Africa's a growth market, but it's a long-term play


INVESTING in Africa is a long-term play, various experts have cautioned, even as one national strategist has identified the continent's digital economy as a brand-new growth area for Singapore.

Enterprise Singapore global markets director G. Jayakrishnan singled out technology and food manufacturing as sectors for Singapore investors to explore, along with traditional ones such as oil and gas engineering.

Citing bilateral trade and direct investment growth, he told The Business Times that the agency is "quite pleased" with the progress that has been made since just before 2010, when it started taking a more active look at the continent.

Mr Jayakrishnan, in remarks made ahead of the Africa-Singapore Business Forum to be held at the end of this month, said: "It's across a range of countries, so the eggs are not all in one basket ... and also sectorally, it is quite spread out."

Statutory board predecessor IE Singapore last year named 10 out of Africa's more than 50 states as key markets: Nigeria, Ghana, Côte d'Ivoire, Ethiopia, Tanzania, Kenya, Rwanda, South Africa, Mozambique and Angola.

Mr Jayakrishnan said: "In the north, ... we are spending a fair bit of time in Egypt and Morocco. We are clear that this is, geographically, the spread where we will place the emphasis."

This includes proactively allocating resources, finding opportunities, identifying private-sector partners and engaging governments to establish Singapore's treaty network, he said. The Republic has inked eight bilateral investment treaties and 10 avoidance-of-double-taxation agreements in Africa.

Mr Jayakrishnan said the strategy for the African digital economy has been playing out over the past year, adding that Singapore has, over this same period, also stepped up its efforts in manufacturing.

"For the lay person or persons not following Africa, the digital space may not be the first thing that comes to mind, but actually, we find that that's a fantastic growth segment.

"We have been concentrating on getting Singapore firms that enable various parts of the digital economy ... We're targeting the big hubs - Cape Town and Jo'burg, Lagos in Nigeria, and Nairobi in Kenya. That is where most of the action is happening."

Manufacturing is another sector he hopes to grow, with efforts ramped up since an interview with BT in June last year.

With successes such as Tolaram Group's Indomie imports and Vega Foods' factory lines in Africa, the food production segment has been singled out.

"Some large structural issues convinced us that this is a place where we should be placing our energies," he said, noting the collapse of the commodity cycle of "the good old days", when countries flush with cash from high resource prices could import "all manner of finished products, from simple packaged food to electronics".

"Many of the governments in Africa have gone on a push to get more value-added in-market import substitution. We think this is going to be not just a flip-flop - we think this is going to be a longer-term game in Africa," he said.

Johan Burger, director of the NTU-SBF Centre for African Studies at Nanyang Technological University, said: "Given the small labour force of Singapore, it could incentivise and encourage Singapore companies to put up factories in Africa, where both resources and labour are cheap."

Mr Jayakrishnan said: "We'll punch above our weight, and I think we will be well regarded in particular niches. And that will have a demonstrative effect across the continent... It goes back again to the strong brand that we have."

Cody Lee, assistant executive director at the Singapore Business Federation (SBF), noted: "Africa is a specialty market. It is a niche market ... A place like Africa has a lot of similarities with Asean - but it is farther away, so people can't associate themselves so well with the opportunities, the risks and what's in it for them."

Businesses which have entered traditional sectors have already reaped rewards. State-owned Surbana Jurong's infrastructure projects include urban planning and water management; Tolaram has diversified into Nigeria's US$1.5 billion Lekki Deep Sea Port. In the resource field, state-owned Pavilion Energy has invested in liquefied natural gas, and Singapore-listed agribusinesses Wilmar and Olam are active in Africa too.

Devadas Krishnadas, chief executive of Singapore's Future-Moves Group, told BT: "Venturing into the African market requires good market research, a thorough understanding of local conditions and a willingness to commit for the long haul."

His consulting firm started taking projects in Rwanda in 2014 and is looking at a permanent office in the capital, Kigali, to pursue opportunities in the East African Community states of Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda.

Smaller companies have not been left out. Family business Asiatic Agricultural Industries has flown solo in Africa since buying out a German partner in the mid-2000s. It sells proprietary crop products such as fungicides in places such as Ethiopia, Uganda, Cote d'Ivoire and Sudan.

African markets, which contributed to about a quarter of the company's S$41 million in FY2018 global turnover, have better margins than in Asia, said chairman Chan Chek Chee. He estimates that the continent's revenue share could rise to 35 per cent in five years.

On expansion plans, he noted: "If you look at the countries that we're in ... they're within the same belt of climatic zones." The competition is mainly from multinationals, but "there are many people up and coming" from China and India too, he said.

Mr Chan quipped that Asiatic goods would not be able to reach their markets if not for the work of another Singapore company - shipping giant Pacific International Lines - and added that he has not ruled out supplying products to Wilmar and Olam.

SBF's Mr Lee pointed out: "Africa is the last frontier for agriculture companies because they are the only ones left in the world with big tracts of agricultural land - commercialisable agricultural land - available."

Meanwhile, the Singapore Malay Chamber of Commerce and Industry has announced its first trip to Africa, citing Nigeria's "massive potential consumer base".

Its internationalisation chairman Dainial Sani Lim said in a statement: "The demand for halal products in Nigeria is overwhelming."

Participants in next month's trip will visit supermarket chain Shoprite to study consumer behaviour.

Mr Burger of the NTU-SBF Centre for African Studies said "it is important that we differentiate between corporates from Singapore and the Singapore government". "At this stage, it seems the approach to Africa is primarily driven by the private sector," he said, describing the continent as being still "a bit low on the priority list of Singapore".

He added that a concern may be that there are only two full-time ambassadors, in South Africa and Egypt: "Many other African countries are served by non-resident ambassadors. While this is quite a cost-efficient way of maintaining diplomatic ties, it can send the unfortunate message that the country is not important enough to warrant a full-time presence."

Kelvin Tan, secretary-general of the Africa-South-East Asia Chamber of Commerce, suggested that Singapore agencies "pick the toughest, riskiest, and non-Anglophone markets" to enter. Enterprise Singapore has three centres in Africa - in South Africa and Ghana, as well as Kenya, the newest one, since June.

To this, Mr Tan said: "I think it is about time we have a centre dedicated to Francophone Africa. It's not just about the language, it's about the frameworks and legal systems too."

Meanwhile, Mr Lee said the SBF is "actively lobbying" for visa waivers for Singaporeans, and wants government support in connecting companies so they can go into Africa together.

Mr Burger noted: "With Singapore's government leading the way with meaningful agreements with African governments, it could only be a matter of time before more Singapore companies invest in Africa."