November 25, 2008

An Investment Haven For South Africa

Emmanuel Uffot, Newswatch Magazine, http://www.newswatchngr.com

South African companies are playing major roles in almost every sector of the Nigerian economy unlike American and European companies which pick and choose their areas of investment

Wreckers Dismantling Corporation of South Africa stands tall as the company which succeeded in demolishing the partially collapsed building of the Bank of Industry along Broad Street, Lagos, without any accident. The success of the project on September 21, justified the choice of the South African company over other reputable firms from the United States of America, the United Kingdom and other European countries which also bid for the contract job.

Like the Wreckers, many South African companies have gradually warmed themselves into the Nigerian economy in the past one decade through the handling of some major projects.

For instance, Entech, a South African Engineering firm, is leading a consortium of other South African companies to redevelop the Lagos Bar Beach and Victoria Island water fronts. The cost of the project, which is currently 70 percent completed, is put at $3 billion.

Like Lagos, Akwa Ibom State has found the South Africans good business partners. Group Five Corporation of South Africa is building a 685-megawatt Independent Power Plant in Ikot Abasi. During his tenure, Governor Victor Attah contracted Dimension Data of South Africa to set up AKWANET and Information Technology Park. The project is designed to promote e-Governance. South African companies are also into agro-allied projects.

In 2006, Akwa Ibom State government signed a Memorandum of Understanding, MOU, with South African investors to establish agro-based industries and a flour mill in the state. Moreover, amphitheatre with a large digital diode screen at Ibom Plaza, a government recreation spot in Uyo was procured from Multichoice, a South African company.

Beyond construction works, many South African companies have aggressively launched themselves into many key sectors of the economy. These include telecommunications, tourism, entertainment, hospitality, energy, media, health, oil, retail, property and fast food. Although Multichoice was the first South African company to make an in-road into Nigeria 14 years ago, the floodgate of business activities of South African firms into Nigeria became more pronounced after the bilateral trade agreement signed between Nigeria and South Africa in 1999 by Presidents Olusegun Obasanjo and Thabo Mbeki respectively. The broadcast company holds the ace in pay television services in the country.

Before now, it had the monopoly of the pay-per view television services in the country through DSTV. Apart from controlling 90 percent of cable business in Nigeria, its dominance in the sector has been a pain in the neck of broadcasting corporations in the country. The DSTV has contributed to the diminishing interest in the domestic league by football followers in the country. Instead, Nigerians are now crazy over English Premiership and other major football leagues around the world through the satellite television.

In fact, their huge earnings in Nigeria are attributed to the relative high demands for its programmes especially the English Premiership League and Channel O for music freaks. With an active subscriber base in excess of 250,000, Multichoice’s conservative earning is put at over N10 billion annually. The company says it pays $900,000 monthly to satisfy consumers through quality services on its DSTV platform but competitors equally assert that the South African satellite television provider allegedly repatriates $120 million it makes from its operation in Nigeria annually to South Africa.

In the telecommunication sector, MTN Nigeria has become a dominant figure in the country ever since it rolled out its mobile services in 2001. The telecommunication provider is the largest operator in the country commanding over 40 percent of the subscribers’ base in the country put at over 14 million. In December 2006, it acquired 100 percent shares of VGC Communication, a private telecommunication operator. Also in 2007, MTN Nigeria was awarded a 3G licence to roll out 3G services in choice areas. The company is reputed to have earned not less than N800 billion in its seven years of operation in Nigeria.

It earned $568 million or N71 billion in its first full year of operation in Nigeria in 2001/2002. Ever since, its profit margin has remained on the high side in spite of the stiff competition posed by other mobile phone providers like Zain, Globacom, Visafone, Starcomms and Multilinks. MTN claims to have invested over N400 billion in Nigeria to date.

Amina Oyagbola, corporate services executive of the communication giant, says the company has paid a total of N140.92 billion as taxes, levies and sundry services to both the federal and state governments since it began operation in the country in 2001. She hinted this recently during a review of the company’s operations in Corporate Social Responsibility.

Telkom, one of the biggest telecommunication companies in South Africa, recently acquired 50 percent stake in Multilinks, a private telecommunication operator, PTO, in the country. The acquisition has, to an extent, boosted the operation of the PTO as it now competes in the mobile telephone market.

Vodacom, one of the biggest providers of cellular phones in South Africa, bought a controlling share in the then Econet Wireless now Zain. But the deal went sour due to irreconcilable differences among the major shareholders. Newswatch gathered that Vodacom is still scheming to stage a comeback into the country to take a bite in the booming telecommunication market.

South African firms have also registered their presence in Nigeria in the oil sector. Checks have revealed that a number of South African companies have, in recent years, received oil concessions for oil blocks and also provided services to oil multinationals operating in the country. Whereas Ophir Energy had secured the right to drill oil in several oil blocks in Nigeria, Grinaker established an oil rig fabrication yard in Port-Harcourt in 2000.

