Business Daily (Nairobi)
James Makau
10 July 2008
Nairobi — Seven years ago, the ambitions of South African firms to penetrate corporate Kenya seemed to have been crudely dashed after the exit of SABMiller from the local alcoholic beverage market.
After an expensive and lopsided marketing war that bore a nasty tinge of corporate nationalism, suffered by both the South African brewing giant and EABL in the East African markets, SABMiller and its Kenyan counterpart hopped into bed in a multibillion shilling deal that allowed both parties to exchange a 20 per cent stake in their respective businesses in Kenya and Tanzania.
The face-saving deal - which was codenamed Thunderbird by McKinsey, the international strategy consulting firm - and SABMillers's botched market entry into the Kenyan market has served as a template of how not to expand across the continent for corporate South Africa.
In the late 1990s, the market entry approaches by South African firms as typified by SABMiller was big, brash, trample and outspend incumbents in whichever nation they chose to invade.
Today, according to business leaders and observers, the tiger stripes may have never changed, but in its approach to an impending kill, it has adapted to the dexterity of its prey.
Out went the brash approach and in came a lot of listening, watching and understanding the contours of power in the local and global business scenes.
"We have now made it a point that in whichever market we enter, we seek a strong local partnership in all the big deals we have done on the continent," Mr Michael Du Toit, managing director CFC Stanbic told the Business Daily in an interview.
Standard Bank, one of Africa's biggest banks with a continent-wide presence, recently concluded Kenya's biggest merger deal with CFC Group with Sh80 billion balance sheet, which saw the company transform its local subsidiary into the top five league in the banking, insurance, stockbrokerage and fund management industries in one fell swoop and attained a listing on the Nairobi Stock Exchange.
Even after such a deal, the company has maintained an unnerving sense of modesty such that the swarms of expatriate managers lording it over locals are no longer in vogue.
Instead, the company is now using local talent to manage its combined businesses in Kenya, Uganda and Tanzania, which now ranks as one of the largest diversified financial services firm in the region.
Such is the new stealth approach adopted by South African firm to conquer markets across Africa that is starting to bear good results; helping the Rainbow Nation stamp its presences in all corners of the continental business scene.
It has now dawned on South African firms that "Africa", as the citizens of this country refer to the rest of the continent, is not one homogenous market that can be conquered using a cookie-cutter approach, but a collection of highly fragmented and peculiar national fiefdoms where business and politics is intricately and awkwardly connected.
Tiger stealth
To be sure, Kenya's diplomatic and trade relations is coolly distant, but respectable.
In Kenya, the conventional wisdom has been that corporate Kenya successfully repulsed corporate South Africa after the exit of SABMiller as a direct competitor to EABL, but the string of deals that have been closed since then reveals that this is far from the truth.
Business relations between South Africa and Kenya have become more entrenched and in terms of trade balance, it is hugely in favour of the former.
Perhaps, the embodiment of how this stealth approach is working to boost investment in Kenya was more visible in May this year, when Tiger Brands, South Africa's largest fast-moving consumer goods company bought a controlling stake into Chris Kirubi's controlled Haco Industries Kenya.
This deal was considered a coup of sorts both in terms of gaining an entry into the consumer goods industry at a time when Kenya is experiencing an emerging middle-class and when corporate nationalism is evident in the local manufacturing lobby courting Kenyans to shun South African and other foreign products.
Indeed, at the height of the trade wars between Kenya and South Africa, Mr Kirubi as the chairman of the Kenya Association of Manufacturers was a strong advocate of buying Kenyan products for pure national pride.
The subtext behind the Tiger Brand/Haco Industries deal points to a symbolic acceptance by local businesspeople that they will have to embrace globalisation and pan-African trade to remain successful and relevant. This deal could pave way to many other transactions of its nature.
A crucial aspect of Tiger Brand's entry in the Kenyan consumer goods market was the use of local partners to share risk, while planning to leverage its own brands off existing businesses that had local knowledge.
This is a hard lesson out of the new rulebook on how to capture Africa under the radar.
"The South African market is showing signs of saturation especially in the consumer and goods industry. So South African firms are beginning to seek opportunities to grow revenues from the region and in the rest of the African continent," says Ken Kaniu, investment manager at Stanbic Investment Management Services.
Contrary to the perception that the South Africans were down and out, firms from the Rainbow Nation presently control massive stakes in virtually every industry of corporate Kenya, an indicator of the overwhelming success of the stealth strategies that now dictate trade between the two countries.
So much so, that while the level of exports to South Africa have only edged up by Sh1.3 billion in the last five years to stand at Sh2.3 billion last year, imports from South Africa within the same period have ballooned by Sh12 billion to stand at Sh35 billion in 2007.
Rather than head on confrontation with local players, South African firms have resorted to mergers and acquisitions with domestic strategic partners as their local markets as avenues for growth become saturated.
The invasion
South African firms have emerged as either the market leaders in growth industries such as financial services, retail, entertainment or manufacturing or are in the top five league.
These firms range from Absa, which through a complicated reverse takeover in 2006 now owns Barclays Africa, which in turn owns Barclays Bank Kenya (BBK). BBK, which is by far the country's largest bank with assets worth over Sh160 billion touches on all aspects of Kenya's financial lives and, it is one of the most successful local businesses.
Sanlam, one of South Africa's largest financial services firms is now the majority owner of Pan African Life, an insurer ranked in the top five leagues, locally. Standard Bank now owns CFC Stanbic, Kenya's fourth largest bank, which has its tentacles deep into the insurance, funds management, banking and stockbroking businesses here. Alexander Forbes, the financial services firm is also respected in the actuarial and fund management businesses.
Other greenfield and partnership projects have set out to quietly revolutionalise entire industries. Deacons, which owns the Woolworth's, TruWorths, 4U2 and Identity franchise, is changing the upper-end retailing for clothes, together with Mr Price.
Johnnic Communication's (now known as Avusa) has changed the entertainment scene with its Nu Metro cineplexes, reviving an industry that was tittering on the edge. Naspers owned Multichoice DSTV is the market leader in paid-for satellite television. Naspers Ltd is estimated to derive 75 per cent of its revenues from the continent out of which 30-40 per cent is said to be derived from the Nigerian market.
Media 24 is emerging as a leader and innovator in magazine publishing with titles such as True Love, Drum and homegrown start-ups such as Twende and Adam.
South Africans now control AAR, the health maintenance organisation.
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