Revisit Assumptions: Regions Change

Aside from regional trading blocs, the most common means businesses use to segment Africa is to segment North Africa from sub-Saharan Africa, and to segment the country of South Africa from that.

At both ends of the continent, old perceptions are masking the emerging reality. As demonstrated by several CEOs succeeding there, North Africa is less distinguished from the rest of Africa than many believe. South Africa is more so.

Many Western companies and public policy analysts distinguish entirely the Arab-dominated countries of Egypt, Tunisia, Algeria, Libya, and Morocco from their neighbors to the South. In my view and the view of the business leaders I know, that’s behind the curve. As mentioned above, the principal trading bloc of North Africa, the Arab Maghreb Union, does not function. As a result, trade within North Africa is very low. Participants in the Arab Spring have expressed aspirations for this to change, but they are still aspirations.

Meanwhile, trade with the rest of Africa is growing under the radar. Intra-Africa trade statistics are notoriously difficult to track.^* However, business leaders succeeding in North Africa report that they are increasingly looking to West and sub-Saharan Africa for growth.

The new pattern is rooted in ancient ones. Mohamed El Kettani is the CEO of Attijariwafa Bank, the largest bank in North Africa, and rated the best bank in the region in 2010 by African Banker magazine. Mohamed is bespectacled, soft spoken, and avuncular. It’s a demeanor that has probably been helpful as Attijariwafa has conducted a march of acquisition over the last decade. Under Mohamed’s leadership, that march led south. The bank’s predecessor (Banque Commerciale du Maroc) merged with Wafa, its largest domestic competitor, and then acquired banks in Tunisia, Senegal, Mauritania, Mali, and Togo. In recent history, the growth opportunities for Moroccan companies lay north, in Europe. Mohamed describes how old bonds of culture and commerce led him to consider Africa the better opportunity:

With the completion of our merger with Wafa Bank in 2003, we were for the first time strong enough to consider international expansion, and we set about creating a strategic plan. Shortly before our merger, our king^† went on three tours of Africa, and he was very well received. This was an important political signal that government on both sides would be receptive to Moroccan companies growing in Southern Africa. We developed our strategic plan very conscious of Morocco’s historical role as a crossroad between Northern Africa and Southern Africa. When Islam grew in Africa it went south through Morocco, so there’s a cultural proximity with the Western African countries that are Islamic. Many African Muslims talk of the “Little Haj, ” not to Mecca, but to Fez. It emanates from the saint who’s buried there. It is a holy journey for the Tijani, ^* which is a very large group in Western Africa. These were some of the key drivers—proximity, commercial flows, and cultural links—that the strategic plan built on.

That history is reflected in Mohamed’s personal life. I asked him if when he was young, growing up in Morocco, he had thought of himself as an African. “Yes, always, ” he said, smiling. “My family has always told me about sub-Saharan Africa. In the early 1900s, part of the family went south to Senegal and Cote d’Ivoire and they did business there for forty years and built up wealth and then returned to Morocco. My wife’s parents also spent many years in Mali and Cote D’Ivoire, trading. My mother-in-law, who is eighty-five, speaks Wolof^† to this day.”

Opportunities for Southern growth are not limited to Morocco. Jalilia Mezni operates Socié té d’Articles Hygié niques (SAH), a Tunisian manufacturer of diapers and feminine hygiene products with $100 million in revenue. From the establishment of SAH in 1996, Jalilia has seen in Africa the natural growth trajectory of her company. SAH’s initial transborder expansion was into Libya, and the company is now looking at its first transborder manufacturing operation, in the Ivory Coast. “Africa is our future, ” Jalilia has said.³ Issad Ribrab, CEO of Algerian steel and agro-processing business Cevital, with U.S. $3 billion in revenue, has launched his country’s most significant cross-border investment initiatives in two countries: Ivory Coast and Rwanda.⁴, ⁵