Other South African companies have also entered into partnership with oil giants in Nigeria as a way of participating in the lucrative sector. SASOL is one of such companies. It entered into partnership with Chevron to develop a gas-to-fuel plant at the Escravos terminal. Similarly, PetroSA, another South African oil servicing company, owns Brass Exploration Unlimited that operates the Abana oilfield off the Nigerian coast in the Gulf of Guinea.

The South Africans have also made a mark in the tourism and hospitality sector. Protea Hotels of Cape Town which came into Nigeria in 2002, now has no fewer than nine operational hotels in major cities like Abuja, Lagos, Port-Harcourt, Enugu and Obudu Cattle Ranch in Cross River State. The popular Bolingo Hotel in Abuja has equally been taken over by Protea Hotel Group of South Africa.

TINAPA resort centre in Calabar, Cross River State, initiated by Donald Duke, the immediate past governor of the state, which remains the largest tourism project in the country, is a joint venture of three South African firms namely-Broll, Standard Bank and Southern Sun. They manage it in conjunction with the Cross River State government.

In the retail and vending sector, Palms Shopping Mall located in Lekki axis of Lagos is another prominent South African investment in that sector. The mall which consists of groups of stores like Sophrite, Games, Numetro and Nandos which is reputed to be the largest not only in Nigeria but also in sub-Saharan Africa, is managed by Broll, a South African property investment company. Broll also has a franchise to manage no fewer than 594 retail fuel stations across Nigeria. Johncom, another South African firm, has many retail outlets in Nigeria selling books, CDs and DVDs.

The South Africans are also in the fast food sector which they control almost 50 percent. Famous Brands, St Elmo’s and Nandos are some of the South African big players in the fast food business sector.

The South Africans have also delved into the media industry in Nigeria. Johnnic Communications, a South African media giant, in August 2004, entered into partnership with BusinessDay, a national daily. The partnership has boosted the image of the newspaper in Nigeria.

The South Africans have also become major players in the booming banking sector in Nigeria. Standard Bank of South Africa, which is the largest bank in Africa, last year, acquired controlling equity in IBTC Chartered Bank thus giving the bank a significant leap in the Nigerian market. The new deal has produced Stanbic-IBTC Chartered Bank. Its total investment in the Nigerian bank is said to be $620 million. The bank has also played a major role in the vast investment of MTN in Nigeria through syndicated loans.

In the health sector, South Africans have Critical Rescue International, CRI, flying their flag. The organisation which is a subsidiary of MRI Criticare of South Africa, a renowned emergency medical rescue organisation, provides emergency medical management services in Nigeria. Lagos State Government, Econet now Zain and Unic Insurance are some of the entities on the clientele list of the South African paramedic and trauma management organisation. Oracle Med, South Africa’s leading health insurance firm, is a major player in that aspect of health business in Nigeria.

In the aviation sector, they have also made significant strides. South Africa Airways is one of the prominent international airlines operating in Nigeria. The airline made a serious bid to take over Nigeria Airways as the national carrier.

The federal government has also found confidence in the South African companies and has contracted some of them to provide certain services. In the energy sector, ESKOM together with a consortium of 12 South African firms, collects revenue for the Power Holding Company of Nigeria, PHCN. It also runs the prepaid metre which is being used in many parts of Lagos.

Ariva, a leading South African Information Technology service provider, is managing the National Sports Lottery for the federal government. Even the ballot papers used in the 2007 general elections in Nigeria were printed in South Africa.

Prior to 1999 when the government of President Obasanjo signed a trade agreement with South Africa and which led to the establishment of the Nigeria-South Africa Chamber of Commerce, only four South African companies had established presence in Nigeria. Currently, no fewer than 100 firms from the country have made significant impact in virtually all the sectors of the economy.

Beyond South African companies’ investment in Nigeria, trade relationship between the two countries has enjoyed tremendous growth between 1999 and 2007. Statistics have shown a big leap from $11 million to $11 billion respectively. The relationship is basically in imports and exports. For instance, between 1999 and 2005, trade volume between the two countries increased from $ 283 million to $ 1billion. While South Africa’s export to Nigeria grew from $516 million to $2.9 billion, that of Nigeria to South Africa rose from $1.2 billion to $5.1 billion. Crude oil constitutes over 90 percent of South African imports from Nigeria while its export to Nigeria is its capital outflow in investment.

However, given the increasing rate at which South African business investors are moving aggressively into Nigeria, there are fears by some Nigerians that just like the Chinese are doing, the local economy may soon end up in the hands of the South Africans at the expense of Nigeria’s entrepreneurs. Some Nigerians have accused some of the companies of exploiting Nigerians through undue profiteering. MTN is one of those that have gotten the knocks of many Nigerians.

