Adventurous Asian Firms Find Reward in Africa
Singapore firms invested $9.8 billion in Africa in 2006.
The citystate's trade with Africa has grown approximately 11% a year since 2002
In 2007, Shankar’s Emporium, a Singaporean wholesaler which has exported consumer electronics to Africa for 30 years, decided it was time to set up its own shop in Angola.
It didn’t take long to secure the rights to open a Sony brand shop, but it took forever to get it open.
The project stretched over a year due to the slow pace of business, the shortage of skilled labor and a lack of quality building materials. The first set of containers, meanwhile, took three months to clear the port.
But it was worth the effort, said Dinesh Bhojwani, Shankar’s business development manager. Sales have since grown between 25 percent to 30 percent each quarter.
“Africa is still a relatively unexplored continent from a business perspective, so it’s a big opportunity – definitely bigger than Asia,” said Bhojwani.
China may be the biggest game in Africa right now, but other Asian countries are moving fast to tap into this booming frontier market.
Asia “is extremely crowded” with regional and global multinationals, but Africa offers plenty of opportunity for adventurous companies, he added. “It’s not the new Asia yet, but could be in five to 10 years.”
China’s Ministry of Commerce predicts that bilateral trade with African countries will hit a record high of $106.8 billion in 2010, making China, which has already overtaken the U.S. as South Africa’s largest trading partner, one of the most important investors on the continent.
China’s investments, however, have largely tapped on Africa’s natural resources — but the next wave of Asian investment is aimed squarely at the continent’s retail and consumer markets.
The $10.7 billion acquisition of telecom firm Zain Africa by India’s Bharti Airtel was one of the biggest merger and acquisition deals of 2010.
The tiny city state of Singapore, meanwhile, which became Southeast Asia’s biggest investor in Africa in 2007, according to a United Nations Conference on Trade and Development report, has been pouring investment into sectors ranging from luxury retail to education.
There are over 40 Singaporean companies operating in Africa, including Vega Foods, a Singaporean firm that chalked up S$120 million in sales in 2008 exporting a range of foods, including canned meat, chips and soy beverages, to 35 African countries.
Informatics Education, a Singapore-listed company that runs information technology colleges across Asia, has partnered with colleges in 11 sub-Saharan African nations.
Singapore-owned GMT Investcorp, meanwhile, has built a steady business selling luxury goods to South Africans.
Singapore’s trade with Africa has on average grown 11 percent a year since 2002, according to International Enterprise Singapore, which is part of the Trade Ministry.
Singapore’s foreign direct investment in Africa grew from $3.5 billion in 2003 to $9.8 billion in 2006, based on data from the United Nations Conference on Trade and Development.
To be sure, widespread corruption, poverty and poor infrastructure pose real challenges to businesses in Africa.
“Things happen there much slower and the rules can change from day to day. You have to spend a lot of time following up on everything. You also have to know all your facts and stand firm so nobody can try and take you for a ride,” said Bhojwani.
But the rewards outweigh the risks, investors said. African countries have a combined economy worth $1.44 trillion, according to the World Bank, and a domestic market of about 900 million people.
The African Development Bank forecasts that Africa's economy will grow by 4.5 percent in 2010 and 5.2 percent in 2011.
“We think Africa can be really big,” said Christine Tan, managing director of GMT Investcorp, which has opened its first Gucci boutique in South Africa since 1996.
The company, which has the sole rights to sell Gucci, Bally, Pateke Phillip, and ST Dupont, among others, in South Africa and is planning to add more luxury brands to its fold and to expand to other countries.
“A lot of our customers are from countries like Nigeria, Angola and Namibia,” she says. “We are now aggressively making plans to bring our business to other African countries.”
Singapore, which has a tiny domestic market, has always encouraged its corporations to seek new emerging markets to maintain growth.
“In order to achieve sustainable growth, Singapore companies understand that their market has to be international,” said Lim Ban Hoe, regional director of Middle East & Africa at IE Singapore.
“While traditionally, much of the attention has been on Asia, in recent years, Singapore companies are also looking at emerging markets further afield, including Africa, which has been considered by many as a last frontier in terms of market expansion. “