A Partnership of Giants

2005 DIAGEO AFRICA BUSINESS REPORTING AWARDS Best Published Features Isaac Umunna, Africa Today Nigeria and South Africa: a partnership of giants Mutually beneficial trade relations between Africa’s two leading economies, South Africa and Nigeria, grow phenomenally, as the private sector moves to take full advantage of the enormous investment opportunities existing in both countries. It’s a win-win situation for the two nations and for the continent, reports Africa Today’s General Editor Isaac
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  2005 DIAGEO AFRICA BUSINESS REPORTING AWARDSBest Published FeaturesIsaac Umunna,  Africa Today    Nigeria and South Africa: a partnership of giants  Mutually beneficial trade relations between Africa’s two leading economies, South Africa andNigeria, grow phenomenally, as the private sector moves to take full advantage of the enormousinvestment opportunities existing in both countries. It’s a win-win situation for the two nationsand for the continent, reports  Africa Today’s  General Editor Isaac Umunna  These days an increasing number of Nigerians eat South African food, listen to South Africanradio, watch South African TV, fly South African Airways and, of course, stay in touch with lovedones through the Nigerian subsidiary of South Africa’s telecom giant, MTN.By far the largest GSM operator in Nigeria, MTN accounts for about half of the six million GSMsubscribers in the country, leaving the balance for the other three operators, Globacom, Vmobileand M-Tel. To say that MTN has struck gold in Nigeria is an understatement. For the first threeyears of its operations in the country, the company has consistently posted mind-bogglingreturns. It earned N71 billion (about $568 million) in its first full trading year running from April1, 2002 to March 31, 2003, with a profit after tax of N11.2 billion or $89.7 million. Theperformance has already been dwarfed by the balance sheet for the first half of the currenttrading year, which showed a net profit of N25 billion (about $185 million) for the period.MTN is only one of the several South African firms presently having a field day in Nigeria. Another prominent example is Multichoice, which controls roughly 90 percent of the cable TVbusiness in the country. As for Critical Rescue International, an emergency healthcare operator, ithas no competition to contend with for now in its area of business. Other South Africancompanies making a fortune in Nigeria include Chevron/Sasol, which controls about 20 percent of the petroleum/gas exploitation business in the country; South African Airways, 8 percent of thecommercial aviation industry; Safmarine, 3 percent of the shipping business; and Stanbic, whichhas cornered 2 percent of the banking industry.Eager to grab a larger share of the market, Stanbic has embarked on an ambitious expansiondrive. After consolidating its operations in Lagos, Abuja, Kano and Port Harcourt, the bank,according to Henry James, Head of Corporate Affairs, is all set to expand its branch network “aspart of management’s various initiatives to strategically position the bank as a dominant player inthe Nigerian banking industry.” Stanbic is an affiliate of the Standard Bank of South Africa, a leading banking and financialservices group with operations in 17 other African countries and points of representations invirtually all the major financial centres of the world. It presently has five branches in Nigeria andhas established two subsidiaries, Stanbic Equities and Stanbic Nominees. As part of its strategicmove to corner a larger share of the Nigerian market, the bank is about to relocate from its oldhead office in the Ikoyi area of Lagos to Stanbic House, a new high profile head office inhighbrow Victoria Island. As at now, 20 South African firms are officially doing business in Nigeria, with most of themrelatively new in the country but fast stabilising. They include Eskom (powergeneration/contracting); Umgeni (water engineering); Dewfresh Products (trading); SA-Nigeria  Comm. & Systems (trading); Direct Marketing Com. (marketing); Global Outdoor Services(advertising); Grinaker-LTA (construction); Shield/Engen (petroleum); Protea Hotels (hospitality);Steers (fast foods); Church’s (fast foods); and Outsourcing Services (security).The excellent performances of big boys like MTN and Multichoice, the rousing reception given thenew comers in the market and the limitless potentials of the market will certainly lure more South African firms to Africa’s most populous country with about 130 million people. “I expect South African companies to continue to enter the Nigerian market,” said Olusola Obadimu, executivesecretary of Nigerian-South African Chamber of Commerce (NSACC). Oba Ayoola Otudeko,chairman of the bilateral chamber, shares that view. “Almost on a monthly basis,” he said, “wewitness an inflow of more South African companies into Nigeria to participate in the openeconomy created by the democratic governance in place.” In the circumstances, many Nigerians are becoming increasingly uncomfortable that – as theyput it – “the South Africans are taking over.”  “They are our new colonial masters, economically speaking,” wailed one distraught Nigerian. “They have taken over the Nigerian economy.” Obadimu dismissed such fears as unnecessary and parochial. He told  Africa Today  : “The paranoiain certain circles that the South Africans are taking over and may be out to colonise us isunjustified. Panicking is not the solution to our problems. We should forget about pride and learnfrom them. It does not matter that we 130 million and 44 years old as an independent nationwhile South Africa is just 40 million and became independent only ten years ago.” The NSACC scribe equally faulted the argument by some critics that the South Africans areexploiting Nigeria and Nigerians by making huge profits which they supposedly repatriate home.(MTN which was leveled with the allegation has denied it, explaining that it has ploughed back every kobo so far made by it in Nigeria as a deliberate policy to expand fast and cover thecountry before reaping.) Obadimu is of the view that those who make the accusations are closingtheir eyes to more fundamental issues. One of them, he said, is that “the South Africancompanies are providing much needed jobs.” The other: “The activities of South Africancompanies here are adding value and providing needed services.” He cited the telecom revolution in the country as one of the dividends of the increasing traderelations between Nigeria and South Africa. “Our capacity has grown due to their activities,” heremarked. “For instance, five years ago, how many Nigerian engineers had expertise in GSM? Butbecause some of our young men and women work with these GSM companies, they have gainedcapacity. You can’t take that capacity from them. By building such capacity, truly Nigerian GSMcompanies will emerge and may even bid for licences in other African countries.” One allegation which no one has made against MTN or indeed any of the GSM operators is thatof exploiting their workers. Unlike the Asian-owed companies operating in Nigeria which arenotorious for poor pay and inclement working environment, MTN and the other GSM firms have areputation of empowering their workers through good remuneration and exposure to relevanttraining programmes.Obadimu also spoke of the other multiplier effects, among them the rise of suppliers “and peoplerendering all kinds of services and benefiting directly or indirectly.” The problem is that such benefits are not quantifiable. What can easily be calculated is the valueof direct imports and exports between both countries, and the picture it paints is sobering forNigeria, a country which championed South Africa’s independence and previously claimed to be  the giant of Africa. According to latest statistics, South Africa, the continent’s economicpowerhouse, appears set to dominate trade between it and Nigeria.Until this year, the balance of trade between both countries weighed heavily in favour of Nigeria.In the four-year period covering 2000-2003, Nigeria maintained a strong lead in trade relationsbetween the two countries. In 2000, the country recorded $128.1m exports to South Africa asagainst imports worth $70.7m. The next year, South Africa greatly narrowed the margin to amere $1m, importing goods valued at $165.8m from Nigeria and exporting the equivalent of $164.8m to it. Nigeria widened the lead once more in 2002 with exports of $361.9m and importsof $272.8m. It equally recorded a huge trade surplus last year with exports of $425.3m andimports of $392.1m from the former apartheid enclave.The situation, however, changed dramatically last January, when South Africa leapfrogged to thefront, recording a total export of $37.4m to Nigeria, $5m more than total imports worth $32.2mfrom the country for that month. The scenario recalled what happened ten years earlier whenSouth Africa, fresh from the grip of apartheid, bested Nigeria in 1994 with exports worth $8.1mas against total imports of $3.1m that year.Unlike in the 1990s when the South Africans failed to consolidate on their gains, the opposite islikely to be the case now as the country has by far broadened its export base to Nigeria. Over thepast four years in particular, South African firms or companies with South African participationhave become active in a wide range of business fields in Nigeria. While Nigerian exports to South Africa remain mainly petroleum and allied products, natural rubber, cocoa butter, oil and cake,South African exports are growing phenomenally in the areas of telecommunications,broadcasting, energy, banking, hospitality, industrial chemicals, paper/newsprint products, flatsheets and raw/processed food, to mention but a few.   Regarded as the first world in Africa, South Africa has all it takes to dominate trade in thecontinent. Basic infrastructure put in place when it was a closed society under apartheid meantthat the country’s entrepreneurs had the necessary facilities with which to operate. On theattainment of independence, the solid foundation laid for a stable democracy by the legendaryformer President Nelson Mandela gave international investors the confidence to look in the wayof South Africa, thus further boosting the country’s economy while at the same time serving ascatalysts for capacity building. Against this backdrop, it has been possible for the succeeding Thabo Mbeki administration topursue its vision of African renaissance with less distractions. Since there can be no renaissancein a situation of economic backwardness, the Mbeki regime has had to