SA scores from Africa exodus
Challenges unique to the continent are tripping up multinationals in other countries — which may be good for SA
SA, despite its many problems, might actually start looking like a safer bet for multinational firms looking to park their cash than its peers on the continent.
The exit of Blackstone, the world’s largest alternative investment manager, from key markets such as Nigeria and Ethiopia has delivered another devastating blow to the region, which has experienced an exodus of foreign companies such as Barclays, General Motors and insurance broker AON.
A UN report released in January showed that some regions in Africa had double-digit declines in foreign direct investment (FDI) in 2018. The continent, which registered a 6% increase in FDI inflows, was saved by SA and Egypt.
New York-based Blackstone’s exit will threaten key infrastructure projects in Ethiopia and Nigeria, projects both countries were banking on to increase economic activity.
US news outlets reported last week that Blackstone was withdrawing from its African infrastructure drive and selling its African subsidiary, Black Rhino Group, back to its management.
The companies announced the tie-up in 2014 to identify, finance and construct large-scale infrastructure projects across Sub-Saharan Africa. Black Rhino, an investment firm with offices in Joburg and Dakar, is in the process of constructing solar and gas power plants in Nigeria. With Royal Bafokeng subsidiary Mining, Oil & Gas Services, it had also planned a $1.35bn multiproduct fuel pipeline in Ethiopia. Blackstone confirmed in January 2018 that the fuel pipeline project has been put on hold, and it now appears that Blackstone stopped funding Black Rhino around that time.
Blackstone has not elaborated on the challenges it faced in Africa, but Signal Risk analyst Menzi Ndhlovu says not having in-depth knowledge about challenges that uniquely affect Africa is putting foreign companies at a relative disadvantage. It is one of the reasons early growth is stunted.
"Entrants must typically grapple with relatively uncertain political environments, weak institutions and public encroachment on the private sector for mostly populist reasons," he says.
Blackstone did not respond to queries from the FM.
Atlas Mara, the investment vehicle aimed at tapping growth across the continent, has joined the list of international firms that regard exiting African operations as the best option. The venture founded by former Barclays boss Bob Diamond said last week that it was looking to reduce its exposure or exit certain regions on the continent. It wanted to focus on core markets where "a path to market leadership is clearly achievable".
Diamond is stepping down as executive chair. He will be replaced by Michael Wilkerson, CEO of Fairfax Africa Holdings, which owns 49% of the company. Diamond will become a nonexecutive director at Atlas Mara.
London-listed Atlas Mara’s share price has decreased by 85% since its IPO in 2013, and the company started reviewing its African operations two years ago, saying profitability was difficult for smaller operations.
It indicated in its 2017 annual report that it was considering different options in markets where it was "subscale". Atlas Mara also failed in a high-profile bid for Barclays’ African banking operations in 2016.
Atlas Mara wants to be a disruptive force in the African banking market by rolling out mobile banking platforms. It has a footprint in seven countries but no presence in SA, until now.
The company, through Fairfax Africa, plans to acquire a 35% stake in local agriculture finance company GroCapital, as part of its review of strategic options.
Atlas Mara says its board sees considerable potential in the proposed acquisition, given that access to SA’s banking market will allow it to participate in many parts of the value chain, including cross-border payments.
Ndhlovu says having SA as a staging post for operations in Africa has advantages. "SA is perhaps the most globally and regionally interconnected country on the continent in a physical, digital and financial sense.
"It has the roads, rails, airports and harbours, it has the digital infrastructure and it has a sophisticated financial system.
"These are widely linked to fellow African states, in a way that other African states aren’t."
Ndhlovu says though SA is known for political uncertainty, it still appeals to companies, because doing intra-African trade is relatively easier from SA than anywhere else on the continent.
"Several contenders are on the rise, such as Kenya, Mauritius, Morocco and the United Arab Emirates, but SA still maintains the upper hand."