Trade and investment relations between two of the fastest growing regions currently, namely Asia and Africa, are growing in importance. Asia, in particular, is fast becoming Africa’s largest trading partner.⁽²⁾ Asian firms are making huge investments in Africa in the telecommunications, mining, oil, exploration, banking, infrastructure and transportation sectors. Silent in this burgeoning relationship is the story of African firms in Asia. While the bulk of modern literature tends to look at Africa merely as an investment destination instead of investing abroad, this CAI paper explores the narrative of African firms investing in Asia as well as advocating for more Africa investments in Asia. The paper also looks at challenges that stand in the way of African firms and proffers some recommendations.

Why Asia for African firms?

The present era is characterised by what Lehman refers to as “the demise of the hub-and-spokes of the world economy, with the Organisation for Economic Co-operation and Development (OECD) countries as the hub, and the emerging markets as the spokes.”⁽³⁾ Barring any significant twists or surprises, the global socio-economic gravity shift to Asian countries will define the stature of this century. Both Asian and foreign multinational firms are striving to increase their footprint in the region. Competition in Asia is fierce, but firms that seek to grow need to be cognisant of this and strategise on how to tap the opportunities that lie in a continent with a vaster growth potential than any other, except Africa. With the exception of Africa, Asia is in a better macroeconomic shape relative to other continents. Europe’s growth has stalled, North American economies are sluggish, and South America is growing at a moderate rate.⁽⁴⁾ To compound Europe’s economic problems in countries like Spain, Italy, Ireland Cyprus and Greece, it is also facing a relatively stagnant population growth rate.⁽⁵⁾

A sheer demographic dividend coupled with a burgeoning middle class, makes Asia unique and attractive for investment. Estimations hold that in 2011 Asia was home to approximately 4.2 billion people with an urbanisation rate of 42.6%,⁽⁶⁾ while projections are that by the year 2030, rapid population growth driven mainly by China, India, Indonesia, Thailand, Vietnam and Malaysia, will double the middle class.⁽⁷⁾ Consequently, Asia’s consumer market for luxury, automotive, food, financial and insurance products will be the biggest in the world, which further hints at the need for African companies to seriously consider investment in Asia. Even more so, the Asian giant will plausibly begin to determine global policies and currency changes. Unlike the African continent, Asia has a relatively larger market and less risky political environment. That said, North Korea’s recent moves might pose some risk, and so will first need to be fully understood.

Asia also is fast becoming a hub for global ideas and innovation.⁽⁸⁾ The skilled populations in India, China, South Korea, Taiwan and Japan provide a solid foundation which will ensure that long-range innovations come from Asia. Cost effective labour is another attractive factor, with a leading survey citing the Asian labour and market size as being a key factor for attracting investment in Asia.⁽⁹⁾ This same survey also listed China and India among the top 10 such countries.⁽¹⁰⁾

Examples of African firms operating in Asia

A number of African firms have been expanding their operations into Asia. A few such firms include Naspers, SABMiller, Econet Wireless, Barloworld, Mondi, Standard Bank, Investec, SAPPI and Ventureweb, but for the purposes of this paper, only two will be assessed, namely Naspers and SABMiller.

Naspers is a South African multimedia corporation with major operations in electronic media, pay-television, internet and print media, composed of the MIH group and three major South African print media houses.⁽¹¹⁾ The company has operations in China, South East Asia and India ⁽¹²⁾ with stakes in China’s Xin’an and Beijing Media Corporations, as well as in Tencent, a firm listed on the Hong Kong Stock Exchange. Through MIH South East Asia, Naspers also acquired 51% interest in sulit.com.ph, a leading classifieds service in the Philippines as well as a 34% stake in Malaysia’s Lelong, an e-commerce auction and fixed-price trading platform.⁽¹³⁾ In 2008, Naspers also acquired a stake in Buzzcity, the Singapore-based mobile advertising network, and in 2010 acquired a 74% holding stake in South East Asia’s Multiply Inc, providing the company with a social shopping platform.⁽¹⁴⁾

The South African founded SABMiller is the world’s second largest brewer and operates most of its Asian Pacific business from a regional office in Hong Kong.⁽¹⁵⁾ SABMiller partnered with China Resources Enterprise in 1994 to form China Resources Snow Breweries (CR Snow).⁽¹⁶⁾ In 2000, SABMiller moved into India when it acquired Narang breweries, as well as another brewery and a 29.6% stake in the Harbin Brewery Group three years later.⁽¹⁷⁾ Over the next six years, SABMiller increased its stake in China and India and established a brewery in southern Vietnam, and began exporting products to South Korea and Cambodia.⁽¹⁸⁾ Dominant brands in the region are Snow, Zorok, Nastro Azzuro, Gambrius, Pilsner Urquell, Haywards, Royal Challenge, Fosters and Miller High Life.⁽¹⁹⁾

Challenges for African firms

Investing abroad is not without its challenges and risks. The main challenge is the sheer size of Asian firms as well as other foreign firms competing in Asia. Most of these firms are large and perform far better at a global level than their African peers. Asia is a competitive terrain with so much internal and external competition. These firms therefore need to build competitive brands that are acceptable to local conditions. By many measures, Asian firms have a slight edge over African firms when it comes to financial strength, expertise, business skills, external investments and strategic capabilities.