encourage a pan-Africaninvestment drive by the country’s businesses as a prelude to an eventual global challenge. Boththe South African Department of Trade and Industry and the country’s Industrial DevelopmentBank play a pivotal role here, advising and providing financial and technical support for reputablefirms desiring to go continental and even beyond. Besides, the government realises the crucialrole that information plays in the investment chain and has exploited the potentials of IT alongthis end: there are websites on South Africa where people could easily get every neededinformation. Going down the line, every department has a website where interested people canalways go and access the needed information.Naturally, the launching pad for the expansionist business vision was the Southern AfricanDevelopment Community (SADC) countries. In just a few years after the country’s independence,South African companies established such a strong presence in the SADC market to the extentthat they became targets of the same allegation now being made against them in Nigeria – anattempt to dominate the region. Soon the SADC market became rather small and it was time tolook elsewhere.   The choice of Nigeria as the next destination of South African investments is easy to understand.Nigeria has the biggest market on the continent because one out of every five Africans is aNigerian. Based on the country’s estimated population, the Nigerian market is usually assumed tobe about 130 million-strong, but Alhaji Bukar Abba Ibrahim, governor of Yobe State in Nigeria’sNorth East, believes that it is far more than that. “That figure should, in fact, be multiplied by twobecause all our neighbours in Africa are dependent on Nigeria for most of their needs,” heargued. “If you go right down Central Africa, Sudan, Niger, down to Mali, Burkina Faso, parts of Senegal, Ghana, Benin Republic and the rest of it, all are dependent on Nigeria for so manythings. So we have a very huge market of about 250 million people.” Supporting Governor Ibrahim, Zanna Sunoma, a politician and media expert, told  Africa Today  inDamaturu, capital of Yobe State: “I have seen made-in-Nigeria goods on display in shops inseveral African countries, including Libya. The traders regularly take them there, traveling byroad through Niger Republic. They buy them in places like Lagos and load them in trucks, drivingthrough long distances and passing through Yobe, which shares a common boundary with NigerRepublic. ” Its enormous potentials notwithstanding, Nigeria is a pathetic case both in terms of vision andavailability of infrastructure when compared to South Africa. In Nigeria, the roads are bad, powersupply epileptic and clean water a luxury. Lacking in vision, succeeding Nigerian governmentshave failed to provide a suitable economic environment for capacity building of local industries.Worse, corruption has been accepted as a way of life and, in an apparent vote of no confidencein their country, those who loot the public treasury take the money to Europe and America forsafe keeping in secret bank accounts.For entrepreneurs who believe in investing, there is little or no support from the government. Asif the deplorable state of infrastructure is not enough disincentive, the development bank hasfailed and the commercial banks are reluctant to grant long-term loans. That has made it difficultto have continental tigers emerge from the country. Many of the companies are contented tosurvive and remain local champions, while a few have managed to extend their activities to oneor two other West African countries.Until lately, South Africa was more or less barren of the Nigerian formal sector. As at the lastcount, only about five Nigerian firms were on record as operating in South Africa. Union Bank,Nigeria’s second biggest bank, was the first to establish a branch there. First Bank, the flagshipof the Nigerian banking industry, later followed and obtained a licence to establish arepresentative office there. The three other big-name Nigerian companies known to be doingbusiness in South Africa are Thisday  daily newspaper, Business In Africa  magazine, and Financial Standard  , Nigeria’s leading business weekly, which publishes FS Arican Standard  in addition toorganising seminars and trade tours. A number of Nigerian-owned real estate firms are alsoreported to be making inroads into South Africa. f   However, the Nigerian informal and semi-formal sectors are doing a lot in South Africa – just asthey are doing elsewhere on the continent, leading, ironically, to fears of Nigerian dominance onthe part of the local populace. For years the country has been exporting academicians and soccerexpatriates to South Africa. In academics, Prof. Kole Omotosho has achieved fame, not only as anovelist and lecturer, but also as a consultant to MNET’s reality TV show, Big Brother Africa. Butsoccer (an area where South Africa has began to rub shoulders with Nigeria) is arguably whereNigeria has given the most to South Africa. Nigeria’s former national team coach Amodu Shuiabuonce handled leading South African side Orlando Pirates. At the players’ level, Nigerian stars suchas marksman Chukwu Ndukwe (Mamelodi Sundowns) and goalie Willy Opara (Orlando Pirates)are household names.
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