The Africa Business Agenda
September 2014 4th edition
CEOs and PwC leaders in Africa share their insights about doing business in some of the world’s most exciting and challenging markets.
www.pwc.com /theagenda
Contents
Introduction 2 Africa: The place to be 3 Africa growth drivers 10 Key challenges to unlocking growth in Africa 11 Government and the growth agenda 13 The digital revolution 19 Industry highlights 21 A guide for investors 24 Building international JVs & partnerships and financing growth in Africa 34 Developing local talent 42 Innovating in Africa 47 Conclusion 52 Leaving a legacy: CEOs in their own words 53 Methodology 54 PwC in Africa 56 Introduction Africa: The place to be
Suresh Kana Investors worldwide recognise Africa’s stay ahead of the game. This means Territory Senior Partner for vast growth potential, in particular its anticipating change, actively seeking PwC’s East, West and South demographic edge. Africa is the world’s to recruit and retain the best talent Market regions in Africa youngest continent and is expected to and investing in our business to better have the biggest labour force by 2040. serve our clients in Africa. Recently, Now in its fourth year, PwC’s Africa we established an integrated PwC Business Agenda supports this positive Africa business, made up of firms in view and highlights the increasing level the predominantly English-speaking of investor interest on the continent. regions of Southern, West and East When we embarked on The Agenda in Africa, which is led and managed by 2011 as an extension of PwC’s annual a single leadership team. This year, Global CEO series, we were entering PwC Africa announced an alliance with unexplored terrain. But the response PwC in the UK, to meet an increased to the first and subsequent editions demand for professional services as has been overwhelmingly positive and trade activity between the two regions The Agenda has now become an annual grows. What this means for clients is publication. that PwC is well positioned to serve them better across Africa, with the full At PwC we began our own business benefit of PwC’s global reach. journey in Africa several years ago and have continuously upped the ante to Everything and Figure 1: Africa’s demographic dividend anything can work in Africa. Organisations need the willpower
and the staying power Population in 2019 and need to realise 1 257.9 million that Africa works in a different way from the rest of the world – and you have to be prepared to work that way. Africa is all about Population in 1999 768.9 million choices. Mark Levy is joint CEO of Blue Label Telecoms
in South Africa. Sources: IMF, World Economic Outlook database
PwC 3 The Agenda enables us to provide Figure 2: Real GDP growth (%) you with an in-depth analysis and insights into how opportunities and 8 challenges differ across the African continent. Africa has become one of the world’s most favoured investment 7 destinations, with six of the world’s ten fastest-growing economies based 6 in sub-Saharan Africa. Five years ago, many of Africa’s economies were 5 under significant pressure in the wake of the global financial crisis. Today, 4 Africa has undergone far-reaching transformation. 3 Robust growth is set to accelerate in Africa in 2014, with the International 2 Monetary Fund (IMF) projecting GDP growth to accelerate to 4.4% from 1 3.9% in 2013. Telecommunications, consumer-facing industries, financial services, resources, agribusiness and 0 infrastructure are some of the sectors that will drive growth and attract -1 international trade and investment. 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 The IMF has projected a record USD80 billion inflow of investment from both advanced and emerging economies into Africa World Africa in 2014. No doubt, policymakers, regulators and governments will Sources: IMF, World Economic Outlook database have much to contend with – there are a number of short- and long- term challenges, as well as many opportunities. The greatest potential for Africa lies in its people. There is Figure 3: Megatrends impacting society and business increasing consensus among business leaders that growth can only take place Q: What’s the next big thing that you think will impact your business, industry or society if there is more collaboration between over the next five years? (top three trends CEOs named) governments and the private sector.
Considering the findings of our CEO interviews over the past four years, 69% 67% 63% we are more convinced than ever that Technological Urbanisation Demographic despite the numerous challenges, such as inadequate infrastructure advances shifts and policy uncertainty, the African 41 31 19 story is a positive one. Multinationals 5 that already have a presence on the 14 continent are extremely positive about 21 23 the prospects for future growth. 23 22
The pace of change in the world is speeding up with a series of global 1st 2nd 3rd megatrends transforming business and society. African CEOs see Base: All African respondents (260) technological advances, urbanisation and demographic shifts as the three defining trends that will transform their businesses over the next five years. They are aware of the implications of these changes for their businesses, as well as for the outlook for Africa. Many have recognised the need for change or are making changes in their businesses.
4 The Africa Business Agenda 2014 Figure 4: Africa’s growing middle class I think the next big thing 34% 35% that will impact business is technology. We are able to do things a thousand times faster than we could five years ago. And I think 30% this exponential growth in 1000 technology will continue.
27% 27% With that comes the 26% increasing gap between 800 skills and employment. 25% What we find is that the unemployment problem in 600 a lot of economies is due to
Millions 579.4 a skills mismatch. There
400 are jobs, but there are no 303.9 401.1 498.6 20% skills to fill those jobs. At Transnet, we 200 have embarked on a comprehensive programme 115.3 157.5 204.4 326.7 to train young people in 21.0 25.2 48.8 46.1 0 0 1980 1990 2000 2010 different vocations using modern technology. We’ve Lower class Middle class Upper class trained more new artisans,
Middle class % of population technicians and engineers than we need, so that we Middle class defined as those earning $2-20/day can release them back into Strong growth in the past two decades Africa is a complex and diverse the economy with skills to has helped to reduce poverty and continent. There are so few look for jobs. increase the size of Africa’s middle generalisations that hold true when class. By 2060, Africa’s middle class doing business across the continent. Brian Molefe is the Group is expected to reach 1.1 billion, which At PwC, it is through our observation Chief Executive of Transnet will then be 42% of the population, and engagement with clients that SOC Ltd, the largest freight according to the African Development we are able to call on our unique transport company in Bank1. This growth is creating all range of skills, as well as provide South Africa. sorts of opportunities, particularly practical insight that is useful to those for companies in the sectors in which doing business in Africa. Similarly, richer consumers typically spend their The Agenda also provides practical money, such as recreation, services and insights, analysis and personal healthcare. perspectives. I hope you find it useful and look forward to your feedback and suggestions.
1 ‘The Middle of the Pyramid: Dynamics of the Middle Class in Africa’, African Development Bank, http://www.afdb.org/fileadmin/uploads/afdb/ Documents/Publications/The%20Middle%20of%20the%20Pyramid_The%20Middle%20of%20the%20Pyramid.pdf
PwC 5 The Africa Business Agenda
Edouard Messou Figure 5: CEOs are more confident about medium-term revenue growth Territory Senior Partner for than short-term returns PwC’s Francophone Africa Market region Q: How confident are you about your company’s prospects for revenue growth over the next 12 months? CEOs are increasingly recognising the long-term untapped potential of Africa and, more particularly, of sub- Africa 4 12 44 40 Saharan Africa (SSA). Huge natural resources, fast-growing populations, Global 3 12 46 39 rising middle classes: the underlying drivers are strong and well-known. % With the IMF projecting strong GDP growth in 2014, Africa is expected to Not confident at all Not very confident maintain the performance levels it has Somewhat confident Very confident been achieving since the turn of the millennium.
These favourable prospects, especially Q: How confident are you about your company’s prospects for revenue growth over the in the context of the global economic next three years? crisis, have put the spotlight on Africa. We could not record the number of reports, press articles and top executive interviews over the past months alone talking about Africa. Africa is the next frontier for most company executives Africa 2 8 39 51 Africa 4 12 44 40 and investors, who have ambitious plans for the continent. Indeed, 90% of Global 1 7 46 46 African CEOs interviewed for this issue Global 3 12 46 39 of The Africa Business Agenda told us % that they were confident of mid-term % prospects for their businesses, with just more than half (51%) saying they are Not confident at all Not very confident ‘very confident’. Somewhat confident Very confident
Interestingly, CEOs are slightly more anxious about short-term prospects Base: Africa – 260, Global – 1 334 for their companies and industries. Although 84% remain confident overall, only 40% say they are ‘very confident’. CEOs are actually aware that a lot still needs to be done to convert the continent’s potential for exponential growth into tangible business opportunities, at a country as well as a company level. For many, the key will be to manage growth effectively in order to create sustainable, stable and more equal countries and companies. This will not be an easy job.
6 The Africa Business Agenda 2014 Bridging the infrastructure gap, sharing the wealth and investing Seven key challenges facing Africa: natural resource revenues in people • Building hard infrastructure such • Improving transparency at all levels; development are still Africa’s top as transport, energy and telecoms • Facilitating pan-African operations, policy priorities. As we discuss further (especially high-speed Internet); including international trade and here, Africa’s CEOs are becoming role • Building soft infrastructure like workforce mobility; models. They have started to educate education and financial systems; and train people; they want to create • Providing the required regulation jobs for the youth and are innovating • Making the business environment to enable a fair and competitive more investor-friendly, including environment; and at a faster pace to bypass traditional through lower tax pressure, higher business hurdles. administrative efficiency and reduced • Reducing complexity, as there is policy uncertainty; no such thing as one Africa, but They have also started to change. They numerous market niches. have realised that growing too fast without first building solid foundations will lead to disappointment and value destruction, not only for them, but also – and more importantly – for society at large. As a consequence, they are currently focusing on building the right organisations, reducing costs and inefficiencies while investing in technology, hence preparing their companies for higher agility and sustainable growth. This higher maturity will impact international companies, as Africa’s CEOs are becoming increasingly demanding of their partners and in search of long- term win-win deals.
Certainly the public sector has a lot to do despite noticeable improvement over the past years. This is nothing new. What is new, however, is the fact that the private sector has started to play a leading role in transforming Africa, solving socio-economics issues and building Africa growth drivers.
In short, Africa is more than ever open for business, and it has entered a new cycle.
PwC 7 CEO interview: Sizwe Nxasana, FirstRand Limited
Sizwe Nxasana is CEO and Executive Director of FirstRand Limited. In January 2006 Nxasana took over as CEO of FirstRand Bank, the wholly-owned subsidiary of FirstRand Limited, with responsibility for the entire banking operations of the Group, including First National Bank, Rand Merchant Bank and WesBank. In January 2010 Nxasana was appointed CEO of FirstRand Limited.
Q: How would you describe the past 12 Q: How is your business changing months for FirstRand? internationally – in Africa and beyond?
A: The past 12 months has seen FirstRand grow in the A: FirstRand is a bank that is regionally focused. domestic market in SA as well as in the markets in Our strategy is to be a leading financial services which we have a presence. FirstRand has grown across group that is firmly located in Africa as a region. the different segments of the market. For instance, in However, we have no desire to be within all 54 the consumer sector there has been good growth, as countries on the continent. But we do want to be well in the smaller and medium enterprise space and in some of the fastest-growing economies on the corporate investment banking. There has also been continent. growth in some of our operations outside of At the same time we have recognised that there is South Africa, particularly in countries such as increased trade activity between India and South Namibia, Botswana and Swaziland and we are also Africa, but also between India and the rest of seeing growth in some of our smaller operations Africa. We have also seen increased trade flows that we started a number of years ago in places like between China and the rest of Africa. We want to Zambia, India and Nigeria.
8 The Africa Business Agenda 2014 locate ourselves in this trade corridor. That is why Q: How is technology changing the we have an operation in India and we want to tap nature of business for FirstRand? into the corridor between India and sub-Saharan A: Throughout the group with the culture of Africa, in particular. Currently we have a number of entrepreneurship and empowerment that we relationships with various Chinese banks that give us promote, we ensure we understand the role that some deal flow to the rest of Africa. innovation and technology play in improving Q: How does FirstRand manage its banking throughout the world. We are seeing relationship with Government? major trends, for instance in social media and A: As a bank, regulations and laws are important and the convergence taking place between telecoms, we have seen an increase in the number of regulations IT and banking. We are at the centre in terms that banks all over the world have to comply with. To of driving innovation in that regard. As a bank the extent that we have seen an increase in the number we want to promote the use of products and of regulations, there has also been an increase in the devices in providing banking services, but also in cost of doing business. What is important is for us to improving the lifestyles of people generally. We make a contribution in improving the effectiveness also understand the role that technology plays of regulations and reduce the risk that is caused by in the corporate banking environment. We are the environment that we operate in as banks. We continuously investing in new technology and stay close in building relationships with Government, innovation to make it easier for our clients to policymakers as well as regulators. conduct their banking activities. Q: What is FirstRand’s strategy regarding What is important is to close the trust deficit talent? between the Government and business. We as a bank have a role to play in developing the economy. A: Banking is about people. We are a business that For example, we have a role to play in supporting is very people centric. It is essential that we attract the National Development Plan (NDP) in South and retain the best talent that is out there especially Africa, by promoting and developing infrastructure if we are to drive the culture of entrepreneurship and also by getting involved in other areas that are and innovation. Just to give you an indication, the critical for growth in the South African economy fact that FNB was voted the world’s most innovative such as improving the quality of education. The same bank, is mainly because we have the best people applies in other jurisdictions in which we operate. It’s who are empowered and are allowed to explore important that we establish a much better partnership innovations and are given space and the resources between the private sector and the Government. If we to truly express themselves and therefore perform. do that, we can drive systemic change that positively We spend a lot of time talking about the ‘owner- affects a number of societal issues. managed culture’ at FirstRand – this is something we guard jealously in the group. We believe this is what distinguishes us from other banks.
