Deena Chetty

GROWTH in Africa

• introductory remarks• the growth imperative• emergence of a new Africa• sustainability of a new Africa• successfully executing growth strategies•peek into SA economic future• concluding remarks

talking points

introductory remarks

a mixture of strategy & economics

I AM AN AFRICAN OPTIMISTMOVED BEYOND THAT……..NEED TO “OPTIMISE AFRICA”IMPORTANCE OF NOT BEING OVERTLY OPTIMISTIC OR OVERTLY PESIMISTIC

DIFFERENT PERSPECTIVESGLASS HALF FULL OR HALF EMPTY (IN FACT IT IS BOTH)

AFRICA IS A SET OF DIVERSE MARKETS, PEOPLES AND COUNTRIES

Africathe blue sky continent

AFRICATHE BLUE SKY CONTINENT

AFRICA - Blue Sky Continent…refer to the best selling book by Kim & Maurbornge (2005 Harvard BusinessSchool Press) Blue Ocean Strategy. Book posits that traditional competition is charaterised by head to head competition and this creates a bloody “red oceans” where rivals fight over a shrinking profit pool and this is unlikely to create future sustainable value.According to the authors whilst you might to defend your position your chances of creating new value is to create “blue oceans” of uncontested market space ripe for growth.Examples: Yellow tail…wine drinking acquired taste…complicated to choose..Yellow tail simplified choice (Chardonnay and Red Shiraz )…ready to drink…simplified production costs. SA example is buying insurance over the phone….Auto & Gen

the growth imperative

THE GROWTH IMPERATIVE• WHY GROW ?

• NOT GROWING… AT BEST HOLDING VALUE AND AT WORST DESTROYING VALUE

• AGAINST OUR HUMANITY NOT TO GROW (IN A RESPONSIBLE MANNER)

• GREAT COMPANIES (AS OPPOSED TO GOOD COMPANIES) HAVE A CLEAR GROWTH STARTEGY & EXECUTE WELL

• TO MAKE AN IMPACT AND A MEANINGFUL DIFFERENCE

THE GROWTH IMPERATIVE•VALUE CREATION

• SHAREHOLDER VALUE IS CONSEQUENTIAL VALUE

• CREATING REAL GROWING VALUE FOR ALL CONCERNED RESULT IN BETTER SUSTAINABLE AND GROWING SHAREHOLDER VALUE

THE GROWTH IMPERATIVE• VALUE CREATION

• CHALLENGE : UNLOCKING EXISTING VALUE AND CREATING NEW VALUE

• NO OF APPROACHES

• GREEN FIELDS/ORGANIC/ACQUISITORIAL

• EXISTING OFFERINGS• SELL MORE TO EXISTING CUSTOMERS/NEW CUSTOMERS

• NEW OFFERINGS• SELL TO EXISTING CUSTOMERS AND TO NEW CUSTOMERS

THE GROWTH IMPERATIVE

•COMPETITION

• COMPETITION NO LONGER ONLY BETWEEN FIRMS

• NETWORKS ARE COMPETING

• COUNTRIES COMPETE AS WELL• IN SA WE SEE PROVINCIAL COMPETITION• IN USA THE STATES COMPETE VIGOROULSY AGAINST EACH OTHER

IMPERATIVE FOR AFRICA TO GROW AND COMPETE

competition

EMERGENCE OF A NEW AFRICA

EMERGENCE OF A NEW AFRICA

EMERGENCE OF A NEW AFRICA

•WHAT IS TAKING PLACE?• AFRICA NOW A FAVOURITE DESTINATION FOR PRIVATE EQUITY

• CARLYL GROUP (ONE OF WORLD’S LARGEST GLOBAL ASSET MANAGEMENT FIRMS) CLOSED MAIDEN SUB-SHARAN FUND AT AROUND USD700M (40% BEYOND ORIGINAL TARGET)

• RATE OF RETURN ON FOREIGN INVESTMENT IS LARGER IN AFRICA THAN ANY OTHER DEVELOPING REGION

• GLOBAL AVERAGE RETURN ON FDI IN 2011 WAS 7,2% (UNCTAD)

• AFRICA RETURN WAS 9,3%

• SENSE AMONGST INVESTORS “FOMO”

AFRICA NOW SECOND MOST ATTRACTIVE INVESTMENT DESTINATION IN THE WORLD ( WITH ASIA)

EMERGENCE OF A NEW AFRICA

•WHAT IS TAKING PLACE?• FDI FLOWS

• 2013 WAS USD 56,6BN

• 5,7% OF GLOBAL FDI

• 2014 FORECAST IS USD 60BN

INCREASED DRAMATICALLY OVER THE LAST DECADE AND CONTINUES TO GROW

EMERGENCE OF A NEW AFRICA

•WHAT IS TAKING PLACE?

