2005 DIAGEO AFRICA BUSINESS REPORTING AWARDS

Best Published Features

Isaac Umunna, Africa Today

Nigeria and South Africa: a partnership of giants

Mutually beneficial trade relations between Africa’s two leading economies, South Africa and
Nigeria, grow phenomenally, as the private sector moves to take full advantage of the enormous
investment opportunities existing in both countries. It’s a win-win situation for the two nations
and for the continent, reports Africa Today’s General Editor Isaac Umunna

These days an increasing number of Nigerians eat South African food, listen to South African
radio, watch South African TV, fly South African Airways and, of course, stay in touch with loved
ones through the Nigerian subsidiary of South Africa’s telecom giant, MTN.

By far the largest GSM operator in Nigeria, MTN accounts for about half of the six million GSM
subscribers in the country, leaving the balance for the other three operators, Globacom, Vmobile
and M-Tel. To say that MTN has struck gold in Nigeria is an understatement. For the first three
years of its operations in the country, the company has consistently posted mind-boggling
returns. It earned N71 billion (about $568 million) in its first full trading year running from April
1, 2002 to March 31, 2003, with a profit after tax of N11.2 billion or $89.7 million. The
performance has already been dwarfed by the balance sheet for the first half of the current
trading year, which showed a net profit of N25 billion (about $185 million) for the period.

MTN is only one of the several South African firms presently having a field day in Nigeria.
Another prominent example is Multichoice, which controls roughly 90 percent of the cable TV
business in the country. As for Critical Rescue International, an emergency healthcare operator, it
has no competition to contend with for now in its area of business. Other South African
companies making a fortune in Nigeria include Chevron/Sasol, which controls about 20 percent of
the petroleum/gas exploitation business in the country; South African Airways, 8 percent of the
commercial aviation industry; Safmarine, 3 percent of the shipping business; and Stanbic, which
has cornered 2 percent of the banking industry.

Eager to grab a larger share of the market, Stanbic has embarked on an ambitious expansion
drive. After consolidating its operations in Lagos, Abuja, Kano and Port Harcourt, the bank,
according to Henry James, Head of Corporate Affairs, is all set to expand its branch network “as
part of management’s various initiatives to strategically position the bank as a dominant player in
the Nigerian banking industry.”

Stanbic is an affiliate of the Standard Bank of South Africa, a leading banking and financial
services group with operations in 17 other African countries and points of representations in
virtually all the major financial centres of the world. It presently has five branches in Nigeria and
has established two subsidiaries, Stanbic Equities and Stanbic Nominees. As part of its strategic
move to corner a larger share of the Nigerian market, the bank is about to relocate from its old
head office in the Ikoyi area of Lagos to Stanbic House, a new high profile head office in
highbrow Victoria Island.

As at now, 20 South African firms are officially doing business in Nigeria, with most of them
relatively new in the country but fast stabilising. They include Eskom (power
generation/contracting); Umgeni (water engineering); Dewfresh Products (trading); SA-Nigeria
Comm. & Systems (trading); Direct Marketing Com. (marketing); Global Outdoor Services
(advertising); Grinaker-LTA (construction); Shield/Engen (petroleum); Protea Hotels (hospitality);
Steers (fast foods); Church’s (fast foods); and Outsourcing Services (security).

The excellent performances of big boys like MTN and Multichoice, the rousing reception given the
new comers in the market and the limitless potentials of the market will certainly lure more South
African firms to Africa’s most populous country with about 130 million people. “I expect South
African companies to continue to enter the Nigerian market,” said Olusola Obadimu, executive
secretary of Nigerian-South African Chamber of Commerce (NSACC). Oba Ayoola Otudeko,
chairman of the bilateral chamber, shares that view. “Almost on a monthly basis,” he said, “we
witness an inflow of more South African companies into Nigeria to participate in the open
economy created by the democratic governance in place.”

In the circumstances, many Nigerians are becoming increasingly uncomfortable that – as they
put it – “the South Africans are taking over.”

“They are our new colonial masters, economically speaking,” wailed one distraught Nigerian.
“They have taken over the Nigerian economy.”

Obadimu dismissed such fears as unnecessary and parochial. He told Africa Today: “The paranoia
in certain circles that the South Africans are taking over and may be out to colonise us is
unjustified. Panicking is not the solution to our problems. We should forget about pride and learn
from them. It does not matter that we 130 million and 44 years old as an independent nation
while South Africa is just 40 million and became independent only ten years ago.”