PwC 9 Africa growth drivers Key challenges to unlocking growth in
Edouard Messou Africa
Territory Senior Partner for PwC’s Francophone Africa Market region
Innovation and growth are top of The development of these technologies To recharge mobile phones, the mind for African CEOs. More than through a decentralised model, with entrepreneur activates the device 30% of them see product and service low unit costs, is a real opportunity for several days or several recharges innovation as the key driver of short- for countries that often face financing by sending a surcharged SMS to the term growth, ahead of increasing problems. In the long run, he says, the technology developer. Thanks to market share in new and existing deployment of part of the national grid this system, entrepreneurs gradually markets and M&A initiatives. can be done in a progressive manner become the owners of the solar kits, through the connection of different off- whereas technology developers agree In Africa, the process of growth and grid systems and mini-grids, resulting to spread their turnover out over innovation often follows a specific in an interconnected, intelligent and time in exchange for a higher overall pattern compared to other regions in decentralised electrical system that price and the right to cash-in on all of the world. The lack of infrastructure makes very good use of renewable the information collected, including and the difficulties faced by the energy and storage. This type of telephone numbers. population in accessing services, even initiative would enable progressive the most basic ones, have led to the investments over time while providing What can we learn from this? Primarily, emergence of disruptive innovations at basic energy services to many that there is no limit to disruptive the local level. What could have been businesses and households. innovation in Africa. perceived as weaknesses at first glance have, in many cases, been transformed Another example of innovative projects As illustrated by the huge success by local entrepreneurs into business in Africa that are based on multi- of the first StartupBus Africa (an opportunities, opening new markets networks/multi-services approaches entrepreneur-run start-up competition and developing unrivalled innovation is the pay-as-you-go and recharging gathering entrepreneurs and experts capacity. Africa has become a hub for of mobile phones system developed in for a four-day bus trip to solve issues innovation. Tanzania. In the rural region of Victoria through technology), creativity is Lake, the low level of electrification there and just waiting to be incubated. The energy sector is a good example. (roughly 6%) means that almost half Secondly, that copying and pasting In sub-Saharan Africa, according to the of all mobile phone users must travel success stories from more-developed US Energy Information Administration 4-18km in order to recharge their countries will most likely fail. Africa (IEA), 589 million people did not devices. has so many specificities that one have access to energy in 2010 (which can succeed only by understanding represents half of the worldwide Local micro-entrepreneurs recognised the environment at the local level, population without access to energy). the opportunity to earn a subsistence then thinking outside of the box. New This is specifically due to the lack of income in their villages by selling business models and technologies infrastructure. A classical approach recharging from USD0.1-0.3 per have already emerged, and the years to fix the problem could have been unit. Yet, they could not afford the to come will most likely show us how to develop expensive grid extension USD200-400 required to buy solar innovation can be a growth driver for projects. But other approaches kits and without capital or guarantees Africa. To this extent, new entrants have been followed. Vincent Kientz, of solvency, lending agencies and from other emerging markets may have Chairman of ENEA, a firm that has solar system distributors were not an advantage. conducted many pro bono projects for prepared to consider a loan or a developing access to energy in Africa, leasing arrangement. Consequently, explained in an in-depth interview technology developers overcame for this publication that renewable the problem by offering pay-as-you- production, storage and smart grid go leasing offers to make solar kits technologies have developed fast, available to entrepreneurs in exchange creating an increasingly efficient for a down payment. electricity supply based on off-grid systems, small power generation units and mini-grids. PwC 11 CEO interview: Andrew Bonamour Q: Tell us about Times Media Group Limited’s venture into Africa. Times Media Group A: The African continent looks promising, with each region having its own nuances. In the Limited near future, we intend expanding our radio and television channels. We want to expand further across Q: Does Africa come with investment, capital allocation the continent and partner with any risks? decisions are key for us. For us, any investment has to be justified people in the regions. Our strategy A: I think if an entity is a corporate by a return. At this stage I am is to focus on the core media assets organisation, there are a number not convinced that digital return that have a dominant position of hurdles and obstacles that an can be monetized. We intend to and visible brands, invest in their organisation faces and needs to spend capital on digital products growth, digitisation and grow overcome regarding doing business extremely conservatively – and across the crest of the African in Africa. But Africa is generally cautiously. continent. good for entrepreneurs. Africa In September 2013, Times Media tends to favour entrepreneurs – it In the past two years we have acquired a 32.3 percent stake in the has an entrepreneurial spirit. invested in some pay wall Multimedia Group for R144m. This Corporates require structure. technology and will continue to was our first venture into the African We tend to focus on corporate introduce it in the near future. Our continent. The Multimedia Group is governance first in terms of how digital products have grown and Ghana’s largest independent media the business is run. are profitable in their own right. company. Multimedia Group has six radio stations, three on-line media Q: How has the company We have become nimble in the sites, a multi-channel satellite television grown in the past year? short-to to medium-term. We have service and events management grown largely in broadcasting A: Some significant changes have business. The Group has also acquired – we now have interests in nine a 49% stake in Kenya’s Radio Africa been made to streamline the different radio stations throughout Limited (RAG) a deal that gives the organisation and reduce costs Africa. We want to become more company exposure to radio, television substantially. This has included aggressive in terms of pushing the and newspaper assets. RAG’s broadcast selling non-core assets. We have boundaries. assets in Kenya include Kiss FM, Classic managed to maintain circulation FM, Radio Jambo and Kiss TV. The TV in some of newspapers and have Q: What about growth in assets are intended to be replaced by digital terrestrial TV offering. Times grown our share of the advertising the next three years – what Media plans to use RAG to further spend – TMG has now become are the company’s plans? the biggest publisher of English- spread its wings across East Africa. We A: We are focusing our efforts now have exposure to faster growing language daily newspapers in largely on broadcast and content, markets in East and West Africa and we South Africa in addition to being video on demand. Radio in the intend to use these companies as the the market leader on Sundays. long term is a much better medium beachhead in these regions. The difficulty with print is the to reach advertisers. In the long exorbitant costs of printing and term, broadcast will generate more More recently, in South Africa, Times distribution. Digital is important Media bought a 65% stake in a local revenue than from newspapers. radio station Mpower, which is now going into the near future but called Rise FM, and in January 2014, the current business model is Andrew Bonamour has been the it bought a 60% stake in Vuma FM in unsustainable. If you look at some CEO of Times Media Group Limited KwaZulu-Natal. media houses, they have spent since January 2013. Listed on significant amounts of money the JSE, the Times Media Group on digital platforms, with little is a media company that seeks to chance of ever generating a return. inform, educate, entertain and We are driven by return on our connect people.
12 The Africa Business Agenda 2014 Government and the growth agenda
Public sector organisations need to get ‘fit for the future’ by Stanley Subramoney
Strategy Leader of PwC’s South Market Region
Confidence levels among the world’s Figure 6: Africa’s CEOs are more concerned about economic and policy business leaders are stabilising. threats than their global peers However, over-regulation and exchange rate volatility remain a major threat Q: How concerned you are about these potential economic and policy threats to on the horizon for business. Our your organisation’s growth prospects? (CEOs who are ‘somewhat’ or ‘extremely’ research shows that for CEOs in Africa concerned) inadequate basic infrastructure (78%), government responses to fiscal deficit 80 Over-regulation and debt burdens (78%) and an 72 increasing tax burden (75%) are key areas of concern, and that governments 79 Exchange rate volatility have their work cut out for them to 60 resolve. Other important concerns are slow or negative growth in developed Inadequate 78 basic infrastructure economies (70%) and lack of stability 47 in capital markets (65%). Government response to 78 fiscal deficit and debt burden 71 PwC’s recent study entitled ‘Fit for their future: Government and the Global CEO’ 75 assesses the changing relationship Increasing tax burden 70 between government, business and society. The study draws on the results Slowdown in 72 of PwC’s annual 17th Global CEO high-growth markets 65 survey of 1 344 business leaders in Continued slow or 70 68 countries worldwide and adds to negative growth in 70 it with valuable insights from various developed economies government representatives and state- 65 backed CEOs. The aim of the report Lack of stability in capital markets 59 is to compare and contrast the views of business and government, as well Protectionist tendencies 58 as provide an understanding of the of national governments 54 policy and delivery responses for the challenging conditions of today and % tomorrow. Africa Global The report sets out businesses’ Base: Africa – 260, Global – 1 334 priorities for government and discusses in turn how governments can get fit for the future through (digital) transformation, deliver growth through collaboration and build trust through engagement. PwC 13 If government and public-sector Figure 7: Governments can create a business-friendly environment organisations are to finally put the by improving infrastructure, financial stability and the skills fiscal deficit issue behind them, the development challenge is to adjust to this new reality by becoming more productive and Q: Thinking about the role of Government in relation to the following outcomes, which focusing on the outcomes that society three areas should be government priorities in the country in which you are based? needs and wants – including more affordable services. In this regard, Improving the country’s technology is the next big enabler. infrastructure (e.g. electricity, 68 In the private sector, technological water supply, transport, 50 advances are seen as the most housing, broadband) important global trend that is expected 54 Creating a skilled workforce to transform business. 41
According to our research, public Ensuring financial sector 45 stability and access to 53 bodies need to embrace digital affordable capital technology as the tool to drive innovation, transform how they engage Reducing poverty 38 and interact with citizens and explore and inequality 22 how outcomes can be better secured. In addition, public bodies need to learn Creating jobs for young 30 from digitally-orientated companies in people (16-24 years old) 22 the private sector and explore whether Creating a more internationally 28 more innovative business models can competitive and efficient be developed. The world is changing tax system 50 faster than our ability to cope with Developing an innovation 14 the changes. Speed is one of the more ecosystem which powerful forces and complexity is supports growth 30 adding pressure to the way we operate. Addressing the risks of 7 climate change and 10 In the post-financial crisis, it is clear protecting biodiversity that more needs to be done to build a Maintaining the health 6 platform for sustainable growth and of the workforce 8 competitiveness through collaboration across various sectors in order to % address businesses’ top priorities for government. These priorities include Africa Global infrastructure and innovation. Base: Africa – 260, Global – 1 334
14 The Africa Business Agenda 2014 In researching The Africa Business • Developing investor-ready The commitment of individual Agenda, we found African CEOs believe infrastructure projects leaders on both sides can make all the governments should create a business- In addition to the challenge difference. They must create a culture friendly environment by improving of collaboration, delivering that unleashes growth, to eliminate the country’s infrastructure (68%), effective, efficient and sustainable bureaucracies and processes that creating a skilled workforce (54%), infrastructure is essential to provide block innovation and drive a high- ensuring financial sector stability and the backbone from which economic performance culture. Furthermore, access to affordable capital (45%), and success and prosperity can grow. public sector leaders can also help set creating jobs for young people (30%). the tone by taking the lead on dialogue • Developing an innovation ecosystem in the two areas that are uppermost in Among other things, this requires Innovation is a competitive necessity the minds of CEOs: tax and regulation. public leadership to facilitate for business and for government, collaboration across public, private and is vital to achieving meaningful and not-for-profit organisations as well growth. as universities to create a platform for growth, with a focus on the three Three fundamental shifts are still key levers of skills, infrastructure and needed in the relationship between innovation: government and the business: from a belief of ‘public good, private bad’ to • Laying the foundations for the right an appreciation of the best of both; skills in the right places from forced cooperation to mutual Acquiring the right skills is an collaboration; and from distrust to essential prerequisite for citizens in mutual recognition of responsibilities getting a job and earning a decent on both sides. income. According to business, developing workforce skills is a joint priority between business and government.
Q: How do you think your the youth, create wealth, export jobs are created. Procurement is government views private intellectual property and become structured so that companies are companies? a foundation of the much hyped engaged, grow their businesses ‘Silicon Savannah’ beyond and there’s a multiplier effect. We A: In my view, government has infrastructure. need to partner with government a responsibility to build the and also change the short-term next generation of Seven Seas Government needs to accept that mindset when executing long- Technologies Group, Virtual it is a major buyer of technology term strategic projects. City, Cellulant [types of African] and a catalyst for growth. And companies. We need sixty or technology companies like we seventy of these companies have built will be responsible Michael Macharia is the in the next three years. They for helping to nurture the Founder and Group CEO can be built through various next generation of technology of Seven Seas Technology government projects, through companies, to create the next Group, a leading provider strategic procurement and traffic management system, the of integrated business and global partnerships. These next M-Pesa. The government technology solutions in companies in turn will employ will expect to see that plenty of Africa.
PwC 15 Delivering Interconnectedness of public Embracing the cyber world means services opening up systems and processes affordable, to external suppliers, customers, For this to happen, future-focused partners and employees, and accepting interconnected, public sector organisations must culturally and psychologically that the operate in a more interconnected old boundaries are being swept away. innovative public manner. Over time, Africa’s government services and public sector organisations have This culture change needs to be acquired a huge amount of data. driven from the top, with the need for by Muchemi Wambugu greater executive-level awareness of Data points are many and varied; the challenge. To combat resistance, information is often duplicated; governments must be clear about Partner with PwC Kenya and patchwork systems are punctuated the benefits of a comprehensive technology advisory practice leader with one-time research and decisions information system. informed by a lot of guesswork. But the The rate of change driven by data we have is a virtual treasure trove. technology will influence the Innovation affordability, interconnectedness and The challenge for future-focused public Technology will significantly influence innovation of public services. In Africa, sector organisations is to connect the innovative service delivery in two public services can still end up being dots between service centres, so that important ways: operationally, at too expensive for many citizens – even we can clearly see how information the level of service delivery, and when those services are subsidised. systems are interlinked – a holistic view strategically, in terms of local, regional This is because the total cost to the that has the added benefit of putting or national innovation capacity. citizen includes long travel times citizens and their needs first. If systems (particularly for those in rural, less- were more closely integrated, we could Operationally, delivering on the connected areas) and long waiting save lives and improve security at the promise to citizens entails having the times, such as for initial diagnoses, same time. right (new) service delivery models which also reduces take-home pay. for the right results, with an eye It is government’s role to implement a on measurable outcomes and real Affordability of public services comprehensive policy framework that impact. Additionally, public-sector connects the dots between providers organisations will need to consider Many citizens choose public services to drive decision-making. For that to their role in local, national and regional based on what they can afford. happen, we need to do two things: innovation strategies, based on areas of They are the caretakers of their own firstly, data has to be captured in a competitive advantage. information, carrying their files and rational way. Secondly, we need a experiences from provider to provider. framework to provide data analysis, Future-focused organisations that The burden is on the citizen, rather interpretation and decision-making manage data more effectively and than any institution or system, to capacity to benefit the public. efficiently are able to discern trends manage cost and information. over time to target service delivery To improve interconnectedness, service where it will have the greatest impact. Another challenge is the way that providers must have proper systems Imagine dynamic updates about governments collect revenue and and ways of serving citizens. They must public service needs in real time: our disburse it based on budgets. For most also be able to make enough money decisions and investments would budgets, the biggest line items are to be self-sustaining and disciplined have a profound impact. Affordable, salaries and benefits. What if, instead, enough to provide services and solution interconnected, innovative service funds could be allocated based on sets. delivery will also help to reduce fraud reliable data about need? and corruption. If government or donor funding is tight, Information about maternal birth public service providers must also look rates or malaria in particular regions, at different ways to deliver services. for example, could inform prioritised These could include public-private allocations and funding for third- partnership arrangements in which party providers, helping to build an services are provided in exchange for institutional framework based on need revenue sharing and creating a system not bureaucracy – and putting citizens where providers specialise and citizens first. get the services that they require.