• LOCAL INVESTORS

• INTRA INVESTMENT STANDS AT 10%• TOO LOW

• NEED TO GENERATE OWN CAPITAL

• UTILISE THIS CAPITAL INTO AREAS THAT CAN SHAPE LONG TERM GROWTH SUCH AS INFRASTRUCTURE

EMERGENCE OF A NEW AFRICA

•WHAT IS TAKING PLACE?• END TO A NUMBER OF ARMED CONFLICTS

• IMPROVEMENT IN MACROECONOMIC CONDITIONS

• MICROECONOMIC REFORMS TO CREATE BETTER BUSINESS CLIMATE

• INFLATION BROUGHT DOWN• 1990’S AVERAGE 22%• 2000’S NOW AVERAGE 8%

EMERGENCE OF A NEW AFRICA

•WHAT IS TAKING PLACE?• FOREIGN DEBT TRIMMED

• BETTER & MORE PRODUCTIVE LINKS WITH EMERGING ECONOMIES

• CHINA-AFRICA TRADE WENT FROM USD 10BN (2000) TO MORE THAN 200BN (2013)• CHINA NOW AFRICA’S LARGEST TRADING PARTNER• US-AFRICA TRADE 50BN (2000) TO 110BN (2013)

• BETTER PRIVATE SECTOR

EMERGENCE OF A NEW AFRICA

•WHAT IS TAKING PLACE?• GDP

• AFRICA’S COLLECTIVE GDP IS ESTIMATED AT USD 2 TRILLION

• REAL GDP GROWN BY CLOSE TO 5% OVER THE LAST FIVE YEARS

• THIS WAS ACHIEVED THROUGH THE FINANCIAL CRISES AND WITH ALL ITS CHALLENGES

• DRIVEN BY TELECOMS, BANKING, RETAILING, FLOURISHING CONSTRUCTION INDUSTRY, OIL/MINERALS PRICES AND OTHER COMMODITIES

EMERGENCE OF A NEW AFRICA

•WHAT IS TAKING PLACE?• THE FUTURE LOOKS BRIGHT

• URBANISATION• BY 2030 AFRICA’S TOP 18 CITIES WILL HAVE A COMBINED SPENDING OF USD 1,3 TRILLION

• EXPANDING LABOUR FORCE• 500M OF WORKING AGE• BY 2014 ESTIMATED AT 1,1BN• REST OF THE WORLD LABOUR FORCE CONTRACTING• CHINA AGING POPULATION CHALLENGE

EMERGENCE OF A NEW AFRICA

•WHAT IS TAKING PLACE?• THE FUTURE LOOKS BRIGHT

• AFRICAN CONSUMERS• IN 2000 59M HOUSEHOLDS HAD USD 5000 OR MORE IN INCOME• IN 2014…..THE NUMBER IS 106M• 2BN CONSUMERS BY 2050

• GROWING MIDDLE CLASS

RISE OF THE AFRICAN URBAN CONSUMER

EMERGENCE OF A NEW AFRICA

•WHAT IS TAKING PLACE?• THE FUTURE LOOKS BRIGHT

• AFRICA HAS AROUND 60% OF THE WORLD’S UNCULTIVATED ARABLE LAND

• LARGEST SHARE OF NATURAL RESOURCES

• CONSUMER FACING SECTORS DISPLAYING GROWTH THAT IS 3 X FASTER THAN OECD COUNTRIES

EMERGENCE OF A NEW AFRICA

THOUGH THERE ARE STILL A NUMBER OF IMPEDIMENTS

AFRICA POISED FOR GREAT THINGS

IS THIS SUSTAINABLE ?

IS THIS SUSTAINABLE?

SHORT ANSWER…..YES

here is why…

HERE IS WHY?