The NSACC scribe equally faulted the argument by some critics that the South Africans are
exploiting Nigeria and Nigerians by making huge profits which they supposedly repatriate home.
(MTN which was leveled with the allegation has denied it, explaining that it has ploughed back
every kobo so far made by it in Nigeria as a deliberate policy to expand fast and cover the
country before reaping.) Obadimu is of the view that those who make the accusations are closing
their eyes to more fundamental issues. One of them, he said, is that “the South African
companies are providing much needed jobs.” The other: “The activities of South African
companies here are adding value and providing needed services.”

He cited the telecom revolution in the country as one of the dividends of the increasing trade
relations between Nigeria and South Africa. “Our capacity has grown due to their activities,” he
remarked. “For instance, five years ago, how many Nigerian engineers had expertise in GSM? But
because some of our young men and women work with these GSM companies, they have gained
capacity. You can’t take that capacity from them. By building such capacity, truly Nigerian GSM
companies will emerge and may even bid for licences in other African countries.”

One allegation which no one has made against MTN or indeed any of the GSM operators is that
of exploiting their workers. Unlike the Asian-owed companies operating in Nigeria which are
notorious for poor pay and inclement working environment, MTN and the other GSM firms have a
reputation of empowering their workers through good remuneration and exposure to relevant
training programmes.

Obadimu also spoke of the other multiplier effects, among them the rise of suppliers “and people
rendering all kinds of services and benefiting directly or indirectly.”

The problem is that such benefits are not quantifiable. What can easily be calculated is the value
of direct imports and exports between both countries, and the picture it paints is sobering for
Nigeria, a country which championed South Africa’s independence and previously claimed to be
the giant of Africa. According to latest statistics, South Africa, the continent’s economic
powerhouse, appears set to dominate trade between it and Nigeria.

Until this year, the balance of trade between both countries weighed heavily in favour of Nigeria.
In the four-year period covering 2000-2003, Nigeria maintained a strong lead in trade relations
between the two countries. In 2000, the country recorded $128.1m exports to South Africa as
against imports worth $70.7m. The next year, South Africa greatly narrowed the margin to a
mere $1m, importing goods valued at $165.8m from Nigeria and exporting the equivalent of
$164.8m to it. Nigeria widened the lead once more in 2002 with exports of $361.9m and imports
of $272.8m. It equally recorded a huge trade surplus last year with exports of $425.3m and
imports of $392.1m from the former apartheid enclave.

The situation, however, changed dramatically last January, when South Africa leapfrogged to the
front, recording a total export of $37.4m to Nigeria, $5m more than total imports worth $32.2m
from the country for that month. The scenario recalled what happened ten years earlier when
South Africa, fresh from the grip of apartheid, bested Nigeria in 1994 with exports worth $8.1m
as against total imports of $3.1m that year.

Unlike in the 1990s when the South Africans failed to consolidate on their gains, the opposite is
likely to be the case now as the country has by far broadened its export base to Nigeria. Over the
past four years in particular, South African firms or companies with South African participation
have become active in a wide range of business fields in Nigeria. While Nigerian exports to South
Africa remain mainly petroleum and allied products, natural rubber, cocoa butter, oil and cake,
South African exports are growing phenomenally in the areas of telecommunications,
broadcasting, energy, banking, hospitality, industrial chemicals, paper/newsprint products, flat
sheets and raw/processed food, to mention but a few.

Regarded as the first world in Africa, South Africa has all it takes to dominate trade in the
continent. Basic infrastructure put in place when it was a closed society under apartheid meant
that the country’s entrepreneurs had the necessary facilities with which to operate. On the
attainment of independence, the solid foundation laid for a stable democracy by the legendary
former President Nelson Mandela gave international investors the confidence to look in the way
of South Africa, thus further boosting the country’s economy while at the same time serving as
catalysts for capacity building.

Against this backdrop, it has been possible for the succeeding Thabo Mbeki administration to
pursue its vision of African renaissance with less distractions. Since there can be no renaissance
in a situation of economic backwardness, the Mbeki regime has had to encourage a pan-African
investment drive by the country’s businesses as a prelude to an eventual global challenge. Both
the South African Department of Trade and Industry and the country’s Industrial Development
Bank play a pivotal role here, advising and providing financial and technical support for reputable
firms desiring to go continental and even beyond. Besides, the government realises the crucial
role that information plays in the investment chain and has exploited the potentials of IT along
this end: there are websites on South Africa where people could easily get every needed
information. Going down the line, every department has a website where interested people can
always go and access the needed information.

