Leading African companies are moving past the legacy of colonialism, expanding across the continent, and challenging foreign multinationals.
African colonisation peaked during a decades-long period in the late nineteenth and early twentieth centuries, linking the economies of African countries to those of European powers rather than one another. European and American multinationals continue to dominate many markets. And while African firms have announced $72 billion in foreign direct investments on the continent this decade, according to fDi Markets, non-African companies have invested nearly nine times as much.
There are signs the balance could be shifting, as more African companies pursue Pan-African expansion. A 2017 survey from McKinsey found that two-thirds of African firms planned to enter new countries in Africa within the next five years. The Boston Consulting Group said that in 2018, the 30 biggest African companies operated in an average of 16 countries on the continent, double the number in 2008. “Leading African businesses are stitching the region together, making it easier for others to follow suit,” The Economist observes.
The biggest African companies are positioned to take on foreign multinationals in the region. Dangote Group, a Nigerian industrial conglomerate founded by Aliko Dangote, is one of the biggest. It currently operates in 10 African countries, covering a range of industries from cement to food, chemicals, oil, steel, logistics, telecoms and real estate. It has become the largest cement producer in sub-Saharan Africa, displacing Switzerland’s LafargeHolcim.
The drive towards Pan-African expansion has been prompted in part by the need to find more customers. Even combined, the economies of Africa’s 54 countries remain comparatively small. Individuals and businesses are becoming more engaged with formal markets as they gain more economic power and outgrow informal suppliers. These would be ideal customers; however they are distributed unevenly across the vast continent, existing in concentrated pockets.
Morocco-based OCP Group, one of the world’s leading phosphate exporters, made its way into sub-Saharan Africa by creating a subsidiary called OCP Africa. The group has expanded in the region, building the market for its phosphate fertiliser by investing in soil research, microcredit and logistics. South Africa’s Shoprite Group, Africa’s largest food retailer, has expanded into 15 African countries, from Ghana and Nigeria in the west to the island nation of Madagascar in the east.
Another force driving the regional expansion of African companies is the risk that comes with focusing on a single country. Uncertainty is a fact of doing business in Africa, due to weak supply chains, volatile currencies, and the interests of local regulators. Thus companies with the means to diversify and expand are able to minimize their exposure. Because cross-border expansion comes with plenty of its own risks, the most successful firms have rolled out selectively, and backed out when necessary.