• IMPROVING HEALTH AND EDUCATION• AFRICA’S GROWTH RATES HAVE CHANGED SINCE THE

2000……….ACHIEVED GROWTH RATES OF 5%

• FDI HAS INCREASED DRAMATICALLY OVER THE LAST DECADE• COMMODITY PRICE DECREASES WILL NOT AFFECT AFRICA THAT MUCH…

25% DROP IN PRICES WILL RESULT IN GDP SLOWING BY ABOUT ½%

HERE IS WHY?• RISE OF THE AFRICAN CONSUMER

• RAPIDLY GROWING MIDDLE CALSS IS CHANGING PATTERNS OF CONSUMPTION• IN NIGERIA THE MIDDLE CLASS INCREASED 600% SINCE 2000

• MIDDLE CLASS DRIVING RAPID DIVERSIFICATION OF ECONOMIES

• THOUGH NATURAL RESOURCES REMAIN IMPORTANT, SECTORS SUCH AS WHOLESALE & RETAIL TRADE, MANUFACTURING & SERVICES ARE GROWING FAST

HERE IS WHY?• RISE OF THE AFRICAN CONSUMER

• CELLPHONE USERS• MULTIPLED 33 X SINCE 2000

• WITHIN 5 YRS LIKELY ALMOST EVERY ADULT WILL HAVE A MOBILE PHONE• EXPECT A LOT OF TWEETS….

HERE IS WHY?• GOVERNANCE

• LOTS TO BE DONE• DIRECTION IS RIGHT• MACROECONOMICS CONDITIONS HAVE IMPROVED

• INFLATION/FOREIGN DEBT/BUDGET DEFICTIS LARGLEY UNDER CONTROL• SOE’S BEING PRIVATISED• TRADE INCREASINGLY OPEN• REGULATORY & LEGAL SYSTEMS ARE STRONGER

FIRMS THAT INVEST NOW CAN EXPECT SUPER RETURNS

SUCCESSFULLY EXECUTING GROWTH STRATEGIES

SOME IDEAS• CATERGORISING THE GROWTH TRAJECTORIES OF AFRICAN COUNTRIES

• NUMBER OF WAYS TO DO THIS• BY REGION & INCOME LEVEL

• PREFERRED APPROACH IS THE ONE ESPOUSED BY McKINSEY

• CLASSIFIES COUNTRIES ACCORDING TO LEVEL OF ECONMIC DIVERSIFICATION AND EXPORTS PER CAPITA

SOME IDEAS• CATERGORISING THE GROWTH TRAJECTORIES OF AFRICAN COUNTRIES

• NUMBER OF WAYS TO DO THIS• BY REGION & INCOME LEVEL

• PREFERRED APPROACH IS THE ONE ESPOUSED BY McKINSEY

• CLASSIFIES COUNTRIES ACCORDING TO LEVEL OF ECONMIC DIVERSIFICATION AND EXPORTS PER CAPITA

• NOT PERFECT BUT SERVES AS GUIDE TO INVESTORS TO DEVELOP /SHARPEN THEIR AFRICAN STRATEGIES

CATEGORIES

• DIVERSIFIED ECONOMIES

• SA/EGYPT/MORROCO/TUNISIA

• MOST ADVANCED ECONOMIES

• MANUFACTURING & SERVICES TOTAL 83% OF COMBINED GDP

• DOMESTIC CONSUMPTION LARGEST CONTRIBUTOR TO GROWTH

CATEGORIES

• DIVERSIFIED ECONOMIES

• URBANISATION WELL ADVANCED RESULTING IN SIGNIFICANT NUMBER OF HOUSEHOLDS WITH DISCRETIONARY INCOME

• SECTORS LIKE RETAILING,BANKING,TELECOMS GROWN RAPIDLY

• ALSO EXPERIENCED A CONSTRUCTION BOOM ESPECIALLY IN INFRASTRUCTURE

CATEGORIES

• OIL EXPORTERS• LEAST DIVERSIFIED ECONOMIES

• ALGERIA/ANGOLA/CHAD/CONGO/NIGERIA

• ECONOMIC GROWTH VERY CLOSELY LINKED TO OIL & GAS PRICES

• SEE A TRANSISTION TO A MORE DIVERSIFIED ECONOMY IN THE CASE OF NIGERIA• SINCE 2000 TELECOM SUBSCRIBERS INCREASED FROM ALMOST ZERO TO OVER 63 M

(2010)

