This was a terrific discussion. And timeous. Entrepreneurs worldwide are becoming increasingly interested in the African growth story. Statements vary depending on who you listen to, but it’s common cause the continent houses at least six (most say seven, others nine) of what will be the world’s ten fastest growing economies over the next decade. We hosted two Africa specialists in the CNBC Africa Power Lunch studio to discuss opportunities. Investec’s Michael Power prefers the East while Deloitte’s Michael Vincent says West is best. They offered some excellent practical suggestions – and perhaps most valuably, shared names of companies who had tried and failed. It’s always best to learn from the experiences of others. – AH
ALEC HOGG:  According to the World Bank, Africa is set to grow 5.3% this year. Michael Power, Strategist at Investec Asset Management is in our Cape Town studio, and Michael Vincent, Director of Monitor Deloitte is with us. The two of them have divergent views, and that’s why we wanted them to be in the studi
o with us today. Michael Power wrote an excellent article in last week’s Financial Mail.  He is punting East Africa, whereas Michael Vincent from Deloitte thinks that Power has lost his compass. He thinks West Africa might be a better option. What do you think Gugu, before we ask those two?
GUGULETHU MFUPHI: Judging by the strong presence of the West African community that we saw in Davos, we all know the green and white flags and scarfs that were present in Davos. It seems like Nigeria is the way to go, but that also comes with its own challenges.
ALEC HOGG:  Let’s start with Cape Town – Michael Power. It’s a really good piece that you wrote in the FM, Michael – well done. We’ve gotten used to your analysis and research. You did focus on the East. It appeared, from a reader’s perspective, that China and India – or the proximity to it – played quite a big part in your thinking.
MICHAEL POWER: That’s absolutely right. It’s not the only reason, but it is important. East Africa has long had links with the Indian Ocean basin and even beyond that – China – and those links are now starting to pay dividends.  We need to think of Africa in the context of the world as it’s evolving. What we’re beginning to see is that Asia – and the Middle East is included in that – is engaging Africa primarily through East Africa.
GUGULETHU MFUPHI: Michael Vincent, you have a different view on things…potentially, I’m in your camp.
MICHAEL VINCENT:  Well, you would be in the right camp in that case. Gugu look, I think that Africa is definitely the new story in the world. I think that East Africa offers opportunities, clearly.  But just by sheer weight of size, West Africa has to be on anybody’s radar – particularly Nigeria: 170-odd million people, an economy that’s growing by about 7% a year, and a government infrastructure which is improving. I think that any investor looking for a market would be wise to look at West Africa.
ALEC HOGG:  All right Michael in Cape Town: east versus west. You didn’t tell us, in the article you wrote, to go west; you told us to go east. You heard what Mike Vincent had to say.
MICHAEL POWER: The reason why I was focusing on East Africa was that East Africa is making itself relevant in the global trade matrix. East Africa is now starting to export manufactured goods. The first signs of industrialisation taking place in Africa in the new era, are taking place in East Africa. We’re seeing the textile and shoe industries in particular, move into Ethiopia and we’ve seen the metal bashers moving into Kenya. It’s not the size of the market per se; it’s what Harvard calls ‘economic complexity’. It the capacity of a nation or a group of nations to make complex things. What we’re beginning to see is that East Africa is moving up the value chain, moving beyond commodities, and starting to add a second string to their bow.
ALEC HOGG:  That ‘economic complexity’ argument is a fascinating one. You do at a point – reach a tipping point. How far away is East Africa from that?
MICHAEL POWER: Well, I think it has reached that tipping point, which is why the likes of H&M are moving in to Ethiopia. In fact, over 50 Turkish textile companies have relocated to Addis Ababa. It’s why the likes of the big motorcycle companies from India are moving into Kenya, as is Honda and Samsung. There are other aspects as well, to the East African story and I think one of the most important is the fact that it’s very well connected – and I’m using that in the cyber sense of the word. East Africa is way ahead of pretty much anywhere else in Africa in terms of how well they use the mobile telephone and they integrate it into their economy.
GUGULETHU MFUPHI:Â Michael Vincent, how do you respond to that?
