Africa’s entrepreneurs go on explorations

When Choppies opened its first store in Lobatse, a small town in Botswana, its ambition was limited to becoming a retailer of substance in its domestic market.

Progress was slow. It took seven years after the first supermarket opened its doors in 1986 for the family-owned company to open its second — again in Lobatse. By 1999, the group was still limited to the two outlets.

But in the years since, its expansion has been rapid and the contrast with its current operations — and its ambitions — is stark. Today, Choppies boasts 126 stores across three countries, including South Africa and Zimbabwe.

It has recently announced an agreement with a Kenyan company, Ukwala, to acquire 10 stores in the east African nation; and it is working on greenfield expansions in Zambia and Tanzania.

“If you want to be a real player you have to play beyond Botswana,” says Ramachandran Ottapathu, Choppies’ chief executive.

The Botswana market — where Choppies claims to have a share of more than 40 per cent — is tiny. The southern African nation, best known for its diamond riches, covers more than 600,000 square kilometres, but has a population of just 2 million.

Yet Choppies’ expansion reflects a broader trend of increasingly ambitious African companies looking to grow beyond their borders with the goal of becoming Pan-African businesses.

Choppies — which has a turnover of around $700 million and recently listed on the Johannesburg Stock Exchange — wants to have 200 stores by the end of next year and sales of a “couple of billions of dollars” in five years, Ottapathu says.

“There are opportunities for every retailer in Africa and now is the right time for expansion across the continent,” he says. “The reliance on the informal market is shifting to the formal market and the level of aspiration is changing.”

The retail sector is one of the clearest examples of the trend, particularly South African retailers, including Shoprite, Pick n Pay, Massmart and Woolworths, wanting to build on their continental footprints. Shoprite has more than 280 corporate and almost 40 franchise stores in 14 countries outside South Africa.

Banks, insurers, construction companies and others are following suit as groups look to tap into Africa’s fast-growing economies and its young and increasingly urban population.

Many of the companies leading the charge are South African, as the country has by far the continent’s most sophisticated corporate sector. The South African economy is also more mature than its continental peers and has been struggling with lacklustre growth, while other African nations, such as Kenya and Nigeria, boast some of the world’s fastest expanding economies.

However, companies in other parts of the continent are also thinking beyond their home borders. In the west, Nigerian companies are to the fore, with Nigerian banks beginning to compete with South African groups, such as Standard Bank, Africa’s largest by assets, and Barclays Africa.

Lagos-based United Bank for Africa has a presence in 19 African states, from Tanzania in the east, to Mozambique in the south.

Ecobank, which began life in Togo in the 1980s, has an even broader footprint, with operations across 36 nations.

In other sectors, the standout is the Dangote conglomerate, owned by Aliko Dangote, the Nigerian tycoon who is Africa’s richest man. The manufacturing group’s interests include sugar, salt and pasta, but it is in cement where its presence has taken off.

Dangote is the biggest investor in the cement industry in sub-Saharan Africa and has cement plants dotting the continent.

In east Africa, groups — mainly in consumer industries — have been establishing themselves, including Kenyan companies such as Nakumatt, a regional retailer, and Bidco, which is a manufacturer of edible oils and soaps. There are also Tanzanian examples, most notably MeTL Group, a conglomerate with a presence in a dozen African states.

Helmut Engelbrecht, head of investment banking for Africa at Standard Bank, says it is a trend that will continue as groups look for economies of scale. But he adds that in Nigeria many companies are still focusing on building their business in the domestic economy — Africa’s largest — because of the size and potential of that market, with the West African nation boasting a population of 170 million.

“On the other side of the continent, the effectiveness of a regional trade bloc, the East African Community, has fostered greater cross-border growth,” he says. But for now, the attention is largely on the region rather than further expansion across the continent.

“East Africa, if you include Ethiopia, is about 200 million people, so sorting out the logistics and getting the market share is still a big task and there’s a risk they overextend themselves if they go further,” says Engelbrecht. “So the next task is to bed down in east Africa.”

For other African companies, the notion of expanding beyond their own borders is still in its nascent stages. And progress can be slow.

“Everybody is excited about Africa but it’s a situation where a lot of people are chasing businesses in the same territories,” says Miles Dally, chief executive of RCL Foods, a South African group.

RCL, which has revenue of R23 billion ($1.9 billion), has joint ventures with Zambeef, a Zambian company, and Botswana-based Senn Foods Logistics, while it has been exploring opportunities in Ghana, Nigeria and east Africa.

But the momentum behind the shift is clear. “You go to any of the countries I was talking about and walk into the airport and the hotels and you just bump into South Africans,” Dally says.

— Financial Times