Sometimes in life, a phrase is bandied around so much until it becomes 'truth'. One such 'truth' is the commonly used phrase: “South Africa is the gateway to Africa” and interchangeably: “South Africa is a springboard into the rest of the continent.”
These phrases somewhat imply that foreign companies would set up in South Africa while surveying the landscape in the rest of the continent, before deciding which markets to enter from South Africa. On closer examination of the facts, this 'truth' does not hold water and quickly unravels. So what then are the facts, and secondly, what are the dangers associated with this “South Africa is the gateway to Africa” mindset?
Indeed, many companies have a strategy of investing into Africa, which sometimes fundamentally includes an investment in SA given the size and sophistication of the South African economy, and Massmart is a prime example of this. As part of an overall market entry strategy, investors of course also consider other large markets such as East Africa and West Africa to complete their portfolio of investment.
However, the mistake that most South Africans make is to assume that these investors will choose SA as an entry point for all African investments. The reality is that significant investments are flowing directly into respective African economies, as these markets currently boast higher GDP growth rates than South Africa - off a low base, admittedly.
A cursory look at UNCTAD statistics is revealing: Nigeria attracted US$11 billion in 2010 compared to South Africa's US$1.6 billion. Indeed, this trend is set to continue into the foreseeable future. A recent forecast by the Economist of the 10 fastest growing economies in the world (2011-2015) features seven African countries: Nigeria, Ethiopia, Mozambique, Zambia, Tanzania, Congo and Ghana, with the latter growing at 11% conservatively and up to 14.2% depending on the source. What, therefore, are the dangers of continuing to think that South Africa is the gateway to the continent?
The first is the risk of South African businesses becoming complacent about proactively and aggressively seizing the opportunities being presented by the rest of the continent, because there is a belief that as the 'gateway' they will be approached as a channel into the rest of the continent.
The second relates to growing levels of competition on the continent. While the continent offers opportunities, it is important to note that they are fast disappearing – at least, the lucrative and attractive ones - and we know that first mover advantage is everything.
There is a hive of economic activity taking place on the continent, being driven by a plethora of different stakeholders: private equity players, agriculture funds, investment banks, corporates, sovereign wealth funds, infrastructure funds, and last, but not least, bilaterals being signed between Chinese governments and their African counterparts. Yes, the usual suspects.
But also, there is a new form of competition from a new and growing breed of African companies that are expanding outwards of their base countries – quietly but very confidently. They are very little talked about in the South African press, but their impact is increasingly being felt on the continent: the Dangote conglomerate in sugar and cement and everything else in between; Oando in oil and gas; OCP in fertiliser; Ecobank and UBA in financial services. And recently, a surprise spate of announcements by Kenyan retailers pronouncing their Africa expansion plans: Nakumatt, Uchimi, Naivas and Tuskys; not at all cowered by the Walmart effect, but with determined intent to also be a part of the action.
With interest in African markets on the rise – even from as far afield as Italy – despite the language barrier, South Africa needs to up its game. She has so much to offer, including world-class business models and to boot, proximity to these markets and no language barrier. South Africa may not be the gateway, but she is very well positioned to be part of the action in a big way... but time waits for no one.
Dr Jacqueline Chimhanzi is the Africa Lead for Deloitte Consulting, South Africa and can be contacted on email@example.com.