16 The Africa Business Agenda 2014 Many have called for the deployment of Figure 8: CEOs believe governments have much room for improvement world-class ICT to automate everything in achieving priorities in sight, as a cure-all for all ills. But ICT is not the solution for every malady Q: How effective has government been in achieving these outcomes in the country that besets economic growth and in which you are based? (Respondents who believe governments have been development in Africa. Instead, we can ‘ineffective’ or ‘greatly ineffective’) look at the trajectory for technological change and plan for a better future. Creating jobs for young 74 Many countries in Africa have people (16-24 years old) 53 successfully created an environment with fibre-optic cable and information 64 technology to drive their economies. Creating a skilled workforce The telecommunications sector 47 effectively connects with citizens and facilitates connections between them, Reducing poverty 62 benefiting all areas of the economy. and inequality 46 Now, it is the public sector’s turn to Developing an innovation provide connected citizen-centric 56 ecosystem which services. supports growth 51 Improving the country’s infrastructure (e.g. electricity, 45 water supply, transport, 37 housing, broadband)
Maintaining the health 43 of the workforce 29
Creating a more internationally 36 competitive and efficient tax system 51 Ensuring financial sector stability and access to 33 affordable capital 29
%
Africa Global
Base: Africa – 260, Global – 1 334
PwC 17 Figure 9: CEOs believe levels of stakeholder trust remain positive
Q: To what extent has the level of trust the following stakeholders have in your industry changed over the past five years? (Respondents who believe levels have ‘stayed the same’ or ‘improved’)
89 Your supply chain partners 90
88 Customers and clients 87
83 Providers of capital 81 (e.g. creditors and investors)
77 Employees (including trade 86 unions/work councils)
77 Local communities 83
76 The media 72
72 Non-governmental 72 organisations (NGOs)
65 Government and regulators 66
%
Africa Global
Base: Africa – 260, Global – 1 334
Q: To what extent is your organisation able to engage with government? A: We are working with government. We have collaborations with institutions of government, such as the Council for Scientific and Industrial Research who are playing a very critical role in our research and development effort. Other institutions include the Departments of Transport and Public Enterprises from a policy development point of view. These institutions are very critical to our business, because what we do actually has to be driven by a conscious and continuous policy change as well as a positive attitude towards our goals by government. We have had that support from the highest levels in the South African Government to help us execute what we are doing. What maintains trust is the ability to do what the general population expects or demands of public institutions. And this is sometimes somewhat lacking, when governments in power or institutions are unable to deliver the basic things that people think are important. In some cases, the institutions miss the point when the public asks for certain basic things. And I usually find that these are not very complicated things to deliver: for example, just being reliable, being honest, or telling the truth about your problems in executing projects and implementing mandates. Sometimes when we as institutions encounter difficulties, we do not go back and tell the public what the difficulties are until it is too late. I think that is why a lot of trust has been lost. Brian Molefe is the Group Chief Executive of Transnet SOC Ltd, the largest freight transport company in South Africa.
18 The Africa Business Agenda 2014 The digital The phenomenal growth of Internet Many citizens in Africa can now access is impacting the lives of millions access information on their e-reader revolution of Africans by allowing them to access devices, send wireless medical alerts new innovative connected services. or administrative documents from by Mohammed Dembele Each sector of the economy is or will their mobile phone without having to be impacted by this development and undertake lengthy and costly journeys. the expected change will be faster and As an illustration, the M-Pesa system in Director at PwC France more radical than elsewhere due to a Kenya allows 18 million people (out of low level of development. For example, a population of 25 million over the age Africa is currently undergoing a rapid the development of money transactions of 15!) to pay their taxi fares, electricity and deep digital revolution. In our through mobile is disrupting the or restaurant bills, to transfer money to Africa CEO Survey, technology is at the banking industry in many African relatives or to withdraw cash at local top of African CEOs’ agendas, with 41% countries. kiosks with their mobile phones. Eight recognising technological advances as million transactions are completed the most significant global megatrend Several African governments already every day, creating a parallel banking that will transform their businesses consider digital adoption as a unique system, which is extremely useful in a over the next five years. In responding opportunity to accelerate economic country where almost everybody has to this change, no less than 91% of development and are encouraging a mobile phone but not everyone has a African CEOs either recognise the need investments being undertaken by bank account. to change their technology investments operators. In some cases, they have or are in the process of doing so. taken matters into their own hands by There are still, of course, many Similarly, 85% said the same about deploying national infrastructures or hurdles to the development of a digital data analytics. by managing local digital initiatives. economy in Africa – and many of these In Côte d’Ivoire, for example, analysis hurdles are related to the development Many technological changes are of mobile phone usage statistics of a stable political and legal contributing to Africa’s digital helped improve the understanding environment for citizens, corporates revolution. Broadband access is not of population movements in Abidjan, and investors. High-speed Internet will only modifying all sectors of the African enabling better allocation of public also require new infrastructure. But economy, it is also triggering a radical transportation capacity (buses, with the acceleration of local initiatives transformation of the entire society. minibuses and shared taxis) and the to develop local content and services, With the penetration of smartphones construction of new roads where they digital technology will be successfully being still relatively low, the digital are most needed. deployed in Africa for many years to revolution has just started. come. More important will be the impact The digital revolution is being of digital technology on society. The sustained by the mass adoption of proliferation of e-education, e-health, mobile telephony (500 million users e-government and e-commerce on the continent with more than initiatives will deeply change and 100% penetration in some countries, improve the lives of many citizens compared with just 10% for landline by allowing public administrations penetration). This adoption should to overcome the lack of resources or further accelerate with the roll-out competencies. of 3G and 4G networks, with the introduction of low-cost smartphones and with the massive investments being made by the almost 200 network operators in the continent’s 54 countries.
PwC 19 Q: How is technology playing out in your business? A: An array of digital devices, such as smartphones, have taken advertising spend away from print media. This is why we are looking into the investment and expansion of other technologies. We are very excited in that in September 2014, Times Media will be launching a video-on-demand (VOD) product that offers a broad range of content, both TV shows and movies. Vidi will be a web and mobile based service and will require either a computer or an Android or iOS device to stream content. Viewers will be able to watch content on a number of devices. Those wanting to watch on their smart TVs will need to connect a device such as a notebook, iPad, mobile phone or micro PC. Andrew Bonamour is the CEO of Times Media Group Limited in South Afrca
A: With technology deployed, we can embrace a number of initiatives. A good case in point is Blue Label’s ticketing company. Blue Label is one of the first companies in South Africa to deploy a physical ticketing society using near-field communication (NFC) or contactless technology. Spectators no longer need to stand in long queues and present traditional paper tickets. Instead they are able to purchase tickets on their smartphones at a retail outlet or online to gain access. This enables us to monitor consumer behaviour, as well as accumulate information, and in the process we are also able to reward consumer behaviour. An NFC ticket offers consumers loyalty rewards as well as offering other privileges such as VIP access, in-stadium purchases, competitions, promotions, the opportunity to meet players, preferential parking and much more. Our view is to be a neutral aggregator of product and service – by using technology to work for us.
Mark Levy is joint CEO of Blue Label Telecoms in South Africa.
20 The Africa Business Agenda 2014 Industry highlights Oil & Gas In general, the ‘government & public sector’ includes government The oil & gas industry is truly a global ministries, departments and other by Avendth Tilakdari industry, across the entire value chain. budget agencies; development Opportunities include strong growth partners like bilateral and multilateral Industries Leader for PwC’s East, in output; rising global demand for donor agencies and not-for-profit West and South Market regions in hydrocarbons, particularly in China and organisations operating in various India. These countries are also making Africa sectors and regions in Africa. By significant investments to secure access definition, this sector is Africa’s largest to natural resources in Africa. With employer. We asked Africa CEOs to tell us many African economies growing at 5% how confident they are about their or more, an increasing population of PwC’s work with Africa’s government industry’s prospects for growth over the middle-class consumers and industries & public sector focuses on helping next 12 months, as well as their own is fuelling demand for petrochemicals organisations to fulfil their promises, company’s growth potential. In general, and energy. Many countries are understanding user needs through they are more confident about their looking at value addition through customer insight, pulling down silo own company’s growth than they are policies that promote the production, walls to create connected organisations, about their industry’s prospects. While export and domestic consumption of building capacity to deliver results, 40% are very confident about their petrochemicals – as well as investment. realising the benefits of services and company’s growth, only 26% are very At the same time, a growing number continuously innovating to sustain confident about industry growth. of indigenous African companies in them. the sector are looking at IPOs and Over the next three years, 51% are very other avenues like the London Stock confident of company growth and 35% Exchange’s Alternative Investment Mining are very confident from an industry Market to finance growth. standpoint. As our discussion in this The oldest mines in the world are found section seeks to highlight, there are in Africa. Recently, Africa’s economies Oil & gas players are also focused have benefited from high global prices many positive growth indicators among on cost containment. In Africa, this industry groups in Africa – as well as for many mined resources and new is particularly challenging due to exploration has revealed more resource more than a few challenges – that help inadequate infrastructure, rising costs to explain this discrepancy. wealth than previously known. Reforms related to acreage/licence acquisition, in the 1980s and 1990s led to a broad regulatory uncertainty and high energy shift towards privatisation with new costs. Many governments are looking legal, regulatory and administrative at strengthening industry regulations, policies strengthening mineral rights, specifically with regard to resource particularly for the private sector. management and revenue stewardship and local content requirements for This led to increased foreign direct specific goods and services. investment and an influx of mining capital, technology and skills into Government & public sector Africa. More recently, the focus has shifted again towards integrating Major areas of focus for Africa’s mineral policy with development government & public sector policy, but there is wide divergence organisations include ICT adoption, among countries in Africa with security, public finance management, regard to mineral extraction policies, government reforms and capital conditions and stakeholders. Greater projects and infrastructure investment. alignment of policymaking at a regional Many are also focused on attracting level would provide a more conducive investment and improving the investment environment and ensure environment for investors. Public that mineral wealth is shared more employees and their performance equitably and accountably. management and benefits are also a focus area.
PwC 21 Technology, infocomms, Financial services Manufacturing entertainment & media, Advancements in technology, a Africa’s manufacturing sector is large hospitality, gaming & leisure changing competitive landscape and and diverse, with most sector players The different sectors within this evolving stakeholder attitudes and facing similar opportunities and industry group have a number of expectations are transforming financial challenges. A growing middle class factors in common. First, they are all services in Africa. While branch- increasingly demands a greater variety experiencing very high levels of growth based bricks-and-mortar retail service of products, at relatively low cost and in Africa. Consumers want more choice delivery is growing, digital mobile good quality. Successful manufacturers and better access to information and services and agency or satellite service in Africa have tended to find ways services, increasingly through digital providers increasingly account for a of fulfilling existing consumer needs channels. Their preferences (often greater share of service delivery. previously met by importers. expressed through social media) are evolving rapidly. Second, these sectors Among consumers, these service However, the costs of inputs like are all impacted by faster and cheaper delivery channels have contributed oil, natural gas, steel and copper Internet connectivity. Third, there is to greater financial inclusion and squeeze margins, unless offset by more competition within these sectors security. However, the challenge for pricing and surcharge increases. and in some cases, between them many service providers is to maintain Weak infrastructure (particularly as they vie for a share of consumer distinctive brands, profitability and regional infrastructure) and access spending. Finally, there is wide deep relationships with customers, to reliable, affordable energy thwarts variation with regard to the regulatory particularly corporate customers. effective production and distribution policies impacting these sectors, which Financial services companies that channel management. Supply chain can make regional expansion, mergers use technology to build an evolving management can also be a challenge and acquisitions more challenging and suite of products and services tend as suppliers face the same obstacles. expensive. to manage volatility and shifting To bolster core product lines or consumer preferences more effectively. expand geographical reach, some Among technology and infocomms At the same time, all financial services players are seeking acquisition targets, companies, the strategic focus is providers in Africa benefit from a stable while others are looking to divest shifting towards offering an integrated operating environment. underperforming units. suite of services targeted to industries like healthcare providers, financial Some regulatory consolidation Local and national taxes, often institutions and government. is occurring in many markets in managed across multiple territories, Africa and rising capital adequacy are increasingly complex and under Entertainment and media companies requirements may lead to consolidation continuous review. Calls for corporate are experiencing strong growth, led by in the sector. There is still a lack of accountability have driven new consumer demand for content, while clarity regarding the regulation of regulations around internal controls the majority of advertising spend still mobile banking services offered and management certifications. At the tends to be directed through traditional through telecommunication same time industrial manufacturing channels like television, print media companies, or banks that enter the companies everywhere are trying to and radio. telecommunications space. Meanwhile, figure out how to get the most out of insurance product penetration has their IT and people investments. Africa’s hospitality industry varies suffered from a lack of financial considerably by market, with business awareness among consumers, but this tourism leading growth in Nigeria and is changing. Kenya’s industry having been hard hit by security concerns. Meanwhile, gaming is expanding and increasingly moving online.
22 The Africa Business Agenda 2014 Q: What is your strategy regarding expansion in Africa? A: The way we want to expand into the African continent is by focusing on manufacturing and producing goods that can actually be sold on the African continent for the railway business, as well as services for the ports business on the continent. We have invested a lot of money – and continue to invest a lot of money – in research and development to develop products for a growing African market. The revitalisation of the railways industry in Africa is inevitable and we are positioning ourselves to take advantage of this and to make it the source of growth for our company in the medium term. In the short term, it is about winning the race for growth by revitalising our rail industry in South Africa and making sure that more goods are transferred from road to rail. It is about growing our market share of the logistics pie and removing goods from the road and bringing them back to rail. It is also about increasing the traffic of container vessels from around the world to Africa through our ports in South Africa – including our transhipment hub in the Port of Ngqura – as well as increasing our manufacturing base in the country, allowing us to export a lot of manufactured goods. We are preparing ourselves to become a manufacturing company, more than a transportation and logistics company. We are getting ready to become an original equipment manufacturer, perhaps of locomotives. So if you ask me what Transnet will look like in 20 years’ time, I think it will do more manufacturing than transportation of goods. Brian Molefe is the Group Chief Executive of Transnet SOC Ltd, the largest freight transport company in South Africa.