Naturally, the launching pad for the expansionist business vision was the Southern African
Development Community (SADC) countries. In just a few years after the country’s independence,
South African companies established such a strong presence in the SADC market to the extent
that they became targets of the same allegation now being made against them in Nigeria – an
attempt to dominate the region. Soon the SADC market became rather small and it was time to
look elsewhere.
The choice of Nigeria as the next destination of South African investments is easy to understand.
Nigeria has the biggest market on the continent because one out of every five Africans is a
Nigerian. Based on the country’s estimated population, the Nigerian market is usually assumed to
be about 130 million-strong, but Alhaji Bukar Abba Ibrahim, governor of Yobe State in Nigeria’s
North East, believes that it is far more than that. “That figure should, in fact, be multiplied by two
because all our neighbours in Africa are dependent on Nigeria for most of their needs,” he
argued. “If you go right down Central Africa, Sudan, Niger, down to Mali, Burkina Faso, parts of
Senegal, Ghana, Benin Republic and the rest of it, all are dependent on Nigeria for so many
things. So we have a very huge market of about 250 million people.”

Supporting Governor Ibrahim, Zanna Sunoma, a politician and media expert, told Africa Today in
Damaturu, capital of Yobe State: “I have seen made-in-Nigeria goods on display in shops in
several African countries, including Libya. The traders regularly take them there, traveling by
road through Niger Republic. They buy them in places like Lagos and load them in trucks, driving
through long distances and passing through Yobe, which shares a common boundary with Niger
Republic. ”

Its enormous potentials notwithstanding, Nigeria is a pathetic case both in terms of vision and
availability of infrastructure when compared to South Africa. In Nigeria, the roads are bad, power
supply epileptic and clean water a luxury. Lacking in vision, succeeding Nigerian governments
have failed to provide a suitable economic environment for capacity building of local industries.
Worse, corruption has been accepted as a way of life and, in an apparent vote of no confidence
in their country, those who loot the public treasury take the money to Europe and America for
safe keeping in secret bank accounts.

For entrepreneurs who believe in investing, there is little or no support from the government. As
if the deplorable state of infrastructure is not enough disincentive, the development bank has
failed and the commercial banks are reluctant to grant long-term loans. That has made it difficult
to have continental tigers emerge from the country. Many of the companies are contented to
survive and remain local champions, while a few have managed to extend their activities to one
or two other West African countries.

Until lately, South Africa was more or less barren of the Nigerian formal sector. As at the last
count, only about five Nigerian firms were on record as operating in South Africa. Union Bank,
Nigeria’s second biggest bank, was the first to establish a branch there. First Bank, the flagship
of the Nigerian banking industry, later followed and obtained a licence to establish a
representative office there. The three other big-name Nigerian companies known to be doing
business in South Africa are Thisday daily newspaper, Business In Africa magazine, and Financial
Standard, Nigeria’s leading business weekly, which publishes FS African Standard in addition to
organising seminars and trade tours. A number of Nigerian-owned real estate firms are also
reported to be making inroads into South Africa.

However, the Nigerian informal and semi-formal sectors are doing a lot in South Africa – just as
they are doing elsewhere on the continent, leading, ironically, to fears of Nigerian dominance on
the part of the local populace. For years the country has been exporting academicians and soccer
expatriates to South Africa. In academics, Prof. Kole Omotosho has achieved fame, not only as a
novelist and lecturer, but also as a consultant to MNET’s reality TV show, Big Brother Africa. But
soccer (an area where South Africa has began to rub shoulders with Nigeria) is arguably where
Nigeria has given the most to South Africa. Nigeria’s former national team coach Amodu Shuiabu
once handled leading South African side Orlando Pirates. At the players’ level, Nigerian stars such
as marksman Chukwu Ndukwe (Mamelodi Sundowns) and goalie Willy Opara (Orlando Pirates)
are household names.
If the Nigerian informal and semi-formal sectors have been able to compete favourably in South
Africa, does the formal sector have any genuine reasons not to do so? One problem which some
have cited as scaring Nigerian entrepreneurs away from South Africa is the rather high crime
rate, while the other is the smear campaign against the country. Just recently, a group of
Nigerians under the umbrella of Nigeria Union Durban issued a document in which they urged the
South African government to act quickly to end the “terrible intimidation and reckless killing of
Nigerians in Durban… and the attendant threats to their existence.” The group lamented that
such “tremendous attacks” have led to the death of ten Nigerians in the last five years in Durban.
Jamin Ohwovoriole, a Nigerian journalist based in Johannesburg, South Africa, recently
bemoaned the “armed robbery nurtured by joblessness, mental instability or guilt and
xenophobia,” which, in his opinion, “may account for the violence.”