MICHAEL VINCENT: Well, a very good measure of international investor confidence is foreign direct investment. Nigeria, in 2011 and 2012, was the number one recipient of FDI in Africa – 37th in the world out of 234 countries measured. That gives one a sense that investors are beginning to see that West Africa is a destination. Not for a minute do I say that there are not challenges in Nigeria, but by the same token, if one just takes the discussion around economic complexity it’s interesting to note that manufacturing is the third largest contributor to GDP in Nigeria. There’s no doubt that it is an increasingly attractive market, and one where global investors are beginning to see real returns. In dollar returns, the returns in Nigeria outstripped most countries around the world.
ALEC HOGG:  I suppose both parts have their benefits, and the two of you are telling us that, but perhaps you could give us some insight from a South African experience. It’s been mixed in both areas. Michael Power, from your perspective, are there any success stories? We had Craig Venter in the studio with us yesterday, and he’s obviously not a success story. He said he learned many lessons when he went into East Africa with Altech. Are there any success stories from a South African perspective there yet?
MICHAEL VINCENT: I think there are a few. I think East Africa has proven to be a much more competitive market than South African Breweries, for instance, who went into Kenya and retreated. It’s the only market they’ve ever retreated from, in the world. I think some of the South African companies thought it would be a lot easier than it turned out to be. I see that Shoprite is potentially thinking of retreating from Tanzania and selling out to a Kenyan company called Nakumatt. However, companies like DSTV have done extraordinarily well in that part of the world. In addition, there are a number of others like Standard Bank, who have done very well in Kenya, so it’s not a story that’s all one way or the other. Just going back to this issue of ‘economic complexity’, the way that Harvard uses the phrase is… Economic complexity is all about the range of exports you have, and your complexity is related to your export power. The problem with Nigeria – and I’m a huge fan of Nigeria – and I’ll echo what the retiring governor of the Central Bank of Nigeria Sanusi said last year. The problem with Nigeria is that its export profile is well over 90 percent devoted to oil. The problem with that is that it doesn’t increase its economic complexity. In fact, Sanusi’s last comment was ‘we have to move beyond oil’, and that’s the problem I see with Nigeria. I speak with many Nigerians and they echo that sentiment.
MICHAEL POWER: I would absolutely agree with that. One of the major challenge for Nigeria is that they have to diversify their economy. Moving away from an oil-dominated economy is challenging. However, after energy and resources, the next big player is obviously things like agriculture, but if one is going to compete globally the economic complexity argument holds sway, and Nigeria has some real challenges in that area. If I could just say Michael, I’m also a great fan of East Africa, but like with East Africa, in West Africa there have been South African companies that have done well. One thinks of DSTV, MTN, and Nampak etcetera, but similarly there are companies that have not done well. We’ve recently had Woolworths announcing that they’re going to pull out of Lagos and it brings me to a point that was raised by (Standard Bank CEO) Sim Tshabalala recently in an article in one of the newspapers, and I’ve personally found this. What tends to happen is that South Africans do tend to think that what has worked well in South Africa will work well elsewhere. Just by its very nature, the Nigerian market is a typically open-air market. Not many South African companies that operate in the northern suburbs in Sandton have the experience to operate in that market. One does need a shift in the way you are going to engage with that market. South Africans can be incredibly arrogant and I think there are some valuable lessons to be learned there.
ALEC HOGG:  Just to wrap up with, Michael: if you are consulting to a South African company that’s going into Nigeria, what should they watch out for and what are the success factors going to be?
MICHAEL VINCENT: They need to watch out for their arrogance and believing that they can go in there and ‘what has worked in South Africa will work there’. There is nothing better than boots on the ground. And there are significant risks with going into that market, but you do need local partners who are able to help you interpret the market and it requires investment. Spinning straw into gold takes time and investment, and Nigeria’s no different.
ALEC HOGG:  Michael Power in Cape Town: if you were to give the same advice to someone in East Africa…
MICHAEL POWER: I would pretty much echo those sentiments. I think that even the likes of South African Breweries would echo those sentiments. They’ve had a stunning success in Tanzania and sadly, a failure in Kenya, so sometimes you win – sometimes you lose. I think that different markets – in this case, two markets adjacent to each other – can require very different strategies. There is not a ‘one size fits all’ strategy for the rest of Africa, and I think it’s very important that South African companies recognise that.