PwC 23 A guide for investors by Jeff Aludo
Director at PwC Kenya’s Strategy and Operations consulting practice and a member of PwC’s Africa Business Group leadership team1 Figure 10: Africa’s CEOs would ideally like to be able to plan further Strategic planning ahead The opportunity horizon in Africa Q: What is your current/ideal planning time horizon? Is it 1, 3, 5, or more than 5 years? CEOs in Africa tell us that the desire to create something is what drives their strategic planning. A disciplined adherence to facts, data and analysis should govern the creative process, not guesswork or instinct.
They recognise that the entrepreneurial spirit so prevalent in emerging markets can be managed in a profitable way through strategic thinking, planning and implementation. Their organisations apply a rigorous approach to market research about consumer preferences and an equally rigorous approach to business financing. In this way, they anticipate customer demand, innovate to meet that demand, manage innovation to grow their businesses and finance 30 14 39 31 22 58 7 11 growth effectively.
1 year 3 years 5 years More than 5 years Our survey shows that many CEOs in Africa face challenges to this vision of % strategic planning. They rank product/ service innovation topmost among Current Ideal opportunities for growth but are concerned about shifts in consumer An effective strategic planning horizon We asked Africa’s CEOs to comment spending and behaviours. At the takes into account these and other on their strategic planning horizon. same time, they prioritise customer challenges and opportunities. CEOs We asked respondents if their current growth and retention strategies and may not have the data they need to horizon is one, three, five or more than they are developing strategies and make a decision and the quandary for five years into the future. We then implementing change plans. those in management is how to make asked them to tell us what they their decisions with limited information. ideal planning horizon would be. Ideally, market research would inform There may also be significant the innovation process by helping competitive pressure to make decisions The time and effort applied to the companies to anticipate shifting with imperfect information. strategic planning process influences consumer preferences and manage accurate horizons. Any discrepancy retention, but companies may lack the A rigorous approach to strategic between the actual and ideal horizon ability to collect data or the ability to planning is even more important in may indicate that the planning process analyse it. this environment. CEOs in Africa tell us is flawed. Planning is essential to that success depends upon confidence successful execution and the reason and judgement informed by a keen why so many good strategies fail. understanding of markets and the interplay between consumers, business and government.
1 Follow the Africa Business Group’s bilingual blog online pwc.blogs.com/africa_upfront (in English) pwc.blogs.com/africa_upfront_fr (in French) @Africa_Upfront (Twitter)+ 24 The Africa Business Agenda 2014
Figure 11: Africa’s CEOs are leading change in response to global trends
Q: In order to capitalise on the top-three global trends which you believe will most transform your business over the next five years, to what extent are you making changes, if any, to the following areas?
Technology investments 7 10 18 24 41
Talent strategies 5 7 21 27 35
Customer growth and retention strategies 8 11 18 27 32
Organisational structure/design 9 9 26 20 33
R&D and innovation capacity 10 15 20 25 27 Use and management of data and data analytics 13 12 22 20 31
Approach to managing risk 13 8 16 29 31
Channels to market 18 8 22 22 25
Investment in production capacity 18 10 16 21 29
Supply chain 22 7 23 21 23
M&A, joint ventures or strategic alliances 20 13 21 20 18
Corporate governance 27 7 10 16 37
Location of key operations or headquarters 45 9 13 9 18
%
No need to change Recognise need to change Developing strategy to change Have concrete plans to implement change programmes Change programme underway or completed
PwC 25 Using feedback to make strategic Step 1: Ask for ideas and feedback Step 2: Listen and respond decisions Strategy is not just about planning Incorporating ideas into the The more opinions business leaders ask and a framework for implementation. change management process helps for, the more noise they must filter out Strategy is about actions that leaders stakeholders to feel like they are to make decisions. And yet there is no are willing to take to be successful. part of the strategy. Consulting and question that engaging with employees Traditionally, the emphasis with incorporating feedback from multiple (and customers and communities) strategy has been on planning – less channels creates a tacit expectation makes good business sense. so on execution. While strategy on the part of contributors, which development is key, to execute decision-makers can acknowledge The ‘how’ is always a tough question: effectively, it is important to get by effectively cascading and How can business leaders solicit a everyone who has a stake in the game communicating strategy. wide array of feedback? How can they involved, specifically at the planning filter this feedback? How can they stages. This is a key step in the strategic then incorporate this filtered feedback journey. Clear communication into decisions and the planning, The first step is to create an ecosystem facilitates the planning process leading implementation and execution stages? conducive to idea generation and to good execution. communication. Companies can solicit feedback from a wide variety Many organisations pay lip service of stakeholders, both internal and to the importance of ideas and external, and then filter those ideas innovation, but they may not actualise down to the very best initiatives. The innovation as a strategy. PwC’s recent process of idea gathering and then survey of innovation executives at more vetting the best ideas into strategic than 1 700 companies worldwide finds initiatives can help companies to that disciplined innovation leads to distinguish themselves and stay ahead breakthroughs that generate revenue of the competition and market trends. and higher margins.2 Companies that successfully leverage innovation treat it Internal channels for soliciting like any other business or management feedback can include creating a process that can be disciplined and suggestion box (preferably virtual) successfully scaled – on par with or an intranet chat room or simply operational effectiveness. asking for ideas by email. External channels like social media generate a lot of feedback, but they can expose an organisation to reputational and brand risks if not managed correctly. However a company solicits feedback, whether external or internal, it must ensure that these channels and others like team ‘war-room’ meetings are made available and monitored closely.
2 ‘Breakthrough innovation and growth,’ PwC, www.pwc.com/innovationsurvey
26 The Africa Business Agenda 2014 Step 3: Pick and choose – and drive Figure 12: CEOs in Africa show high levels of readiness to handle the action changes that will come about due to transformative global trends. Companies can put structures in place to understand needs and trends, Q: Thinking about the changes you are making to capitalise on transformative global collect ideas, challenge and vet these trends, to what degree are the following areas of your organisation prepared to make ideas. Structures should begin with collaborative meetings, but can be these changes? (Respondents who stated they are ‘somewhat prepared ‘ or ‘well competitive, pitting ideas against each prepared’) other. Committees or pods made up of selected representatives from different 88 departments can champion efforts, vet Executive ideas and narrow the list down to the 94 best and most viable. 85 Finance 94 Identifying a few well-selected 84 Board initiatives from a large number of 90 ideas (whether innovative or not) 83 requires a deep understanding of HR the marketplace, including the 89 competition. Companies can sense- 83 check each potential initiative against Sales 90 the environment that the company 82 is in; each initiative should be well- IT 88 aligned to the company’s reason for being. 82 Marketing/brand management 86 Companies succeed by having good 82 Risk management idea-generating ecosystems along with 89 market and proof-of-concept tested 81 intelligence. But in East Africa, for Customer service 90 example, market intelligence is still something of a rare science and many 80 Procurement and sourcing companies do not use the big data at 86 their disposal effectively at all. 74 R&D 80 Companies investing in research and development will want to produce % proof of concept through studies to test ideas and understand the trends and changes on the horizon – to anticipate the ‘next big thing’. Africa Gobal
Investing in research and development is essential to understanding whether an idea is implementable or not. R&D also allows a company to sense check an idea against what is known and where a company wants to go.
Creating an environment conducive to innovation is a start. Understanding innovation as strategy is not enough. An organisation that creates innovative ecosystems will have great strategies. The question then is what to do with all of the ideas that emerge from these ecosystems – some great, some maybe not so great.
The answer to this question should be informed by market research, but the answer itself must come from leadership and it must be aligned to the business’ purpose. PwC 27 Opportunities for growth Sola David Borha, CEO, Stanbic IBTC: Q&A There is an increasing trend for consumers to get more and more sophisticated in their demand The following conversation occurred between for financial services. I think [Africa’s] growth panellists at PwC’s televised panel discussion about the story talks about two perspectives, one in terms Africa Business Agenda during the World Economic of financial inclusion and trying to get more of Forum on Africa in Abuja, Nigeria, on 9 May 2014. the informal sector into the financial system and also that there is a growing customer base, more Q: What are some effective strategies to sophisticated and demanding. We certainly have capitalise on growth in Africa? seen that growth in terms of our expansion in the retail market. Colin Coleman, Managing Director, Goldman Sachs SSA: I think the optimism We’ve learned many lessons in engaging with the reflects a few things. First, Africa represents 15% retail market. The most important is listening to of the world’s population and 3% of the world’s the customer, trying to understand what their GDP. Secondly, Africa has a track record since the needs are and then tailoring a product to address year 2000 of growing at 5.5%. It’s a tremendous that need. Especially in the lending space, where opportunity. That’s why we see sovereign wealth we have put a lot of focus on the SME sector and funds, multinational corporations, African there are challenges with that sector, they don’t companies indigenous to the home markets, have financials, they don’t have core capabilities. Brazil, India and China, all very active. We’re So we have had to go out and partner with key seeing the growth of two things. First, the businesses that are part of a larger value chain exploitation of natural resources on the continent that we can help support and help achieve a and two, the exploitation of the demographic win-win situation. We have found that focusing dividend in Africa, the rising consumer and the on trying to optimise their cash flow and giving need to address that. them the appropriate financing that they need has enabled us to grow our loan portfolio in that Edwin Devakumar, CEO, Dangote Cement: Before we made the decision to invest space quite rapidly. out of the country [Nigeria], we made a similar analysis. There is a huge, growing population and the median age of the population is quite low. So there is a strong consumer base and per capita consumption is quite low. So there is huge headroom for growth.
28 The Africa Business Agenda 2014 Uche Orji, CEO, Nigeria Sovereign Investment Authority: We are investing in Nigeria in the infrastructure sector. We’ve chosen sectors where the opportunities can be seen [such as] telecommunications, healthcare, motorways and real estate. I’m very optimistic, more so than I was 18 months ago. The second thing that I’m seeing is that the financial market is getting more and more sophisticated in certain areas that we never saw ten years ago. Private equity is growing, venture capital is rising. These are things that I believe will be significant in terms of their contribution. I think there is a lot more entrepreneurialism going on today. Regardless of the resources you have as a country, the most important resource you need is human resources. And what I have seen in the last two years is a big influx of people who have been trained in other places who for many reasons, be it the financial crisis in Europe and the United States, but also because maybe people see the opportunities at home – there is a lot more entrepreneurialism going on. You’re seeing more Africans solving Africa’s problems. Mobile money: Africa is far ahead and part of it is that it is an Africa-specific problem. So there are many things I’m seeing and entrepreneurialism is one reason why we must be very optimistic about Africa.
PwC 29 Improved international tax system will rebuild public trust by Paul de Chalain
Head of Tax Services for PwC’s East, West and South Market regions in Africa Figure 13: Most CEOs would like to have a free flow of financial Worldwide, CEOs say the international information among businesses. tax system is in urgent need of reform, with a significant percentage (Global: 65%; Africa: 53%) saying that it Q: Looking specifically at tax policy and administration, to what extent do you agree hasn’t changed to reflect the way or disagree with the following statements? (Respondents that ‘agree’ or ‘agree multinationals do business today. strongly’)
Our research shows that concerns over the international tax system It is appropriate for tax authorities around the world to share 64 not being fit for today’s world affect freely information they have on companies public perception and trust. CEOs amongst themselves 58 also understand that their business’ tax footprint, and failure to explain it, Multinationals should be required to publish the revenues, 62 can affect and damage their corporate profits and taxes paid for each territory where they operate. reputation as well as their brand. 59
While just under half of CEOs feel that Government tax policy and the competitiveness of local tax 61 government intervention has helped regimes are key factors in my organisation’s decisions to address the impact of the financial about where to operate 63 crisis, they are less impressed with efforts on tax reform, according to a The current international tax system has not changed to 53 new PwC study titled ‘Tax strategy and reflect how multinational corporations operate today corporate reputation: Balancing trust and is in need of reform 65 and growth’.3 The study, based on the findings of the 17th Global CEO Survey, Sufficient consensus will be achieved amongst members 24 finds that tax strategy and policies are of the G8/G20 and OECD to achieve substantial reform best dealt with by the board of directors of the international tax system in the next couple of years 27 and should include consideration of such issues as impact on stakeholders, % transparency, governance and controls and communications.
Africa Global
Just 21% of CEOs globally There were some regional and sector (Africa: 32%) said their government variations – CEOs in Africa (74%) and had been effective in creating a more the Middle East (69%) were most likely internationally competitive and to name trust as a problem. There are efficient tax system. many factors that contribute to trust, or a lack of trust, and tax is one of them, states the study.
3 ‘Tax strategy and corporate reputation: Building trust and growth,’ PwC, http://www.pwc.com/gx/ en/tax/publications/ceosurvey-tax.jhtml
30 The Africa Business Agenda 2014 A number of companies recognise Figure 14: African CEOs are more concerned about economic and policy the reputational impact of decisions threats they make about tax and are elevating tax strategy to its rightful place as a Q: How concerned you are about these potential economic and policy threats to board issue and starting to think how your organisation’s growth prospects? (CEOs who are ‘somewhat’ or ‘extremely’ they can improve public perception concerned) by being ready to provide meaningful information on tax in a way that people can understand.
Just over two-thirds (62%)of the 80 Over-regulation CEOs in Africa we interviewed for this 72 publication believe that multinationals should be required to publish the Government response to fiscal 78 revenues, profits and taxes paid for deficit and debt burden 71 each territory where they operate. In addition, tax policy and the competitiveness of local regimes are 75 Increasing tax burden key considerations in any organisation’s 70 decisions about where to operate. % In 2013, the Organisation for Economic Co-operation and Development (OECD) gained agreement from the G20 nations for an internationally Africa Global coordinated attempt to reform the international tax system. Some of the proposals include country-by-country reporting and tighter rules governing the transfer of high-value intangible assets to low-tax jurisdictions.
Although the will for reform exists, it is surprising to note that CEOs have little confidence that the proposals put forward by the international community will go ahead. Just 24% of Africa’s CEOs feel that a consensus could be reached among G20 members and the OECD to achieve substantial reform of the international tax system in the immediate future.