Asia is not a homogenous market that can be subjected to broad macroeconomic conclusions. In fact, a tailored country-by-country and industry-by-industry approach offers a better way of dealing with risks and challenges to foreign investments. Foreign investment risks related to currencies, politics, economy, and the market need to be fully taken into account. Viewed in this light, most of the challenges conceal great opportunities for savvy investors. Granted, foreign investment is not without risks. Some challenges to expansion include the fierceness of local competition, finding the right local management staff, management, partners and suppliers, red tape and bureaucratic hurdles, state protectionism, trade barriers, currency fluctuations and cultural or language and business customs.⁽²⁰⁾ These challenges, however, are not insurmountable. Relative to Africa, Asia has a bigger market with high growth rates and a better infrastructure, macroeconomic stability, and less corruption with relatively low geo-political risks.⁽²¹⁾ Investors need to also look at returns on investment, country risks, exchange risks and credit risks, business risks, financial risks and liquid risks.

Growth prospects in Africa can be a competing alternative for Asia. Africa is growing at a comparative pace with Asia and thus firms might have a dilemma as to where they should plough their resources. Africa is equally competitive, such that many firms might prefer to invest across the continent, especially South African firms. The biggest and most widespread African companies are based in South Africa and their presence is also among the most dominant in Asia. Other African countries also need to advocate for their firms to invest abroad. This is, however, easier said than done, especially when it comes to culture, challenges of human resources, differences of social environment and competing with other multinationals.⁽²²⁾ In an age of deepening relations between the two continents, the low number of African companies investing in Asia is a cause for concern. Deepening relations could arguably promote a better flow of goods, services, technologies, ideas, and resources between the two continents.

Concluding remarks

Engagement with Asia requires active discussions and cooperation that African governments should prioritise to open up opportunities on behalf of their businesses. This would provide a basis upon which Asian firms tap for opportunities in Africa and at the same time African firms have access to opportunities in Asia. It seems African governments currently prioritise mobilising foreign investors without giving equal attention to their own firms to explore opportunities overseas. This calls into question Africa’s engagement strategy with Asian countries. African firms need to exploit opportunities that are in Asia instead of continuing to woo foreign investment from China. While this means taking into account cultural differences, financial and political obstacles, it also calls for innovativeness and flexibility in such a dynamic environment. In addition, these actions need to go beyond the South African. Other African firms need also to take the challenge and play a role in investing in Asia so that they too can unlock the potential of the future largest market.

Written by David Bote ⁽¹⁾

NOTES:

(1) Contact David Bote through Consultancy Intelligence Africa’s Asia Dimension Unit ( asia.dimension@consultancyafrica.com).  This CAI discussion paper was developed with the assistance of Megan Erasmus and was edited by Nicky Berg.
(2) Renard, M., ‘China’s trade and FDI in Africa’, African Development Bank Group Working Paper no. 126, May 2011, http://www.afdb.org.
(3) Lehmann, P., ‘The four key economic challenges for today's global business’, IMD, January 2008, http://www.imd.org.
(4) Broyer, C., et al, ‘Economic research and corporate development: Economic forecast 2013’, Allianz Working Paper no. 155, 25 September 2012, https://www.allianz.com.
(5) Lanzieri, G., ‘The greying of the baby boomers’, Eurostat, 8 June 2011, http://epp.eurostat.ec.europa.eu.
(6) ‘Population of Asia’, World Stats, http://en.worldstat.info.
(7) Rohde, D., ‘Davos 2012: The swelling middle’, Reuters, January 2012, http://www.reuters.com.
(8) Hargety, J.R., ‘US loses high-tech as R&D shifts towards Asia’, The Wall Street Journal, 18 January 2013, http://online.wsj.com.  
(9) ‘​Global opportunities’, BDO Ambition Survey 2012, October 2012, http://www.bdointernational.com.
(10) Ibid.
(11) ‘Fact Sheet’, Naspers, November 2012, http://www.naspers.com.
(12) Ibid.
(13) ‘Company History’, Naspers website, http://www.naspers.com.
(14) Ibid.
(15) Asia Pacific, SABMiller website, http://www.sabmiller.com.
(16) Ibid.
(17) Ibid.
(18) Ibid.
(19) Ibid.
(20) ‘Global opportunities’, BDO Ambition Survey 2012, October 2012, http://www.bdointernational.com.
(21) Ibid.
(22) Wu, J., 2008. An analysis of business challenges faced by foreign multinational operating the Chinese market. International Journal of Business and Management, 3 (12), pp 169-174.