The major complaint against the telecommunication company is the high charge which is seen as not commensurate with the services it provides. Its subscribers have often pooh-poohed the services as being below expectation. For instance, during its roll- out, MTN told Nigerians that per second billing was not possible for a new network, but it took the launching of Globacom which began with per second billing for Nigerians to realise that MTN had long been ripping subscribers by rounding up calls in minutes.

Subscribers of DSTV have also complained against high charges of the pay television provider. The satellite provider charges subscribers N10,000 a month. Austen Osunbor and Otio Nathaniel, both bankers who subscribe to DSTV, are equally concerned about the charges of the satellite television provider, but they are optimistic that the coming into the market of other providers like AIT, HITV and TREND TV will break the monopoly hitherto enjoyed by Multichoice and ultimately force down their price. AIT, two months ago, launched DaarSat, its 40 multi-channel cable television.

Some Nigerians have also argued that despite the huge investment of South Africans, the local people have not benefited. They attribute this to the trade agreement which allowed South African corporations to repatriate all the profits they make from Nigeria. Not only that, critics have also accused majority of South African companies of sourcing most of the products they use or sell in Nigeria from South Africa instead of locally.

For instance, Standard Bank has played a prominent role in MTN expansion project in Nigeria. The bank reportedly arranged a $450 million syndicated loan MTN used to fund its initial launch in 2001. Similarly, Multichoice and MTN are into partnership that offers subscribers access to 10 television channels which they can, with appropriate handsets, watch cable TV at the comfort of their homes. The two are South African firms.

But in spite of these complaints, the business ingenuity of the South Africans in Nigeria in recent years has gained the commendation of some Nigerians. They commend them for their initiatives in taking the risk to invest in other areas apart from the lucrative oil sector that the United States and Europe who were the traditional trading partners of Nigeria focused their attention.

Frank Aigbogun, publisher of Businessday newspaper, which is in partnership with a South African media giant, Johnnic Communications, is one of those sharing this point of view. He believes the South Africans have been meticulous in choosing the sectors they know they would have comparative advantage and by so doing they have been able to fill the void in the investment space in Nigeria which were ignored by the Europeans and the Americans.

“They have chosen the sectors they intervened in very carefully, they filled a void in the investment space in Nigeria. Remember the Europeans and the Americans, wearied by endless years of military rule in Nigeria, did not know how to respond to the evolving democratic environment,” he said.

Some Nigerians do not agree with the idea that the South Africans’ dominance in some key sectors of our economy could lead to their taking over the Nigerian economy. They argue that the fear is not justified given the fact that there are many foreign investors like Britain, USA, Germany, China and France.

For some Nigerians, the South Africans should even be commended for the risk they took to venture into areas neglected by the Americans and Europeans. Olusola Obadimu, executive secretary of the Nigeria-South Africa Chamber of Commerce, shares this view. He said that no investor from the Western countries would take the risk the South Africans took to make Nigeria their investment hub in spite of the obvious infrastructural problems in the country.

But what has informed the interest of the South African companies in Nigeria compared to few Nigerian entrepreneurs plying their trade in South Africa? Remi Omotosho, chairman, Lagos Chamber of Commerce and Industry, LCCI, has the answer. The market is here for their products and services. “What is responsible is the demand pull here for those things that the South Africans are bringing what we are taking to them is only banking. We are not setting up textile mills and engineering firms because our people are not into those specialised areas, but the South Africans come here and set up such high technology firms because the market is there for their products,” Omotosho argued.

The argument is that the few Nigerian banks operating in South Africa are there not because of the need but because they want to be continental and global players in the banking world. Union Bank, First Bank, Philip Consulting, ThisDay and Financial Standard newspapers are the major Nigerian companies operating in South Africa as against over 100 companies from the latter in Nigeria.

Olumide Adekunle, director-general of Nigeria Chamber of commerce Industry Mines and Power,NACCIMA, believes that the South African Companies have advantage over their Nigerian counterparts. He said instead of vilifying them, Nigerians and other African countries should learn from them since they are fellow Africans.

Warren Trokis, a manager in Shoprite, a South African grocery chain in Lekki, Lagos said the business climate in Nigeria is safer than their country apart from the ready market waiting to be explored. “Business is good here and Nigeria is safer than South Africa,” he stressed.

Whereas some Nigerians have criticised Chinese products of being substandard and cheap, the same cannot be said of South African products in Nigeria. The quality is known to be at par with those of advanced Western countries. This, Newswatch gathered, explains why they cost more.

Nigeria is the third largest trading partners of South Africa after Zimbabwe and Angola. With the way South Africans are establishing their presence in Nigeria, the thinking is that the country would soon earn the top spot as South Africa’s major business partners in the continent.