Even so, it is clear that international reform is required and will bring benefits for international businesses and countries around the world. A better international tax system, provided it continues to support global trade, will help to rebuild public trust and improve the global business environment.
PwC 31 Risk management that they have concrete plans in place The fire at Jomo Kenyatta International to change their approach to managing Airport in Nairobi, Kenya illustrates in Africa risk and 31% say that change is already the catastrophic impact of poor underway. Only 13% believe there is no information stuck in silos and a total by Nancy Asiko Onyango need to make any change to their risk lack of tone from the top. However, management approach. the reaction to this significant risk event has led to improvements in Risk Assurance Services Leader for Setting the tone from the top terms of expediting the international PwC Kenya terminal and parking facility projects Experience shows that formal risk and improving accountability among Most companies in Africa have some management should begin with the people and departments. We hope that modicum of risk management in place. systems that are already in place. At a more comprehensive approach to risk They may view risk management as PwC, our approach is to start at the management is now in place, including something that they have been doing Board level, working with the audit resources dedicated to predicting—and for a long time! Growth opportunities committee and extending to the forestalling—risk events like fires. may make other boardroom priorities risk committee, and agree upon a like customers, talent and technology mandate. That mandate then drives Risk management may not feature much more prominent on the what happens at the management and among the top three boardroom boardroom agenda. This is not to say operational levels. priorities at every company in that risk management is less important. Africa. Nonetheless, an effective Boardroom priorities set the tone from risk management approach requires In Kenya, for example, certain risks the top and influence company culture. organisations to think differently like weather, the price of inputs, We often find that companies will and the main challenge is good price volatility and exchange rate have a clear cultural mandate to grow communication. By setting the tone fluctuations will impact the agriculture their customer base, improve customer from the top, boards and management sector. These are not new risks for the retention, recruit top talent and invest can prioritise risk management sector, and even companies without in technology. We see this clearly in the and grow stronger, more resilient a formal enterprise risk management Africa CEO Survey; customer growth organisations. framework will still have a long history and retention, talent and technology of managing them. In Kenya’s relatively investment are the top-ranked areas nascent services sector, we are seeing where CEOs are planning to implement many organisations that started out change and where change programmes small now getting more organised are underway. Risk management about risk management. ranks second among areas where they anticipate change, but tenth among Many companies start by prioritising areas where concrete plans are in regulatory compliance among areas place. Why would companies in Africa of risk management. Our 2014 CEO experience this disconnect with regard survey shows that 80% of CEOs to risk management? in Africa are concerned that over- regulation will impact growth prospects Effective risk management requires for their business, compared to 69% information but the methods of last year. At the same time 65% say that information collection can vary. Good their relationships with governments information can identify risk areas but and regulators have stayed the same or effective risk management will also improved this year. drive the imperative to act. Again, this comes down to the tone from the Whatever a company’s starting point, top. Leadership must be seen to do it is important to remember that something about it, once a problem has people manage risks. A CEO may been identified. not document his approach to risk management, but if there is a problem One of our clients was a hospital with then he must deal with it. There may a great many disjointed units and not be a formal process per se or risk it would have been difficult—if not management may be very silo-driven. impossible, and certainly inadvisable— to impose a centralised methodology. A more comprehensive and value- A decentralised approach made driven risk management approach more sense; the point is to collect should evolve out of frameworks and the information needed and use it control environments that already effectively. A centralised approach exist. In our experience, that’s the could have opened up the organisation only way that risk management will to more risk if a unit issue became ever become part of an organisation’s enterprise-wide. DNA. In the survey, 29% of CEOs say
32 The Africa Business Agenda 2014 Internal audit to manage it more effectively. For This is the first time that Africa has 83% of CEOs in Africa, bribery and participated to such an extent in must focus on and corruption is a significant, worrisome the study – PwC’s 2014 State of the and frustrating threat to growth. internal audit profession study – and address emerging surprisingly many of the issues risk In order to meet stakeholders’ raised are very much the same as demands and expectations, the those observed in the rest of the role of internal audit must be world.4 The survey found that more by Anton Van Wyk elevated and kept relevant, and than half of senior management most importantly add value to an globally does not believe internal Risk Assurance Services Leader organisation. Many companies are audit adds significant value to their for PwC’s East, West and South looking at ways to revitalise the organisation, and nearly 30% of Market regions in Africa. He was internal audit function to optimise board members believe it adds less recently elected Global Chairman and drive business performance. than significant value. of The Institute of Internal The role has expanded over the past Auditors (IIA), the first African to two decades, particularly having However, participants that took regard to the corporate scandals in part in the study believe that given be appointed to this position. the early 2000s and more recently, adequate resources, opportunities the financial crisis of 2008. The exist for internal audit to increase The internal audit profession finds consequences of the new business its value and its contribution to the itself at a point of inflection, in risk environment are far-reaching for business. Africa and globally. In more than two internal audit, with many businesses decades the role of internal audit in the process of repositioning the The survey results show that most has undergone significant change in function. African respondents expect internal the wake of rigorous regulation, new audit to focus on emerging risk. Some corporate governance requirements, The scope of the internal auditor respondents also stated that internal advancements in IT and technology, has also increased with the adoption audit needs to work with other and increasing changing customer of a global initiative for integrated relevant departments to effectively needs and behaviour. Company reporting by the International identify and address emerging risks. boards and the assurance profession Integrated Reporting Council (IIRC). are under increasing scrutiny and In order for integrated reporting to Internal audit personnel have a oversight by regulators, shareholders be seen as a reliable instrument for wide range of skills, which they are and external auditors. Furthermore, assessing sustainability, organisations required to draw on in all aspects of there is a greater expectation from will be required to provide assurance the audit, deliver value and address management, the board and the regarding the information reported all significant risks. The complexities audit committee for internal audit to therein. In our Africa CEO Survey, and challenges to doing business in add more value to the organisation. 80% of CEOs agree that measuring Africa will remain for the foreseeable and reporting their company’s total future and this will demand an As a result businesses are placing (non-financial) impact contributes agile internal audit profession. How more emphasis on risk management, to their long-term success. Internal and when the profession reacts to corporate governance and fraud audit will assist in providing such the demands and opportunities prevention, in particular combined assurance. confronting it will determine its assurance, and regulatory and policy relevance and the value it can add to requirements. Our Africa CEO Survey According to a recent global study the organisation it serves. shows that 31% of respondents carried out by PwC of more than have implemented change plans to 1 900 chief audit executives, of which manage risk more effectively and 7% have organisational headquarters 37% are strengthening corporate 4 ‘2014 State of the internal audit in Africa, if given adequate resources, governance. To prevent fraud, profession study’, PwC, http://www.pwc. opportunities exist for internal audit many CEOs in Africa are focused com/en_M1/m1/publications/documents/ to increase its value and contribution pwc-state-of-the-internal-audit- on supply chain management, with to the business. profession-2014.pdf 23% currently developing a plan
PwC 33 Building international JVs & partnerships and financing growth in Africa by Emmanuel Le Bras and Hervé Demoy
Partners with PwC France Figure 15: CEOs have centred their restructuring activities around cost Africa’s CEOs are in a partnership reduction mood Q: Which, if any, of the following restructuring activities have you initiated in the past In times of crisis, and despite the 12 months? higher resilience of the continent, African CEOs have been very focused on operations. As illustrated in our Implemented a 59 survey findings, they have centred cost-reduction initiative 76 their recent activities on cost reduction, including through outsourcing: 89% Outsourced a business 30 have implemented either or both such process or function 25 initiatives in the past twelve months. In the meantime, only a fifth entered into 21 a new strategic alliance or joint venture Entered into a new strategic and a similar proportion completed or alliance or joint venture 34 domestic or cross-border M&A. Insourced a previously 16 Going forward, African CEOs told us outsourced business process 17 that they will be more actively looking or function for partners, while still keeping an eye 14 Completed a domestic M&A on costs. Almost half of them plan to 21 initiate a new strategic alliance or joint venture in the next 12 months, and Completed a cross-border 5 more than a quarter are anticipating M&A 21 an acquisition, mainly in their home country or elsewhere in Africa. Sold majority interest in a 3 This is a sign of better overall economic business or exited a 15 significant market prospects, higher availability of finance, the growing presence of potential local Ended an existing strategic 1 and international partners attracted alliance or joint venture 13 by the continent’s potential, as well as the existence of numerous investment % opportunities in a variety of sectors, including natural resources extraction and beneficiation, banking, telecoms, agriculture, infrastructure and Africa Global consumer goods.
34 The Africa Business Agenda 2014 Towards greater regional Not surprisingly, international joint Changes in regulatory integration and closer ventures are becoming increasingly environments will open the door international ties popular. In the past six months alone to new opportunities we have identified several dozen of The main challenge for CEOs in them in sectors as diverse as natural African countries are starting to Africa looking for partners may be resources, food & beverages, animal take action to become more investor not financial, but operational. They feed, business services, engineering, friendly. For example, the Organisation will have to adopt the right approach IT, transport equipment and media pour l’Harmonisation en Afrique du and business model to launch new services. No doubt this trend will Droit des Affaires’ (OHADA) revised ventures, choosing between trade continue in the coming months and Uniform Act on commercial companies agreements, joint ventures, contractual years. and economic interest groups partnerships – or M&A operations – and adopted earlier this year will unlock they will have to make sure that these In such an environment, selecting new opportunities for international operations can deliver the value they the appropriate investment vehicle investors willing to strike alliances are expecting. is only one consideration. Future and establish joint ventures in the partners will also have to learn how Francophone member countries of This will becoming increasingly to build win-win deals and agree on West and Central Africa. complex with the growing interest the governance of the new venture. of international players in the Key success factors will include clear The new framework introduced by continent, especially from other roles and responsibilities between the Act will give partners much more emerging countries and the US. As partners, strong involvement from each flexibility in setting up local operations, American, European, but also Asian stakeholder (JVs are too often under- including through: and African companies are looking resourced) and capacity for partners for new global growth opportunities, to build trust and clear governance • A new corporate form equivalent to they are beginning to reverse long- rules, processes and performance a simplified form of a public limited held views about Africa. In fact, 74% management systems. company; of respondents to PwC’s 16th Annual Global CEO Survey said they expect Successful joint ventures are typically • More flexibility on securities, with to expand their operations in Africa, not built only on legally-binding unfixed share capital, the possibility despite only 13% of them currently contracts (although they are a to give non-voting shares to local operating on the continent. These necessity). They must realise the partners or free shares to staff companies will bring fresh money, but willingness of two or more partners to members; also the necessity for African companies work together, by agreeing on goals and to align with the business standards of strategy, understanding each other’s • More power in operations, including these global companies. attributes and business agendas and appointing the CEO of the venture; being prepared with back-up plans in and International investors know that the case things go wrong. They should also time has passed when successful entry organise the transfer of competencies • More stability and long-term strategies into Africa meant distribution and technologies to the new venture. certainty such as 10-year agreements with local partners. With inalienability of assets. Africa entering a new stage of maturity, African companies are looking for more value. They have set ambitious plans to go pan-African or global and are now looking for solid international partners, whether financial (such as private equity funds) or industrial.
PwC 35 Q: What is your approach to acquisitions? A: What we are focusing our intention on is building our business distribution Financing growth in Africa capabilities. One focuses on the ability to see product in last mile. We are focusing on The following conversation occurred between panellists at PwC’s televised panel discussion about the Africa Business selling product in that last mile. Blue Label Agenda during the World Economic Forum on Africa in is very effective at this. Secondly, we are Abuja, Nigeria, on 9 May 2014. trying as much as possible to entice/collect as many consumers onto our database as Colin Coleman, Managing Director, possible. So we have bought some different Goldman Sachs SSA: I believe private equity is companies in the process and buying playing an important role in providing capital into consumer bases and historical channels situations to grow companies. And they’re bringing we didn’t own. Now we’re introducing new technology along as are multinationals. Sovereign channels to our consumers. wealth funds are seeing this opportunity and providing When we look at acquisitions, we look at capital. five categories: The one thing that I would like to see before I retire is 1. Is it earning enhancing? the development of some real equity capital market 2. Does it give us a new distribution activity outside of South Africa. We really don’t have channel that we previously didn’t have? liquid capital markets in Africa to provide either the 3. Does it give us new products? inclusion capacity for local populations to participate or the liquid capital to get this going. That is one of the 4. Does it give us new services? stories of China. They liberalised the market economy, 5. Potentially, is it defensive? they floated a lot of companies, they have established If an acquisition can encompass all five a three-trillion-dollar market capitalisation in China categories, then it’s a real winning formula from really nothing in 30 years. In Africa, the Angolan for us. market, the Nigerian market is not very liquid; the Kenyan market is not very deep. These are countries Mark Levy is joint CEO of Blue that are developing that are going to need capital and Label Telecoms in South Africa. we need to get those capital markets to function more effectively.
36 The Africa Business Agenda 2014 Sola David Borha, CEO, Stanbic IBTC: I Colin Coleman, Managing Director, think we will see more, but I think there are number Goldman Sachs SSA: There are very of issues why the speed of these transactions is not few companies that are of a size that a large coming through as fast as we would like. One of them multinational can either partner with in a JV or is valuation and that tends to be a stumbling block in buy that is not going to unplug a huge institutional terms of two parties not being able to agree in order to capacity from the market. You want to own local take the transaction forward. The second is a learning companies, have local companies operating. So the curve; you see a lot of companies coming into Africa large M&A deals on the continent have tended to and they need to get familiar with the environment be either the South African companies which are and make a few mistakes before deals get done. I think moving. So the M&A outside of South Africa is going with the right advice we will see more activity. Also, to be few and far between. as reforms in various sectors take root, it will open up Farouk Gumel, Partner, PwC Nigeria and Advisory more opportunities. services leader, PwC’s West Market Area: There isn’t Uche Orji, CEO, Nigeria Sovereign a lot of M&A volume by value but there is a lot of Investment Authority: My sense is that it will volume by quantity. If you look at the 5-15-million- happen, but I have also seen that over time it has to dollar organisations in Nigeria, a lot of them are do with the cost of capital. There is more M&A when raising capital. This is evident from the private capital is cheap; there is less M&A when capital is equity guys that are opening up shop in Nigeria; expensive. There is a need to develop our capital they are all looking at transactions. The big value markets. There is a need to develop our debt markets. ones are very rare to find but these guys who are It’s time will come, but there is enough opportunity for coming to invest in smaller companies are looking organic growth and at some point we will start to look to improve efficiency by putting technology in. It is at M&A as a way to drive growth. a very simple thing, moving a company from small to big in Nigeria. Just throw in efficiency measures, throw in transparency, throw in long-term capital and all of a sudden that 15-million-dollar company, you are exiting at 500 million dollars.