The integration of North and sub-Saharan Africa is uneven. Egypt, with a domestic market of $230 billion^* and proximity to the Gulf states, is not as integrated with Africa as Morocco is. From Egypt, the look southward is a glance by the young. Lamiaa Soliman expresses that aspiration. Lamiaa is an Egyptian currently attending Harvard Business School, after a successful early career with EFG Hermes, one of the Arab world’s top investment banks. She describes her peer group’s drive to connect with the rest of Africa as an outgrowth of a larger reinvention of their society:

Personally, I would say that there is a wide disconnect today between my country and the rest of Africa. That’s the biggest reason why I wanted to join the Africa Business Club. In Egypt only now is there starting to be this discussion about, “Well, we should be engaging with other African countries.” You’re seeing it not with the largest companies, but with medium-sized companies and the upcoming generation in Egypt. It’s related to a rhetoric coming out after the Arab Spring of wanting a new way of doing business. People are saying, “Why should we be waiting for government policies to set everything into place? We should be venturing south.”

There continue to be significant cultural and ethnic differences between North Africa and its sub-Saharan neighbors. Notwithstanding, there are compelling commercial opportunities to be found as the successful firms in North Africa integrate with the growth of the rest of Africa.

South Africa is another matter. Many global companies anticipate that the best way to enter the African market is through South Africa. I find few Africans outside of South Africa who share that view.

There are both commercial and political reasons to consider South Africa as distinct from the rest of Africa. From a commercial perspective, the South African economy is larger and more developed than any other on the continent. This dimension alone is reason to perceive it as distinct.

That is how SABMiller runs its continental activity, with a South Africa business unit and a distinct Africa business unit that guides the rest of the continent. SABMiller’s executive chairman Graham Mackay explained why:

At the time we started our international expansion, our South African beer business was in the top ten or so biggest beer businesses in the world. It had size, breadth, and scale techniques at hand and capital at its disposal to do things that no other businesses in Africa could muster.

The size difference is fairly fundamental, and most things flow from it. However, it’s not just size. It’s also the level of sophistication of the consumer, the employee base, and competition; it’s the level of infrastructure as well. As a result, we have different management structures, (in South Africa and the rest of Africa) and we regard them as essentially different propositions.

Based in the commercial heart of East Africa, Vimal Shah sees it much the same way. “I don’t really think of South Africa as Africa, ” he said. “If I say typical Africa, typical Africa is not South Africa. It has its different ways of doing business and different opportunities. There is a commonality about the rest. The rest of the sub-Saharan markets are just coming up from basic agricultural economies. The cities are half developed, and there is a huge “upside” coming. In South Africa they are much more organized, and also in South Africa you have two different, distinct groupings: the guys who have already made it there versus guys who never made it. No, this is entirely different.”

Though apartheid ended in 1994, its legacy affects South Africa in many ways that distinguish it from the rest of Africa. Graham explains with an example drawn from one of SABMiller’s market segments, sorghum beer:

In South Africa, many years ago, it was illegal for black people to drink “white man’s” liquor, and all they were allowed to drink legally was the sorghum beer. The sorghum beer was provided in municipal beer halls, which were a local monopoly—effectively of the government. That was obviously a highly polarizing policy. Sorghum beer became, to some extent, an unwanted good, in economic terms. People traded up out of it as fast as they could. As a result of that, the sorghum beer industry in South Africa today is nowhere near as healthy, profitable, or well regarded as it is in other parts of Africa. That’s kind of a political overtone that carried on.

South Africa’s past is mixing with South Africa’s present to create a shifting and uncertain dynamic, both for the country itself and its relationship with the rest of Africa. South Africa had been the driver of growth and innovation in Africa for more than a century. Right now, that is not the case. At the time of this writing, South Africa’s growth is about 2 percent per annum, far below most of the economies of sub-Saharan Africa. It may slow further due to widespread labor unrest and a looming reexamination of not just laws but the entire social contract of post-apartheid governance.

