The New Commercial Actors in Africa
by Dr Martyn Davies
January 16th 2013
Over the past decade, the BRICS nations (Brazil, Russia, India, China and South Africa) have become the largest trading partners of, and investors in, Africa. In analysing statistics gathered by the United Nations Conference on Trade and Development (UNCTAD) 2011, trade between the continent and the five BRICS members climbed from $24bn to $195bn between 2000 and 2010.
In contrast, trade between Africa and the European Union declined by 11% over the last 10 years, and trade between Africa and the U.S. declined by 2% during this period.
Rapid industrialisation in these developing markets is fuelling demand for resources. Historical links are important in facilitating the growth of new relationships between the BRICS nations and Africa, with many new investments taking place in markets where language barriers are less of a concern.
Looking more closely at each of the BRICS members, one can begin to identify the various strategies that have been adopted by each member:
Brazil has focused its investment on Lusophone markets, offering its expertise in construction in exchange for many of the resources it needs to continue its own growth trajectory. Brazil’s key engagement partners are Angola and Mozambique.
Russia continues to leverage residual Cold War relationships, even though that era is long-consigned to the history books. Compared to the other markets in the BRICS grouping, Russia’s footprint on the continent is likely to remain relatively small.
India’s aspirant multinationals, with their new-world entrepreneurial spirit, are challenging and replacing existing business models. They are taking the lessons learnt in their domestic market and transplanting these innovative business models into the green fields’ opportunities of Africa, introducing new products (particularly in the cellular and motor vehicle industries) and business methods into areas not already in the grasp of competitive western constructs.
China’s growing investment in Africa is driven by its state-owned enterprises (SOEs) including state-controlled banks, which have aggressively expanded their loan portfolios on the continent to develop and extract resources, and to build the infrastructure that can move these resources to markets. Chinese investors display a bullish attitude that contrasts sharply with the cautious sentiment shown by many other investors in the aftermath of the global economic crisis. The dynamism that Chinese investment creates has encouraged others to follow, impacting the overall investment environment.
Arguably the most competitive “new” actor is the South African private sector. Since 1994, South African companies have built up a pervasive footprint in Anglophone Africa; they have been far less successful in Francophone and Lusophone Africa. Key sectors where South African firms have excelled in the region include mobile telecoms, retail and commercial banking, mining, engineering services, hospitality and retail.
Businesses examining potential ways of investing on the continent would do well to understand the approach of the BRICS members and the many faceted effects of their investments on the continent.