PwC 37 Financing growth in Ultimately, stabilising growth in Africa developed countries (4%). Despite will partly depend on the sustainability fluctuations due to the Arab Spring and Africa and dynamism of these SMEs, which pockets of instability in sub-Saharan account for 70% of companies. Africa, this figure confirms the overall by Pierre-Antoine Balu attractiveness of the continent for FDI on the rise again – increasingly international investors. As highlighted and Hervé Demoy from emerging countries by IMF’s Christine Lagarde in a recent keynote address, Africa is now FDI inflows to Africa grew to USD57 Partners with PwC France a growing investment destination billion in 2013 according to UNCTAD, for both advanced and emerging growing at an average 12% per year Many CEOs in Africa recognise that economies – with a record USD80 over the past ten years, above the governments have been quite successful billion inflow expected in 2014. global average (9%) and that for in ensuring financial sector stability, and believe that governments have understood the necessity to build a Figure 16: Growth of FDI inflows in Africa (USD billions) more inclusive financial system on the continent. According to our Africa CEO Survey, 45% of CEOs in Africa say that 60 government has effectively achieved the outcome of ensuring financial sector stability and access to affordable 50 capital.
Even so, Africa still accounts for less than 1% of the world’s stock market 40 capitalisation. Furthermore, the 23 stock exchanges on the continent operate with low levels of integration 30 and large fund raising is difficult, particularly for pan-African players. Companies experience challenges to 20 financing their growth easily or at a reasonable cost, whether through debt or equity; many private investors are 10 still reluctant to invest due to limited exit options.
0 Although many CEOs of large 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 companies are confident of their capacity to raise funds for their development or to finance projects, North Africa West Africa they are still worried about the high Central Africa East Africa lending rates that increase project costs and jeopardise returns on investment. Southern Africa
Rates in Africa can vary significantly depending on currency, forcing Source: UNCTAD investors to choose between lower lending rates, but higher currency risks (materialising if the local currency Q: How are you funding growth? depreciates against the euro or the dollar), and higher lending rates from We’re looking at strategic investment and private equity eventually with local institutions. the intention of an IPO to bring us to the fourth phase of our growth. Internally-generated funds become a little bit tough, borrowed funds are The situation is even more challenging a bit expensive. Our intention is to ensure that East Africans are part for smaller companies, for which of our growth strategy. There are strengths when you become a listed affordable finance is more difficult company, you have a source of funds that is free. But there are issues in (an estimated 80-90% of SMEs terms of questions, capabilities, results. Somebody has to be the head of are unserved or underserved). Governments have a role to play here the company whether he’s the head of the family or a shareholder. by setting up an SME-friendly business Haku (Atul) Shah is the Group Managing Director of environment, but large groups and Nakumatt Holdings Ltd, the leading retailer of food and public companies can also make a consumer goods in East Africa with over 40 branches in difference by managing their contractor Kenya, Rwanda, Uganda and Tanzania. network in a responsible way.
38 The Africa Business Agenda 2014 Although North Africa is still the most Figure 17: Fundraising and investment in sub-Saharan Africa, 2010- significant destination for FDI inflows 2.0 Q1 2014 (USD14.5 billion or 27% of the total in 2013), most other regions have 2.0 been catching up, whether over the 1.5 last ten years (FDI inflows grew by 15% and 17% per year in Western and Eastern Africa respectively) or more 1.5 recently in Central Africa (10% growth 1.0 per year over the past five years). In these regions, large oil and gas and 1.0 other resource projects have been key 0.5 contributors to growth.
0.5 Interestingly, the share of FDI flows 0.0 2010 2011 2012 2013 Q1 2014 coming from emerging markets has been growing continuously. China, which is ranked first by 23% of CEOs in 0.0 Africa as the most important country 2010 2011 2012 2013 Q1 2014 for growth prospects, is actually said to be willing to invest up to USD1 trillion Funds raised Capital invested Values through Q1 in Africa in the next decade. African companies will benefit from this inflow Source: EMPEA to finance growth. Funds raised Capital invested Values through Q1 Despite this strong performance, the This is good news for investors, Private equity: An instrument for penetration of private equity in Africa who will no doubt bring more fresh growth in Africa? remains low, as confirmed by Carlyle’s money to the table. But the benefits A portion of FDI inflows in Africa comes co-founder, David Rubinstein: may be even larger, as private equity from private equity. Private equity is investors typically also help mid- not new to Africa with firms like Helios Even today, of all the money invested sized companies be more structured, Investment Partners, Emerging Capital in the world, about 1% of the money improve governance, forge business Partners and Actis Capital already invested in private equity is invested in relationships on a global scale and very active on the continent. However, Africa. provide training and skills, thus private equity professionals believe that potentially bringing significant ‘non- the market is now entering a new level Most experts agree that Africa will material’ added-value to African of maturity. This trend gained more soon be the fastest-growing region, but groups. As illustrated by Carlyle’s attention recently with the arrival of that it will take time to grow off a low Managing Director David Marchick: Kolberg Kravis Roberts, which made its base. first investment on the continent this We tend to focus on transactions where year (a flower business in Ethiopia), Private equity investors agree on we can actually add value, where and the Carlyle Group’s closing of its what makes the African market there’s some niche or some capability first sub-Saharan African fund well attractive: a growing population, a that allows us to help that business above its initial target (USD700m vs burgeoning middle class, steadily grow faster, expand internationally, USD500m). growing economies and improved strengthen governance, or improve governance and economic policies. Kola financial management. In Africa we As an illustration, sub-Saharan Africa Olofinboba, who heads up Fairview’s concentrate on sectors where we can attracted $1.6 billion in private equity African practice, recently declared at help companies globally. investment in 2013, the most in five an industry event in New York co- years according to EMPEA, whereas hosted by PwC and the Foreign Policy The growing presence of private equity funds raised decreased in 2013, Association: investors in Africa may contribute to showing a move into investments. In the emergence of pan-African, if not the meantime, funds raised in Q1 2014 There is something happening there’s a global, African champions. It may also reached a peak, possibly announcing a significant structural shift and we think help Africa improve transparency and new wave of investments in the coming it’s there to stay. And yet when you develop value-added activities such as years. According to professionals, look at the amount of private equity manufacturing, services and consumer the four most popular sectors are capital that has actually come into the goods, and enable it to diversify away still business services, information [African] continent annually over the from mining and agribusiness. technology, industrial products and last ten years, it has grown a little bit telecoms, media and communications, but hasn’t really spiked. So we think the but there is a growing interest in the opportunity is still very early. And for consumer sector in appreciation of people who get in now, the view through Africa’s emerging middle class. the windscreen is a lot brighter than what you see in the rear view mirror.
PwC 39 Q: How difficult is it for a company like Q: Would financial markets or private yours to secure financing? equity help fund alternative financing options? A: As a listed company owned in majority by a large international group, we are viewed as a strong A: Private equity funds are a credible option when and credible player. We do not face significant it comes to acquiring one or several business that difficulties when it comes to financing our activities we may want to divest. They are highly interested and projects. We have strong financial partners who in such assets, as they have been well managed. have been convinced for a long time of the strength Q: How do you create confidence with your and sustainability of our business model in Africa. financial partners? However, financing specific long-term projects A: You need to demonstrate the solidity of your such as industrial projects or shopping malls business model and your ability to manage risks. requires finding the adequate mix of equity and This can be achieved through solid experience of debt. If financial markets are, in my opinion, large doing business in Africa (and we have been here enough to provide the required debt facilities, for a long time); the capacity to mutualise risks the key issue is their cost. A higher financing that we typically have thanks to our presence in 33 cost impacts the profitability of our projects and African countries through 140 profit centres; clear return on investments and, ultimately, the overall governance based on well-tried processes including attractiveness of any long-term and capital intensive management, cost control and financial reporting projects. and, finally, a solid organisational structure Q: What options do you have to finance based on sophisticated HR policies fostering team your industrial investments? motivation and innovation. A: Financing industrial investments in Africa raises As an example, the expiration policy of our an alternative in terms of debt structuring: go for business unit leaders, together with strong local debt or secure offshore debt. Borrowing in empowerment and autonomy policies, makes euros or dollars enables us to enjoy lower rates, but them feel like entrepreneurs. They typically we then face a currency risk if the currency of the bring new ideas and value every time they take a country in which we develop our project depreciates. new job, and this also helps with controls being Conversely, borrowing in local currency eliminates regularly reinforced. this currency risk, but it may cost more due to higher lending rates. To give you an idea, these rates can Alain Pecheur is the Chief Financial range from 6% for a loan in euros including country Officer of CFAO, a listed company risks to 10% in CFA Francs and up to 16-17% for controlled by Toyota Tsusho a loan in local currency out of the CFA zone. This Corporation. CFAO operates in 33 means a difference of up to 11 points. In addition, countries in Africa and distributes long-term financing expressed in local currency is in equipment (cars, trucks and relatively scarce supply. construction equipment), healthcare products and consumer goods.
40 The Africa Business Agenda 2014 Q: How do you manage potential Q: What is your focus for investment? conflict among finance partners? A: The Market Demand Strategy (MDS) is our A: Private equity firms generally are risk averse. investment programme aimed at revitalising our Growing our business to the next level requires equipment and assets over the next seven years. venture capital or private equity. But private The MDS is something that is going to preoccupy equity investors wants three to five times back us for the next seven years. It involves a capital on their investment, so there can be conflicts. investment of ZAR307 billion to develop capacity Investors may see five years ahead. As a business to allow us to build an industrial base for South leader, you may have a ten-year vision. That is Africa. where you find some challenges. The main issues In terms of the way that we are spending the are alignment of vision, meeting targets and money – and this is what we are doing differently keeping everybody happy. – we are concentrating on localisation and local supplier development. So we do not just buy Michael Macharia is the Founder and equipment, but insist upon taking part in the Group CEO of Seven Seas Technology manufacturing of the equipment. The locomotives Group, a leading provider of integrated that we are buying now are being largely business and technology solutions in manufactured at Transnet facilities by Transnet Africa. employees. And we are gaining experience and setting ourselves up to be able to manufacture in the future. We have budgeted ZAR1 billion for research and development—and I think this is the most critical ZAR1 billion of the entire ZAR307 billion. This is because with research and development we get an opportunity to get on top of our game, to come up with innovations, to think out of the box, to think about doing things differently and to grow the company differently. For me, our ZAR 1 billion investment in research and development is the most significant development in Transnet. It’s something that we haven’t done in a long time, something that was neglected – certainly here in South Africa and also on the continent as a whole. I think if we increase our efforts in research and development and strengthen cooperation with tertiary institutions we should be able to facilitate faster economic growth. Brian Molefe is the Group Chief Executive of Transnet SOC Ltd, the largest freight transport company in South Africa.
PwC 41 Developing local High potential in high-growth Identifying high-potential talent in the markets first place requires that companies pay talent attention to behavioural competencies. One of these challenges is the Managerial induction programmes availability of high-potential middle by Michael Holtzmann must specifically address this aspect managers and skilled production of talent development. Generally, a workers. In Kenya, for example, many programme of 10% classroom learning, Director of PwC’s People and companies are creating jobs but not 20% applied learning and 70% on-the- Change consulting practice in the enough for the large number of people job training makes sense. East Market Area in Africa with university degrees. Graduates who do excel in the formal sector very An effective talent management quickly find themselves in high demand strategy will create the space for The right people at the right time as they acquire skills and expertise. in the right place that 70% to occur and enforce accountability among the people who High-potential talent is a scarce Companies may be tempted to rush coach and mentor the inductee through resource among organisations of high-potential candidates through to it. Too often, we witness an ad hoc all kinds, in Africa and elsewhere. middle-management positions. This approach instead, largely driven by the Leadership development programmes creates a number of risks, one of which need to accelerate talent development. help to attract and retain top talent. is that potential is inherently latent: you Other times, companies fail to look The results of our survey of CEOs in don’t know if someone will rise to the beyond their embedded hierarchy or Africa show that companies in Africa occasion until you try. Trying without industry to find the right people. are focused on building up the leaders preparation is a recipe for failure. of tomorrow and managing some very These challenges point to a need for a specific talent challenges at the same Companies can give their high- workforce strategy at a country level. time. potential talent platforms to grow into Relevant accreditation and training their roles and opportunities to try new bodies can work together to create things, helping to prepare them before a plan to address a country’s talent they advance to managerial roles. needs. An effective workforce strategy Will someone who is technically savvy will ensure that training is informed also make a good team leader? The by technical content and behaviours answer to this question depends very contributing to the resilience and much on the personal attributes of the effectiveness of tomorrow’s leaders. individual, preparation, training and This will help create the jobs of support in the new role. tomorrow.
Q: What is your biggest challenge with regard to tallent? A: To find skilled workers in a country where there is massive unemployment is a huge problem. Smaller companies like ours tend to upskill talent with the result that big organisations poach them and one simply cannot compete.
Mark Levy is joint CEO of Blue Label Telecoms in South Africa.
42 The Africa Business Agenda 2014 Figure 18: Most CEOs expect to maintain or increase headcount in the Paying for coming year performance Q: What do you expect to happen to headcount in your company globally over the next The competitive market for top talent 12 months? influences compensation, with many companies under pressure to match African CEOs 29 26 42 or exceed pay conditions among peer companies to recruit or retain top Global CEOs 20 29 50 talent. % One way to combat undue salary inflation is to evaluate the talent pool overall and implement clear career planning and succession policies Decrease Stay the same Increase internally. Experience globally shows that there can be significant return on investment from looking at the talent pool internally, but this also entails challenges. Internal candidates – just like external candidates – must be Figure 19: Nearly a quarter of CEOs in Africa expect to expand supported in their journey. headcount by more than 8%
Internationally, there is a wide Q: What do you expect to happen to headcount in your company globally over the next variance between high-level and 12 months? entry-level or average compensation. This is informative because the market 22 Increase by less than 5% for top talent and corresponding 11 pay expectations are not uniform worldwide. 12 Increase by 5-8% Companies can attract top talent from 14 anywhere, but their boards will want to justify a return on investment. 23 Increase by more than 8% High levels of economic growth and 25 correspondingly high expectations for company growth may justify higher % compensation.
