Out of Africa, Opportunity

Chinese and Indian companies are rapidly expanding their footprints on the continent. But for U.S. firms, the opportunity is tempered by uncertainty.

Africa, you’re no China. Yet.

In part, that’s the message that surfaces from the Duke University/CFO Magazine Global Business Outlook Survey for the second quarter of 2013. This survey marks the first time that CFOs from countries in Africa have participated as respondents in the quarterly temperature taking, thanks to the assistance of the South African Institute of Chartered Accountants.

What emerges from these finance executives’ answers is a portrait of a continent that represents a market prospect with Sahara-like sizzle, but has a way to go before it can catch up to rapidly developing economies such as China’s.

Web“Africa is viewed as an incredible opportunity,” says John Graham, a professor of finance at Duke’s Fuqua School of Business who directs the Business Outlook survey. “The growth potential in everything from light machinery to consumer goods is a huge untapped market.”

Roger Blanken, vice president of finance, supply chain, for International Flavors & Fragrances, emphasizes the favorable demographics. IFF, which is a global creator of flavors and fragrances used in many consumer products, has been running its own plants in Egypt and in South Africa for decades. But “particularly in places like Africa,” says Blanken, “we follow our customers” — primarily large, multinational consumer companies such as Unilever and PepsiCo, which have been targeting the fast-growing consumer segments there.

In the World Factbook for 2012 (a public repository of data on virtually every country in the world, compiled by the U.S. Central Intelligence Agency), a third of the top 25 GDP growth rates are produced by countries in Africa. African countries also dominate the CIA’s top 10 list in terms of population growth rates, while the Duke/CFO survey indicates that companies expect wages and salaries in Africa to grow on a par with the rates anticipated for the United States and Asia.

Looking Down the Road
These kinds of outlooks may be responsible, at least in part, for survey respondents’ excitement over their prospects. Finance executives in Africa match their Chinese counterparts in terms of the chances for their own companies’ success, giving themselves a 70 out of a possible 100 on the optimism index.

And they’ll be putting their money where their enthusiasm is. In the Duke/CFO survey, Africa-based respondents say that they expect capital spending to increase by a median rate of 10 percent in the next 12 months. CFOs from African countries appear to be eager to spend their money in service of ambitious growth plans — fully 69 percent of survey respondents from the region say they will start to spend down cash reserves over the next year, and 70 percent of the spenders will do so primarily to boost capital investment. Marketing and advertising are also expected to see relatively strong increases.

2 thoughts on “Out of Africa, Opportunity

  1. Great article, maybe what Africa government need to do to attract more US capital is to market themselves and put in place mechanisms that will create business friendly atmospheres with streamlined processes less prone to corruption. The bottom line is: African countries can hire public relation companies here in the US to market their markets better.

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