South Africa was extraordinarily isolated from the rest of Africa for a long time, with a lingering effect on the business leaders in both South Africa and its neighbors. Born in South Africa and raised in Swaziland, Phuthuma Nhleko reflected on his first real opportunity to meet the rest of Africa, which came when he left Africa for college in the United States:

Ohio State was interesting. It’s a university town and to some extent was a bit of a cultural shock for me. I can comfortably say I met more non-South African Africans on a meaningful scale and social context for the first time outside Africa than I ever met them in Africa. I met many West and East Africans. These are not people I’d met before because South Africa was very closed. Generally speaking, South Africans didn’t travel much outside the country then. Oddly enough, most South Africans, black and white, when they travelled, travelled more to the U.S., Europe, and Asia than to the rest of Africa. They knew more about places ten thousand kilometers away than places next door, with the exception of Botswana, Lesotho, and Swaziland. Those are South Africa’s immediate next-door neighbors whose economies are integrally intertwined with and highly dependent on South Africa. Generally speaking, South Africans did not travel to the likes of Nigeria, Ghana, or Kenya during the apartheid period. All those were very distant places literally and metaphorically.

Phuthuma was candid about the gap that still exists between the rest of the continent and South Africa, including black South Africa. He spoke of it with the quiet reserved for sensitive topics one wants to speak about candidly:

First of all let me say as black South Africans we accept that South Africans in many respects are quite indebted to the role that a number of African countries played in the anti-apartheid movement and their support of black South Africans when things were really difficult and dark. Africans continent-wide were absolutely delighted to see South Africa being eventually liberated. It presented a lot of opportunities for all.

My sense is that quite a number of Africans outside of South Africa have been somewhat disappointed that South Africans have not been as open-minded and welcoming of other African countries and the people from various parts of the continent. And, in fact, in some quarters, we South Africans from time to time, have operated under certain unfortunate stereotypes that are exacerbated by the scramble for limited jobs, housing, etc. Because few of us had spent any meaningful time in the rest of Africa pre-1990, there has always been a huge degree of sheer ignorance of certain aspects and, unfortunately, ignorance cannot always be eliminated overnight: it takes time.

At times this has played itself out in the approach that certain South African companies take as they’re trying to enter African markets. In certain quarters of the rest of Africa, it is seen as being a little bit dominating or even, unfairly, a mini imperialist approach. That’s unfortunate, but I’m hopeful that, over time, increased exposure all around will create more wisdom on both sides, as there is huge potential and opportunity that would benefit all parties.

For SABMiller’s Graham Mackay, the effect of apartheid was not just a small world, but a shrinking one over the course of his early life and career:

For anybody growing up in South Africa during the days of apartheid, we had a passing knowledge of some of the surrounding countries, because we would, very often, go there on holiday and visit game parks and the resort areas. It didn’t really extend up into East Africa and Central Africa, because certainly by the time I was an adult, white South Africans were personae non grata out there. I suppose you could have traveled up there, but I didn’t, and I didn’t know anyone who did.

I was a bit atypical, because I was brought up in Swaziland, not in South Africa. We used to go to Mozambique a lot when I was a child. That was before the revolution, in ’75 and ’76. I knew Swaziland and Mozambique extremely well. I lived in what was then Rhodesia (known since 1980 as The Republic of Zimbabwe) for a while, when I was growing up, so I knew that as well. Most white South Africans were quite familiar with those territories. I suppose we regarded the accessible part of Africa’s border as Northern Rhodesia, then.

That changed as apartheid tightened and we became more and more isolated. There were other events, including revolutions with a change of government, in both Mozambique and in Angola, and the Bush War in Rhodesia, all of which deepened our isolation. The isolation came to an end toward the end of the ’80s, when Nelson Mandela was released and it was obvious that apartheid was crumbling.

The history of South Africa’s isolation has left a disconnect between South Africa and the rest of Africa that affects how success is achieved in each. The current evolution of South African politics only heightens this distinction. Several CEOs commented that they see current struggles in the ruling African National Congress (ANC) as comparable to the paroxysms of governance the rest of the continent experienced thirty or more years ago. A South African business leader who was deeply engaged in the transition to ANC leadership and the development of the current structure said recently over drinks, “What I see is the unraveling of our national compact. We will need to make another.” In this regard, South Africa is a young polity governing a mature economy.

Hopefully, South Africa will right itself quickly. Even if it does, businesses in Africa and outside of it should be aware of the distinction (and sometimes the distance) between South Africa and its neighbors, at least over the short term.

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