Many CEOs share the view that pay and performance should be considered African CEOs Global CEOs in relation to risks taken. Rather than a ‘Wild West’ attitude of results at any cost, companies can identify growth objectives and at the same time set the bar for an acceptable level of risk. Q: Is the attraction and retention of talent a difficulty for Companies that bring in foreign talent Times Media Group? must make this explicit, because A: We try and attract and retain the best talent – this is a company that cultural norms for risk tolerance vary. This can be addressed through an open the most outstanding journalists want to work at. They have freedom conversation about achievement at from interference. We also want to invest in our staff, in particular in a cost that is agreeable to all parties, terms of training. For many years no one invested in the training of and written into adapted performance our people; we have now changed that. The media business is about contracts. producing the best relevant content and we need to ensure that our people can do this. We have set up a training programme with the Financial Times and Daily Telegraph in the UK to send our journalists there for training and also bringing well-known experts to South Africa. We want to improve talent in all areas of the industry. Andrew Bonamour has been the CEO of Times Media Group Limited in South AFrica.
PwC 43 Leadership development insights Q: What contribution does Q. What are your strategic Many CEOs also shared views about what works in terms of leadership training make to your priorities for human development programmes. Overall, business? resources? there is broad recognition that if Retaining a level of profitability BMCE Group is a rich mosaic of companies nurture and pay attention to is very important for a company. talents and competencies. Our human capital – and treat their people like an asset – they will earn a greater Having the human side of people are clearly our main asset, return on this investment. the company visible to the our wealth. Helping them to population is very critical as thrive is clearly the main priority A portfolio of leadership development well. We train more people than of our HR strategy. At the heart programmes will help to grow we require as a company to of the HR strategy of every single more diversity within the talent give people a fighting chance to company willing to grow and pool. No company knows for sure get a job – even it if it is not at improve its competitiveness and where its next CEO will come from, Transnet. In fact, that is what performance is a commitment especially as regional and ‘one-Africa’ we think Transnet would like to to attract, develop, retain and strategies cause workforces to become be remembered for during this diversify the talent base. increasingly diverse. era of high unemployment and We focus on knowledge and fighting poverty. CEOs cite functional rotation as an know-how sharing and transfer, effective leadership development The barrier that we experience as well as creating a common strategy, but this brings into is the need to encourage a lot culture among all employees question the trend towards deeper specialisation. In many industries, high- of our people to start thinking of the group, whatever the potential managers find that they must differently about how to do nationality or geographical be deep experts and very specialised. things. If you think about location. railway people, in a lot of Technical competencies are CEOs may reasonably ask whether instances what they do today is not enough for us, though they there is a place for a generalist in this what they have done or the last are very important. We also environment, or if cross-functional 30 years. The biggest barrier for encourage human capital, experience is a necessary aspect of us is accepting and embracing analytic agility, action-oriented growing the leaders of tomorrow. Many change and in fact playing an are finding that a policy of encouraging behaviours, an entrepreneurial active role in making the change. functional rotation requires serious mind-set and innovation thought around facilitation and Brian Molefe is the capacity, because they are all support, so that those who rotate also Group Chief Executive value-creating behaviours. deliver upon the level of expertise of Transnet SOC Ltd, the required. Constant learning, meritocracy, largest freight transport functional and geographical company in South Africa. The leaders of tomorrow view mobility: they all matter to the themselves as conduits between what is improvement of the Group’s happening in the market (with clients, human capital and to diversified, Overall, leadership development customers, markets, regulators and fruitful career paths. This is true governments) and the kinds of products programmes are helping to change in all sectors, but particularly in and services delivered. Leadership expectations. Leaders are not heroes; development is less about leading than they are human and connected to the services industry. it is about influencing different actors their organisation, markets and other This is how the BMCE Bank individuals. Our survey shows that to identify trends and shape outcomes. Group is building a true connected leadership is very much on ‘collective brain’ for our clients, To be successful, leadership the minds of today’s CEOs in Africa. development programmes must work the economies of countries in to grow that capacity and agility which we are located, and for our among top talent. One of the most shareholders and stakeholders. valuable tools for doing so is feedback. Brahim Benjelloun-Touimi Companies can implement policies to is Director and Delegate facilitate feedback and an environment for acting upon it, as well as creating General Manager to the the space for busy, talented people to Chairman of BMCE Group trial different behaviours or take on of Morocco, a leading something new. A culture that inspires player in Africa’s financial fear of failure will have the opposite ecosystem. effect. Feedback must be seen as a valuable and necessary professional gift between the members of the organisation.
44 The Africa Business Agenda 2014 Global mobility in Figure 20: CEOs are especially worried about skills shortages and rising labour costs Africa Q: How concerned are you about the following potential business threats to your by Alan Seccombe organisation? (CEOs who are ‘somewhat’ or ‘extremely’ concerned)
83 Partner with PwC South Africa’s Availability of key skills Human Resource Services practice 63 83 Africa’s growing economies are Bribery and corruption 52 creating more demand for top people. CEOs tell us that they are confident 76 High or volatile energy costs of growth prospects and focused on 56 increasing their workforce this year, Rising labour costs in 71 even as they express concern about the high-growth markets 58 availability of key skills. Cyber threats including 59 There is an imbalance in many lack of data security 48 economies in Africa between the 58 demand for skilled labour and supply. New market entrants 46 Larger companies can leverage a regional workforce to good effect by 58 High and volatile raw materials prices sending skilled people on secondment 55 or setting up ‘hub’ operations in markets with a stronger skills base. Shift in consumer 56 Other companies may outsource skills spending and behaviors 52 in growth markets or enlist third parties 56 like subcontractors (who may be Supply chain disruption 41 foreign born). 53 Lack of trust in business Many companies in Africa expect to 49 send more people on international 53 assignments in the coming years. Speed of technological change They recognise the strategic value 47 of deploying the right people in the 46 Inability to protect intellectual property right place at the right time, and also 43 the benefits to talent development. According to PwC’s first-ever Global % Mobility in Africa survey, 88% of companies say that the importance of global mobility has increased over the past three years.5 Africa Global
Companies that leverage foreign-born document in support of visa/work Companies are investing in their skills talent must navigate the intricacies permit applications and may need to bases, but these investments can take of government immigration and tax be disclosed as part of tax compliance time to realise value. Retaining high- policies, which vary considerably processes. Such contracts may also potential talent is difficult in markets by country. Recently, immigration need to be compliant with labour laws where skills are in high demand. Many regulations for foreign workers have in the host country. companies have found that global become stricter in many African mobility programmes positively impact countries. Immigration and tax policy challenges retention and view international reflect tension between government assignments as an important element in To manage these challenges, many priorities: the need to build up a local developing high-potential talent. companies outsource immigration skills base and reduce unemployment – to third-party service providers and particularly youth unemployment – and In our experience, companies that use external service providers to the need to grow economies, fuelled focus their mobility strategies on both provide tax services to their expatriate by industry and productivity gains. At developing talent and growing their employees. the same time, the public expects a businesses will see great benefits in the return on government investments in short and long term. Now more than Companies in Africa tend to use their education. ever before, companies that align their internal human resources staff to mobility, global resourcing and talent prepare employment/secondment management strategies with their contracts. Employment/secondment wider business strategy realise the most contracts are the most important 5 ‘Global mobility in Africa,’ PwC, http://www. value. pwc.co.za/en/publications/global-mobility- in-africa-report.jhtml). PwC 45 Developing talent Q: Which strategies are Younger employees also need to helping your company feel that individually, there is a Q: What steps are you to manage talent most personal gain, as well as feeling taking to develop talent? effectively? collaboratively within their teams that they are having fun and A: Retention is a challenge in every A: We are investing in people. are energised. We do engage our business today. The war for talent We have recently recruited younger employees. someone who is helping us to is real. As a leader in any market, go online. We are working with your company becomes a hunting We find that even when some someone who has done this for ground for talent. Talent migration of them exit the company, they Tesco and others. We didn’t without new development increases sometimes come back or remain have this capacity in-house so the human resource cost structure connected to Seven Seas formally we brought someone in from in some cases. Without proper ICT and informally since they are part outside. We need to be online; market salary surveys, the human of what we call the ‘SST DNA’. The we need to be in touch by the resources cost could easily get out money could be great, but you find minute. We’re in a test phase of control. they are seeking something else, in some cases asking: “What is the in terms of electronic invoicing We’re getting to a level of point, am I having fun or making a with our suppliers. People say maturity as a business where we difference?” that technology reduces people can outsource vertical expertise within the organisation but I through freelancers. As a country Q: How would you don’t see that. At the end of the and region, the industry is not characterise the availability day, if you get it right, you see mature enough to build a joint of key skills in other the value. But it can take a while and common skills pool. A change markets in Africa? before you get it right. of mindset so that it is alright A: This varies across different not to be formally employed and We are growing from within, markets. In Nigeria, for example, become an enterprise or an asset but as we expand regionally, we have gained greatly from the as an individual subcontracted on we need regional heads and strong talent base present. In various projects is key. management at regional offices. Ethiopia, there’s a learning curve It’s a challenge to get the right We now tap into a small niche in regard to sophistication of people and them being offsite of these high-value talent pools skills, but here we find longer job and getting their work permits through our Partner for Life retention. and then not having them here initiative and also re-training as In Zimbabwe, our SAP business has all the time. We are getting local well as hiring teams focused on been very strategic; our partner talent but it can take a while. specific verticals such as a trained there used the Zimbabwean doctors joining the ICT Healthcare We’re all employees, even I am economic crisis a couple of years Business. an employee. There’s nothing ago to build talent. Money saved for free in this company, We continue aggressively from the reduced wage bill was everybody is equal. In terms of on our talent acceleration used to hire more people and performance so far, touch wood, programmes like the Knowledge employ them in other countries. our management team has for Life initiative, university As the Zim dollar was crashing, all done what they have been student exchange programme he was hiring more people and appointed to do or what their and management development deploying them to government for capabilities allow them to do. programmes, among others. free, thinking that he will be paid down the road. He was right and Haku (Atul) Shah is the Q: How do you retain his gamble paid off. Group Managing Director younger employees? of Nakumatt Holdings Michael Macharia is the A: Among younger employees, Ltd, the leading retailer Founder and Group CEO they really need to believe in a of food and consumer of Seven Seas Technology justifiable cause. They have to goods in East Africa Group, a leading provider believe they are part of a project with over 40 branches in of integrated business and that is changing lives and making Kenya, Rwanda, Uganda technology solutions in a difference. We build a connection and Tanzania. Africa. between the idea or project and the employee.
46 The Africa Business Agenda 2014 Innovating in Africa by Danie Fölscher
PwC Partner in Charge of South Africa’s Western Cape region Figure 21: Products/service innovation is top of mind for most CEOs, an Innovation is a key driver for indication of pressure from competition. growth Q: Which one out of the following list of potential opportunities for business growth do With the global economy emerging you see as the main opportunity to grow your business in the next 12 months? from the recession, CEOs globally are focusing their efforts on new ways to do business and to innovate. Innovation is moving up the boardroom agenda as companies recognise its importance to 31 Product/service innovation maintain growth. Innovation’s rise on 35 the agenda also reflects the change in the business landscape. 27 Increased share in existing markets 30 Today, innovation is much more than inventing new products. It is about 20 New geographic markets inventing new processes and models 14 that meet untapped market and consumer needs. It’s not industry or New joint ventures and/ 14 geographic location that sets leaders or strategic alliances 9 in innovation apart – it’s their strategy, vision, executing the right ideas and 5 bringing them to market at the right Mergers & acquisitions 11 time. There are so many things that fall under the broad scope of ‘innovation’. % Innovation is not restricted to hi-tech industries or to developed economies and best practices are being adapted across all industries around the globe. Africa Global Five years ago globalisation would have been identified as the most powerful growth driver and many businesses would have been looking to China and India for opportunities. But now the But there is often a vast gap between growth lever that has the most effect ambition and aspiration. No less than is innovation. Our research shows that 87% of CEOs in Africa say they need innovation of products/services is top to change their approach to R&D and of the mind for 35% of CEOs globally innovation. Sixty percent says they (Africa: 31%), which is an indication recognise the need to change, are of pressure from the competition. In developing a strategy to change or have addition, most CEOs in Africa want concrete plans to change. But only a to improve their company’s ability to quarter have actually gone beyond innovate, with 85% taking steps to the drawing board and started or change their operations around using completed a programme of change. and managing data analytics and 76% investing in production capacity.
PwC 47 Figure 22: Africa’s CEOs find themselves caught between recognising the need to change and delivering the change required.
Q: In order to capitalise on these trends, can you tell me to what extent you are currently making changes, if any, in the following areas
Technology investments -7 10 16 24 41
Organisational structure/design -9 9 26 20 33
Talent strategies -5 7 21 27 35
Customer growth and retention strategies -8 11 18 27 32
R&D and innovation capacity -10 15 20 25 27
Use and management of data and data analytics -13 12 22 20 31
Investment in production capacity -18 10 16 21 29
No need to change Recognise need to change Developing strategy to change Have concrete plans to implement change programmes Change programme underway or completed
Why are CEOs holding back? The The CEOs in our research are Ultimately, companies need to have a research suggests that CEOs might also aware of the importance of clear idea of what they want to achieve be uncertain about how to convert collaboration, with leading innovation through innovation. The leading innovation into sustainable profit. companies planning to collaborate innovators align their innovation Another concern might be that newer more with third parties. In addition, practise with intended business technology could overtake their efforts. working with governments also appears outcomes. A clearly articulated on the innovation agendas: 14% of innovation strategy is also vital. PwC’s ‘Breakthrough innovation African CEOs (Global: 30%) think Furthermore, companies need to and growth’ survey of 1 757 global it is part of the Government’s job to decide in which areas they should be executives highlights that innovation foster an environment conducive to prioritising and focusing their attention is a key driver of organic growth for all innovation. on innovation. Finally, leadership companies, regardless of their industry should set the tone for innovation. or geography.6 Undoubtedly innovation is not without challenges and obstacles and hurdles In our experience, leaders create an The survey shows that leading that need to be overcome in the ‘intrapreneurial’ innovation culture innovators are taking a more process. PwC’s study on innovation – an environment that encourages sophisticated approach to innovation. shows that the two main challenges entrepreneurial behaviours and the This includes having a well-defined facing companies are the ability to leveraging of resources internal to the innovation strategy; planning a wider take innovative ideas to market quickly company. The intrapreneurial culture range of innovation operating models; and in a scalable way, and finding combines the vitality of a start-up and collaborating more actively than and retaining the best talent to make with the strengths of an established their less innovative peers. Innovative innovation take place. Other challenges company – a difficult combination to organisations are marked out by their include finding the right partners to beat. visionary leadership, licence to explore collaborate with and having the right new ideas, readiness to collaborate and metrics to measure innovation. the ability to commercialise new ideas quickly.
