MTN Uganda has declared its latest quarterly dividend equivalent to Sh0.24 per share. FILE PHOTO
Strong performance of the Kenyan economy has sparked a new wave of investments from South African companies – marking a comeback after a lull that cut short a surge at the turn of the millennium.
In the past two years alone, South African firms have made huge investments in Kenya, looking to be second time lucky in a market that has in the past proved a hard nut to crack and which has buried a number of corporate giants from Africa’s largest economy.
The major difference is that South African firms have changed strategy in favour of mergers and acquisitions away from setting up shop from scratch that saw well-heeled corporations such as South African Breweries-backed Castle Breweries burn their fingers in a booming beer market.
Unlike in the past when South African firms appeared to have concentrated their investments in the distribution of consumer goods through home grown giants such as MetroCash and Carry, recent inroads have cut across nearly all sectors including banking, capital markets and ICT.
Ecobank managing director Tony Okpanachi said starting off with partnerships and acquisitions made it easier for new entrants to leverage on existing infrastructure and customer base to grow the business.
“Such set ups also have their challenges especially if the acquired business was not performing well prior to the buy out,” Mr Okpanachi said. West African Ecobank entered the Kenya market through the acquisition of 75 per cent of EABS three years ago.
The list of South African businesses that have entered the Kenyan market in the recent past includes MTN Business, which acquired UUNet Kenya (to become MTN Business Kenya) and Telkom South Africa, which has gained a strong local presence through a series of direct and indirect acquisitions of local firms.
Key players in businesses with South African links attribute the renewed interest to a positive economic outlook that promises not only to deepen Kenya’s standing as East Africa’s largest economy but also the region’s commercial hub with influence as far as Southern Sudan and Eastern Congo.
“The positive economic outlook, a well educated population and favourable business climate make Kenya irresistible for South African businesses,” said James Turuthi, the Afsat/iWayAfrica marketing manager in Nairobi.
Tom Omariba, the MTN Business Kenya managing director, says that an improved business climate and regional integration that has created a much bigger market are the new realities that improved Kenya’s attractiveness to foreign investors, including South Africans.
“The relative political stability and the signing of the EAC protocol means access to a market of more than 120 million people. This market is best served from Kenya,” he said.
Rising interest of South African firms in the Kenyan economy deepened last month with the visit to Nairobi of Absa Capital backed NewGold Exchange-Traded Fund (ETF) for talks with the Nairobi Stock Exchange (NSE) on plans to set up a secondary gold trading market.
Absa Capital, which was launched in 2005 after Barclays bought a stake in South Africa’s Absa Bank, contributed more than one-fifth of Absa Group’s profit in the first half to June 2010.
The aim of the gold ETF is basically to diversify the firm’s assets by opening a new avenue that can help investors put their money away from traditional securities such as equities and bonds.
Vladimir Nedeljkovic, Head of ETF’s and Index Products at Absa Capital, says on the company’s website that the ETF gives both individual and institutional investors direct access to an efficient and cost effective way to invest in gold through a listed security.
“Historically, gold has demonstrated its role as an effective portfolio diversifier, a store of value and a safe haven investment in uncertain economic times, as well as an excellent currency hedge,” he said.
South Africa’s ICT businesses have notably moved towards tie-ups with Kenyan counterparts in a change of strategy that has seen corporate giants like Telkom SA – which had long harboured the dream of entering the Kenya telecoms market – acquire a local satellite data transmission services company, Afsat Communications and Internet Service Provider Africa Online in a series of complex transactions that also involved other companies.
Telkom SA acquired MWEB Africa, which is the Internet solutions arm of Naspers — the company that also owns Multichoice Africa and magazine arm Media 24.
Earlier, MWEB had bought Afsat Communications, including its subsidiaries in Kenya, Uganda, Tanzania, Nigeria and Zambia. In 2009, Telkom SA effectively owned Afsat – whose flagship brand is broadband internet solution brand iWayAfrica.
Towards the end of last year, Allied Technologies Ltd (Altech) of SA increased its stake in Kenya Data Networks (KDN) through the purchase of a nine-per cent stake in addition to the 51 per cent it has held since 2008 – effectively taking control of the company.
“Acquisitions such as the iWayAfrica, MTN Business and KDN/Altech are proving to be better than complete set up of fresh operations. It is hard to name a South African business that has started from the scratch and become successful,” Mr Turuthi said.
Mr Omariba says it has become difficult to ignore Kenya because investors go where they expect a good long-term return, compared to other available investment options and destinations – on all fronts Kenya stands above its neighbours.
Beer giant SAB Miller has front-ran East African Breweries Ltd (EABL) in setting up operations in Sudan whose southern part is seen as a vital growth market with potential for fast take off after the January 2011 referendum.
SAB Miller stopped operating its own beer plant in Kenya in 2002 after a bitter market share battle that ended with share swaps with rival EABL in respective outfits in Kenya and Tanzania.
Nedbank Group, one of South Africa’s largest banks, entered Kenya through its alliance with Ecobank where their customers can use any or both of the banks’ services without any changes in shareholding structure.
This happened two years ago enabling Nedbank, which had operations in five African countries, to extend its footprint to the 28 countries where Ecobank has operations without moving in directly.
Nedbank is currently sponsoring electricity generation around Lake Turkana and climate change-related projects at the Kenyan coast – developments that have boosted the bank’s profile in a country with huge power limitations and has at the same time suffered years of depletion of forest cover.
One of the long established businesses in Kenya with South African roots is Old Mutual but it has long had a shareholding, now at about 52 per cent, at Nedbank.
However, there is a possibility that Nedbank would want to establish itself in the region independently of its shareholding in Old Mutual and the alliance Ecobank. Nedbank accounted for nine per cent of Old Mutual Plc revenue in 2009.
Old Mutual Kenya marketing manager Jemimah Waititu hinted that this might be the case when asked whether Nedbank would be interested in coming to the EAC or buy stake in local or regional firms.
“At the same time Nedbank intends to expand their banking footprint by way organic or in-organic growth in countries with high growth potential, manageable risk and compliments the Alliance [between Nedbank and Ecobank] footprint. … The Alliance structure provides for seeking opportunities on a joint basis but where appropriate Nedbank may look at investment opportunities on a standalone basis,” she said.