MUCH OPPORTUNITY FOR GROWTH IF OIL REVENUES IS USED TO FINANCE BROADER DEVELOPMENT OF ECONOMIES

CATEGORIES

• TRANSITIONAL ECONOMIES• CAMEROON/GHANA/KENYA/TANZANIA/UGANDA/ZAMBIA

• LESSER GDP THAN THE OTHER TWO CATEGORIES

• STARTED TO DIVERSIFY

EXPANDING INTRA AFRICA TRADE KEY FOR THEM DUE TO THEIR RELATIVELY SMALL ECONOMIES

CATEGORIES

• PRE TRANSITIONAL ECONOMIES

• DRC CONGO/ETHOPIA/MALI/SIERRA LEONE

• VERY POOR• MEASURED BY GDP PER CAPITA OF USD353

• SHOWING FAST GROWTH

FUTURE SUCCESS DEPENDS ON STRENGTHENING THE BASICS

FACTORS FOR AN EFFECTIVE STRATEGY• DEVELOP CLEAR PURPOSE AND DIRECTION• AFRICAN STRATEGY MUST BE PART OF THE OVERALL GROWTH STARTEGY

OF THE PARENT COMPANY• BE CLEAR HOW THE PARENT COMPANY WILL ADD VALUE…BE A VALUE

ADDING PARENT• ENSURE THAT HOME BASE IS SOLID…COMPANY IS WELL POSITIONED TO

COMPETE AND WIN, AND TO GROW

FACTORS FOR AN EFFECTIVE STRATEGY• CHOOSE COUNTRY TO ENTER VERY CAREFULLY• DEVELOP THE APPROPRIATE BUSINESS MODEL• SEEK OUT CREDIBLE AND LEGITIMATE LOCAL PARTNERS• ENSURE THAT YOU HAVE CAREFULLY CONSIDERED THE TAX AND OTHER

LEGAL ISSUES

FACTORS FOR AN EFFECTIVE STRATEGY• THINK LONG TERM• CHOOSE A CHAMPION (NO CHAMPION NO PROGRESS)• CORPORATE GOVERNANCE

• ALWAYS DO THE RIGHT THING ALL THE TIME• ETHICS & VALUES

• EXECUTE WELL AND BE PATIENT

BUILD BUSINESSES OF VALUES AND VALUE

A Peek into South Africas economic future

SOUTH AFRICA

• PEEKING INTO THE ECONOMIC FUTURE

• DESIRE TO KNOW WHAT SA WOULD BE LIKE IN YEARS TO COME

• THIS IS YOUR HOME MARKETS…..YOUR FOUNDATION….KNOW MORE

• NUMBER OF MUST READS…JUST TWO• NATIONAL DEVELOPMENT PLAN (NDP)• SARB WORKING PAPER PUBLISHED EARLY IN THE YEAR

SOUTH AFRICA

• PEEKING INTO THE ECONOMIC FUTURE

• FOCUS ON THE SARB WORKING PAPER

• REPORT UNIQUE

• GIVES US CREDIBLE QUANTATIVE DATA

• FOCUSS IS WHOLLY ON THE ECONOMY

SOUTH AFRICA

• FOCUS ON THE SARB WORKING PAPER

• REPORT IDENTIFIES 5 BIG CONSTRAINTS HOLDING BACK SA ECONOMY…. “THE BIG FIVE”

• TOO LOW SAVINGS

• LOW SKILLS & MISMATCH THEREOF

• PO0R QUALITY OF EDUCATION

• TOO LITTLE COMPETITION IN THE PRODUCT MARKETS RESULTING IN TOO HIGH MARK-UPS

• TOO HIGH COSTS IN THE TRANSPORT,LOGISTICS & COMMUNICATION INDUSTRIES

SOUTH AFRICA

• A BRIEF LOOK AT ‘THE BIG FIVE’

• TOO LOW SAVINGS

• PO0R QUALITY OF EDUCATION

……………….SELF EXPLANATORY

• LOW SKILLS & MISMATCH THEREOF

• COVERS THE LABOUR MARKET

SOUTH AFRICA

• A BRIEF LOOK AT ‘THE BIG FIVE’

• TOO LITTLE COMPETITION IN THE PRODUCT MARKETS RESULTING IN TOO HIGH MARK-UPS

• COVERS COMPETITION & MARGINS IN THE PRIVATE SECTOR

• TOO HIGH COSTS IN THE TRANSPORT,LOGISTICS & COMMUNICATION INDUSTRIES

• COVERS EFFICIENCIES IN & INVESTMENTS BY SOE’s

SOUTH AFRICA

• WHAT WOULD SA LOOK LIKE (ECONOMICALLY SPEAKING) IF IT ADDRESSED THE “TO DO” LIST OF THE SARB REPORT ?

• MOVE FROM 3% TO 4% TO BETWEEN 7% AND 8%