6 ‘Breakthrough innovation and growth,’ PwC, www.pwc.com/innovationsurvey
48 The Africa Business Agenda 2014 The agility dividend It all starts with leadership teams acting as role models with compelling Q: How important is and meaningful visions to engage innovation to your by Edouard Messou and employees. It requires courage at the business? Pierre-Antoine Balu top to overcome natural risk aversion and fears. It means simplifying the A: Everyone expects something new from Nakumatt every Edouard Messou is the Territory organisation and processes to enhance day. What is it we will do Senior Partner for PwC in sub- the agility of the operating model. It means training middle management differently? I travel all over the Saharan Francophone Africa in change management techniques world and try to implement in order to secure the buy-in of ideas that I think will work. Pierre-Antoine Balu is a partner stakeholders. It means promoting with PwC France problem solving techniques. And it People who have not been to implies the implementation of bottom- Kenya before, they will see a A demographic boom, changing up approaches allowing employees to Nakumatt and think, ‘Wow, regulation, new consumer needs, the suggest new ideas and favouring the something like this is available war for talent, disruptive technologies, recognition of individual initiatives. in Kenya.’ Before, people urbanisation, new competitors… used to travel to London and African companies are facing an Of course evolution will not happen Dubai and travel with many accelerated pace of change. These overnight and change management suitcases. Now they don’t have mega trends are impacting the African initiatives must be done in full respect to. economies and companies significantly. of local specificities. We believe that African companies that can address the Our vision was always to be For decades, many African companies ‘agility challenge’ properly will become a Kenyan supermarket but did benefit from oligopolistic or the African leaders of tomorrow. They opportunities came up so monopolistic positions and the will learn how to seize opportunities we made it an East African competitive pressure was less intense earlier. They will gain an unbeatable brand. In the years to come, than today. This context did not favour competitive advantage and achieve we see opportunities further the design of agile organisations or incredible results. embedding a change management afield. There are no established culture. retailers in the Eastern Central Africa region. Overall, To deal with the tremendous changes opportunities are still great. ahead, African companies and – most We’re trying to make products of all African CEOs – have to adapt more affordable by introducing quickly. our own brand, Blue Label. We don’t have to pay any royalties to anyone. We are giving local suppliers more volumes and we are trying to come up with a third brand. Our Blue Label products are made by the same suppliers, we don’t manufacture anything. Blue Label is in conjunction with our suppliers or perhaps new suppliers.
Haku (Atul) Shah is the Group Managing Director of Nakumatt Holdings Ltd, the leading retailer of food and consumer goods in East Africa with over 40 branches in Kenya, Rwanda, Uganda and Tanzania.
PwC 49 Adapting to change Farouk Gumel, Partner, PwC Nigeria and Advisory services leader, PwC’s West Q&A Market Area: When investors come to Africa, a lot of them see government as an entity that needs to The following conversation occurred between panellists at provide infrastructure. But the question that people PwC’s televised discussion about the Africa Business Agenda don’t ask is whether the government itself has the during the World Economic Forum on Africa in Abuja, relevant infrastructure to operate efficiently. So when Nigeria, on 9 May 2014. you look at technology, for example, businesses have moved on. ICT is definitely being leveraged by a lot Edwin Devakumar, CEO, Dangote Cement: of private sector organisations whether it is mobile Take one of our flagship companies as an example. banking, whether it is email communication between When we started, we didn’t have water so we had to go top executives and their staff, whether it is branch and construct a dam. We had no gas supply nearby. We connectivity through ICT. had to construct a 90-kilometre gas pipeline to bring Government, on the other hand, you walk into a the gas to the plant. We had no telecommunications typical African ministry, there’s no computer. There’s at the site. We needed satellite communication to get no electricity. Communication between top leadership everything on a regular basis. We had to construct and the doers doesn’t exist. So if you’re relying upon 500 houses; we had to put in our own power plant; we an entity to provide you with infrastructure that will had to construct our own access road. This is the same improve your operational efficiency then you have thing that we are replicating in other countries too. to look at that entity itself to understand whether Everything we do ourselves. If you are willing to take they themselves have the infrastructure to operate the risk and if you are willing to invest, the returns are efficiently, to address your issues and concerns and very high. ultimately deliver what you require.
50 The Africa Business Agenda 2014 Uche Orji, CEO, Nigeria Sovereign Colin Coleman, Managing Director, Investment Authority: These are business Goldman Sachs SSA: High growth off a low decisions. If your margins are high enough to cover base with very weak institutional frameworks and the cost of you providing your own infrastructure and many logistical problems for companies. If you’re a you know the government has no real infrastructure retail company, an infrastructure company, a mining themselves – does not have the resources to provide company moving goods through ports, across borders, the infrastructure – then you should go ahead and there are many obstacles to getting a free flow of goods make that investment. The solution to this in many and people through the continent. ways is something that Nigeria is trying is to have This is a matter of building it brick by brick, branch by public-private partnerships. For that to happen, the branch, tower by tower, shopping centre by shopping regulatory environment and the legal environment has centre. They are property owners and property builders to be right. I’m encouraged by the fact that there is a in order to become retailer providers, which is their willingness to try. core business. They have to manage the logistics; they Sola David Borha, CEO, Stanbic IBTC: Because have to manage the cross-border environment, the of the huge additional costs that you have to incur in ports, getting all the products to market in a challenged order to run your business, any way that you can have environment. cost efficiencies, you have to explore. Cloud computing, This is why margins are higher; if you look at Dangote for example – any technology that will make it easier Cement, they are providing cement at very significant for you to deliver services. We’re exploring various margins and this is why the company is doing so electronic channels so you don’t have to have bricks well and rewarded with high multiples because these and mortar out there. It’s cheaper than to put up a margins are rewarding the fact that they are getting branch with the power and water that you require. over a lot of obstacles to get their product to market. As I say, ‘Africa is not for sissies!’ It’s a case of looking at the opportunity and realising that there are lots of problems that you have to overcome but the rewards are there.
PwC 51 Conclusion
52 Africa Business Agenda 2014 Leaving a legacy: CEOs in their own words
Q: What do want to be remembered for, and why? A: I want to be remembered for...
…training and the development of younger graduates. …improving the development of the country, – Managing Director, Insurance (Botswana) in which I have confidence and respect. – Directeur General, Automotive (Congo Brazzaville) …training people who can replace me. – Chief Financial Officer, Financial Services (Cameroon) …leading innovation in the banking system. – Managing Director, Financial Services (Democratic Republic of the Congo) …reaching a significant number of Gabonese, allowing them to get treatment free of charge and benefit from government aid. …building a culture of simplicity in leadership. – Directeur General, Development Simplified leadership enables people to share (Gabon) the company vision and helps build a stronger organisation. – CEO/Director, Financial Services (Kenya) …building a profitable organisation with good customer service. …building the good …adding value to reputation of the company – CEO, Financial Services (Mauritius) society. and products of good quality and satisfying the customer – CEO, …providing excellent social services and at the same time to keep Financial through a well-managed and transparent making profit. Services (Mozambique) organisation. Namibia deserves quality. – CEO, Real Estate – Project Director, Development (Morocco) (Namibia) …being a person who helped people and was a catalyst for them to realise their potential, encouraging them to do more than what they …making profits through are doing in order not just to benefit themselves from an economic fair play and thinking based point of view. on fair play more than just – Managing Director/CEO, Industrial Manufacturing money. (Nigeria) – Country Manager, Hospitality (Rwanda) …bringing change to how people relate …rejuvenating the company and to one another in the organisation. allowing it to face the future. …showing rigour while – Country Manager, – Directeur General, making decisions. Transportation & Logistics Mining (Senegal) Diligence. Being an (Tanzania) optimist. …extending financial services to …making a difference in the lives of Ugandans – Directeur more Zambians. General, Financial through vocational skills training programmes. —Managing Director and Services (Tunisia) —Managing Director, Automotive CEO, Financial Services (Uganda) (Zambia)
PwC 53 Methodology
54 Africa Business Agenda 2014 About the survey
The Africa Business Agenda is based on a survey of 260 CEOs For more information about this publication, in 18 African countries. The survey draws on the survey please contact: questionnaire used in PwC’s 17th annual Global CEO Survey of 1 334 CEOs worldwide. The use of a common set of survey Emily Ansell questions allows us to benchmark the views of African CEOs against global averages. Lead project manager Tel: +254 708 114 558 Our survey of African CEOs was conducted between November 2013 and August June 2014 and the results of Email: [email protected] this form the basis of this publication. Most surveys were conducted face to face. Sebastien Murbach
In the publication, ‘Africa’ results refer to the average of the Francophone Africa regional project manager 260 surveys in Africa. Tel: +33 (0) 1 56 57 71 95 Email: [email protected] In some cases, percentages may not add up to 100% due to respondents who chose not to answer a question. Catherine Ensor Survey population Editor and Southern Africa regional project manager Region Number of Tel: +27 (0)11 797 4556 respondents Email: [email protected] Global 1 344
Africa 260 For media enquiries, please contact: Botswana 10 Cameroon 9 Lindiwe Magana Congo Brazzaville 7 Democratic Republic of Congo 1 Tel: +27 (11) 797 5042 Email: [email protected] Gabon 3 Kenya 30 Mauritius 10
Morocco 2 Mozambique 4 Namibia 10 Nigeria 12 Rwanda 10 Senegal 5 South Africa 105 Tanzania 12 Tunisia 5 Uganda 15 Zambia 10
PwC 55 PwC in Africa
56 Africa Business Agenda 2014 Wherever you do business in Africa, we’re there for you Tunisia
cco oro M
Algeria Libya Egypt
Mauritania Mali Niger Sudan Eritrea Cape Verde Chad
Senegal Djibouti Gambia Benin Guinea Bissau Burkina Guinea Nigeria South Ethiopia Faso Sudan Sierra Leone Côte Central
d’Ivoire Togo Liberia Ghana African Republic Somalia Cameroon Kenya Uganda São Tomé and Príncipe Gabon Democratic Republic Rwanda
Equatorial Guinea Congo of Congo Burundi Seychelles Tanzania Malawi Comoros Angola Mayotte Zambia
PwC offices Zimbabwe Namibia Mozambique Reunion Services provided from PwC offices in Botswana neighbouring territories MadagascarMauritius
Swaziland
South Lesotho Africa
We know that value goes beyond a With more than 400 partners and over single engagement or a single result. 9 000 staff in 34 countries, PwC is the Value is defined by a relationship – one largest provider of professional services that is born of an intelligent, engaged, in Africa. This means that we’re able collaborative process. With our African to provide our clients with seamless network, our people and experience, and consistent service, wherever they we’re ready to help you realise that do business on the continent. Our in- value wherever you do business. depth knowledge and understanding of African operating environments enables us to offer tailored tax, assurance and advisory solutions for every business challenge.
PwC 57 Contacts
PwC’s regional leaders in Africa
Suresh Kana Edouard Messou
Territory Senior Partner for PwC’s East, West Territory Senior Partner for PwC in sub-Saharan and South Market regions in Africa Francophone Africa Email: [email protected] Email: [email protected] Tel: [+27] (11) 797 4312 Tel: [225] 20 31 54 11
Hein Boegman Uyi Akpata
Regional Senior Partner for PwC in Southern Regional Senior Partner for PwC in West Africa Africa Email: [email protected] Email: [email protected] Tel: [+234] (1) 271 1700 Tel: [+27] (11) 797 4335
Anne Eriksson Noël Albertus
Regional Senior Partner for PwC in East Africa Country Senior Partner for PwC in Morocco and Email: [email protected] Algeria Tel: [+254] (20) 285 5000 Email: [email protected] Tel: [212] 522 99 98 00
58 Africa Business Agenda 2014 PwC Africa Desks
PwC has Africa Desks in Johannesburg and New York to assist investors who have or are looking to set up operations in Africa. Staffed by specialists from various African countries, we can help clients:
• Address important issues facing their businesses in African countries in an integrated manner;
• With quick responses to specific and general questions about investments in Africa;
• With tax (and legal) advisory services;
• Coordinate with PwC offices in different African countries; and
• With all the information you need to know on the cross-border aspects of corporate restructuring, acquisition and divestiture planning, holding company strategies, financing arrangements, withholding tax minimisation, foreign tax credit utilisation, and many other facets of international tax planning.
Contacts
Johannesburg Ibikunle Olatunji
Tel: +27 11 797 5317 Email: [email protected]
Cor Kraamwinkel
Tel: +27 11 797 5096 Email: [email protected]
New York Gilles de Vignemont
Tel: +1 646 471 1301 Email: [email protected]
Emuesiri Agbeyi
Tel: +1 646 471 8211 Email: [email protected]
Francophone Africa Dominique Taty
Tel: +225 20 31 5460 Email: [email protected]
Benic Mbanwie Sarr
Tel: +242 05 534 0907 Email: [email protected] ©2014 PricewaterhouseCoopers (“PwC”), the South African firm. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers in South Africa, which is a member firm of PricewaterhouseCoopers International Limited (PwCIL), each member firm of which is a separate legal entity and does not act as an agent of PwCIL.
“PwC” is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services. Together, these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. (14-15719)