SA Inc struggles to find footing in lucrative African markets

The JSE offers secure, efficient primary and secondary capital markets across a diverse range of securities, supported by post-trade and regulatory services. Picture: Nhlanhla Phillips/Independent Newspapers

The JSE offers secure, efficient primary and secondary capital markets across a diverse range of securities, supported by post-trade and regulatory services. Picture: Nhlanhla Phillips/Independent Newspapers

Published Apr 15, 2024


South African companies that have expanded into the rest of Africa have largely “not done well”, finding regional market dynamics challenging, despite the allure of robust economic growth compared to South Africa’s.

This is according to Anthony Modisane, a senior equity sales trader at Absa Corporate and Investment Banking, in an interview with Business Report (BR) on Friday.

“The bulk of the SA Inc companies that ventured into the African regions have battled to adapt to the dynamic landscape, and subsequently reduced their presence where possible,” Modisane said.

Food retailers such as Pick n Pay and Shoprite, as well as financial services providers – including Standard Bank, Nedbank, FNB, Absa and Sanlam – are among South African companies with operations in some African markets.

However, the majority of these businesses have found the going tough in the markets outside of SA, at a time when they were hoping to spread risks from local high interest rates, elevated inflation and volatility in the rand back home.

South Africa’s economic growth declined from 1.9% in 2022 to 0.6% in 2023, but is now projected to rebound by 1.2% this year as the country’s energy and logistics crises ease.

This compares to the 3% and 5% economic growth for most Sub-Saharan African economies, according to analysts from Standard Bank.

Old Mutual has noted that countries in its Africa region recorded an average of 4.79% positive gross domestic product growth in 2023.

However, South African financial services companies have recently noted weakening margins in their continental operations.

In its operations update for the nine-month period to September 2023, Sanlam said that although its pan-Africa portfolio reported a net insurance margin broadly in line with that reported at June 2023, it was affected by “marginal weakening” in the underwriting performance.

It also noted “weaker contributions from Angola and continental region” regarding the regional life business.

“South African businesses have generally not done well abroad, including forays into the rest of the continent,” analysts at Standard Bank told BR on Friday.

However, Standard Bank, which has applied for a representative office in Egypt, is positioning itself to tap into the booming pan-African economy regardless of currency and other hurdles there.

It said that “in contrast to SA, most of the sub-Saharan economies are projected to grow more than 3% per annum, some even more than 5% per annum”, which it deems “an appealing macro backdrop”.

Other South African finance institutions, such as Old Mutual, have a solid African presence, but saw gross written premiums for 2023 in West Africa decrease to R240 million “due to the depreciation of the Ghanaian Cedi and Nigerian Naira” against the South African rand.

Its African markets’ loans and advances over the same period, of R1.7 billion, were 22% lower than the prior year.

Old Mutual has attributed this to “the continued slowdown in disbursements resulting from the tightening of credit granting criteria to de-risk the portfolio away from poor performing segments, unfavourable economic conditions and continued buy-offs of the good loan book” by competitors.

Telecoms companies including MTN and Vodacom have also been finding the going tough in some key regional markets, such as the Democratic Republic of Congo, Nigeria and elsewhere.

They have also had to contend with regulatory scrutiny, heavy tax bills and penalties, in addition to currency woes and dividend repatriation hold-ups.

Modisane said South African food retailers that had forayed into the rest of Africa had found the market conditions harsh.

Shoprite has sold off its Nigerian operations and “reduced exposure” to the African regions.

“Retailers ventured into Africa and learnt some harsh lessons and subsequently scaled back, and exited where possible,” explained Modisane.

“Given the foreign currency exchange challenges in some of the African regions, its difficult for corporates to make a capital decision despite balance sheets being healthy.”

But it is not just the Africa operations that have caused challenges for SA Inc.

Cratos Asset Management portfolio manager Roy Topol on Friday said that the year-to-date performance of SA Inc shares on the JSE shows “a significant under-performance of local banks and retailers” compared to global markets.

“Foreigners have consistently been selling South African shares, as indicated by the JSE share data,” Topol said.

“This trend reflects broader concerns about the country, particularly regarding the upcoming pivotal elections, which have contributed to market uncertainty.”

Modisane concurred that SA Inc stocks had recorded a difficult start to 2024, starting off the year “with anaemic volumes trading 30–35% below” historical averages.

“On the local front, SA investors had plenty of reasons to exercise caution,” he said.

“Load shedding continued to cast its dark cloud over the country, Transnet issues continued to loom large and they were in search of a new CEO, and – most importantly – we have an election to look forward to.”