive advantage as no other insurance company can offer the same regional network to the professional and corporate market. ” The transaction will significantly bolster Sanlam’s non-life exposure across the continent especially in North and West Africa which are largely underpenetrated high growth insurance markets.

Two months after this landmark deal for Saham Group and Saham Finances, Sanlam of South Africa gets in on the deal with a 30% stake. This will prevent Saham Group of Morocco from overshadowing Sanlam Group of South Africa as an insurance behemoth in Africa. I will not be surprised if the Sanlam Group was one of the insurance groups in the ‘room’ trying to directly buy Continental Reinsurance from ECP.

Sanlam already has direct equity investments in Nigeria prior to acquiring an indirect stake in Continental Reinsurance. Sanlam owns 35% of FBN Life Assurance which now fully owns Oasis Insurance and is now called FBN Insurance. Sanlam now has a footprint across Africa in non-life (short-term) insurance and reinsurance.

Old Mutual of South Africa in 2013, acquired Oceanic General Insurance and Life Insurance. The insurance company is now called Old Mutual Nigeria. Old Mutual is part of the same business family that owns Nedbank.

South Africa apparently, believes as Africa’s most advanced economy, it is meant to invest (take) from other African countries while global trade/investment partners are worthy partners to invest (take) from South Africa while South Africa still ensures its interests are protected. Other African countries should learn from South Africa about protecting your home turf when you invite a guest in. African countries are apparently, too small to invest in a larger, more advanced economy like South Africa. I guess larger economies should invest in smaller economies and not vice versa as far as South Africa is concerned.

To be honest, when it comes to acquisitions, I deem the above scenario logical and raised this with the CEO of Access Bank in October 2011 when the acquisition of Intercontinental Bank was announced during a conference call. Access Bank was smaller than Intercontinental Bank when the bank was acquired By Access in the fourth quarter of 2011. He responded that “he is not aware that smaller companies rarely acquire larger companies.”

As the story has unfolded it should be clear; South Africa is largely meant for foreign investors (non-African) to try and conquer, while Africa (ex-SA) is meant for South African investors to conquer. South Africa came to the party in 1994 and is now the master of ceremony. When it comes to trade, South Africa has a positive balance of payments with almost every country in Africa it has substantial trade with.

So, is South Africa SAVVY or the rest of Africa just VAPID? I believe it’s a little bit of both with a slight edge to VAPID over SAVVY. Countries will treat other countries the way other countries ALLOW. South Africa knows what it wants and is getting its way for the most part.

The world says Africa is rising. African countries need to wake up to what is going on within the continent; or, African countries will rise up and be sleep walking while South Africa is running them over repeatedly. Neighbors can make strange bedfellows especially when placed side by side. South African companies are everywhere in Africa; African companies are nowhere in South Africa. As a matter of urgency, African leaders need to meet anywhere with Jacob Zuma. Trade & investments are rarely equal but should not be lopsidedly disproportionate.

The economic progress of African countries should be an END in itself or the party will end before it even gets off the ground. AID as a major source of funding takes Africa backward; long-term INVESTMENTS built on collective goodwill takes Africa forward.

The development of Africa by African companies should not be driven purely by rent-seeking activities. Africa in its history has always been a means to an end. I hope a fellow African country has not picked up where the explorers and colonizers left off.

*Jude Fejokwu first published this article about 4 years ago @judefejokwu.blogspot