But NSACC does not see this as a valid reason. “There is nothing wrong with the investment
climate in South Africa,” said Obadimu, the executive secretary. “South Africa is very open to
foreign investments and there are a lot of foreign companies there. The fact that basic facilities
work is in itself an incentive. Power supply is reliable, the roads are good and whatever water
comes out of the tap is drinkable. It’s a more predictable environment. Your margin may not be
high like in Nigeria, but it is predictable. However, you cannot cut corners because the laws are
there and are strictly enforced. The regulations are strictly enforced and you have to pay your
tax. You also have to keep labour laws. You cannot do as you wish. To some people that could
be a disincentive. If you have any complaints at all it is that the rand is getting strong. When
Nelson Mandela took over as president in 1994, it was four rands to a dollar. By 2001/2002 it
depreciated to almost 13 rands to a dollar. But it has firmed up to 6.5.”

If the Nigerian formal sector is either reluctant or unable to do business in South Africa, why the
growing fascination with South African goods and services? The answer is simple: Relatively low
labour costs in South Africa coupled with lower freight costs, which make South African goods
cheaper than the ones from the West despite their being competitive in quality. Similarly, South
African experts are more attractive because even though they possess comparative expertise
with those from Europe, the South Africans are cheaper.

Seeking to make the most of the situation, an increasing number of Nigerian firms are forging
collaboration with South African firms and professionals. As an NSACC brochure put it: “Joint
ventures and other forms of economic cooperation are being formed by businesses operating in
the two countries. Also, South African public firms have started showing interest in Nigerian
public utilities with a view to participating in the current drive of improving infrastructural
facilities in Nigeria.”

Expectedly, this has impacted positively on the membership and activities of NSACC. Formed in
2000 with only 28 members, its membership has grown astronomically to 246 as at last month.
Membership comprises fully Nigerian owned firms, fully South African owned firms, and those
with ownership by both Nigerian and South African investors, or those with connection with the
SADC region. NSACC’s membership sectoral activities cover almost the whole spectrum of
business activities in Nigeria including banking/financial services, manufacturing, insurance,
advertising, accounting/audit, management consulting, airline services, broadcasting,
engineering, law, freight, hospitality, health/pharmaceuticals, petroleum, property,
telecommunications, stock brokering and information technology. Membership is spread all over
the country with specific presence in Lagos, Abuja, Port Harcourt, Kaduna, Kano, Gombe, Ibadan,
Ilorin and Onitsha.

The chamber regularly receives business delegations from South Africa while at the same time
organising trade missions to that country and facilitating participation in trade fairs and
exhibitions there. One of such will see about 120 Nigerian small-scale businesses, prominent
corporate bodies and multinationals drawn from various sectors of the economy participating in
the Made-in-Nigeria Exhibition (MINEX 2004) holding in Johannesburg, South Africa, from
September 28 to October 2.

Mr. Dapo Adelegan, spokesperson for MINEX 2004, said the exhibition, a private sector initiative
being packaged by PR Africa International, would provide an exclusive forum for interactions
among prominent people from Nigeria, South Africa and other stakeholders in the global business
terrain. Adelegan said MINEX 2004 has received tremendous co-operation from NSACC, Nigerian
Investment Promotion Commission, Federal Ministry of Commerce and the Nigerian High
Commission in South Africa.

President Olusegun Obasanjo, who is passionate about Nigeria-South Africa cooperation, has
commended the exhibition. In a letter to the organizers, Obasanjo said that the exhibition would
provide a veritable platform to project and market Nigeria in the best possible light to the outside
world.

Hot on the heels of MINEX 2004 comes a business trip to South Africa being packaged by NSACC
to coincide with the South African International Trade Exhibition (SAITEX) running from October
3 to 10.

“Our aim,” said Otudeko, the NSACC chairman, “is to create links and bridges. We look forward
to more cooperation in all ramifications so that all of us may achieve our common goal of Africa’s
economic progress and prosperity.”

Like in every other thing in life, the attempt to actualise such “links and bridges” does not always
end on a happy note. This year alone, the have been two major deals that flopped. (See box) In
one of them, everything was set for South African Airways (SAA) to become a core investor in
Nigeria’s national carrier but the deal went burst when the South African government rejected a
Nigerian government request for a reciprocal 10 percent equity holding in SAA. In the other
incident, Vodacom, South Africa’s topmost GSM operator, suddenly repudiated an agreement to
become a core investor in Vmobile, citing failure by the Nigerian firm to adhere to good corporate
governance.

But those are exceptions. Nigeria-South Africa relations have never been this strong and the
prospects have never been brighter. Indications are that the benefits will trickle down to the rest
of the continent. As one analyst rightly remarked, “It’s a win-win situation not only for South
Africa and Nigeria but for all of Africa.”

ENDS