Africa’s scarce infrastructure breeds ‘self-reliant’ companies

Companies betting on Africa’s growing affluence are being forced to come up with clever ways of doing business to get around the continent’s dilapidated roads, shaky power supply and inept ports.

“If there isn’t a well developed distribution network in place, many companies would take some of that obligation to get the product onto the market themselves,” John van Wyk, Africa co-head of private equity firm Actis, told the Reuters Africa Investment Summit this week.

SabMiller not only runs a brewery in South Sudan but the world’s No.2 beer producer also operates its own solar power and waste-water treatment plants after decades of civil war left the world’s newest nation with virtually no infrastructure.

“When we first got there in 2009, there was about four kilometres of tarred roads,” Mark Bowman, Africa regional head of SabMiller told the Reuters Africa Investment Summit this week. “We tend to be very self-reliant when it comes to Africa. We make no assumptions about the environment.”

Outdated infrastructure remains one of the biggest challenges for investors wanting to invest in sub-Saharan Africa, where consumer spending power is expected to double to $1.4 trillion by 2020 on the back of a rising population and relative political stability.

The region’s infrastructure backlog needs $22 billion a year to keep up with an annual economic growth rate of 7 percent, the African Development Bank said.

Areas such as sanitation, electricity and roads, have the greatest need for investment, the bank, which finances many of the continent’s infrastructure projects, said.

South African construction firm Group Five, which also operates in the Middle East, also knows it has to play by different rules when it executes projects in most parts of the continent.

In one its projects in the DRC, Group Five put transport, accommodation, medical facilities and water in place for its 1,000 workers to get work done.

“Power, water and transport infrastructure in Africa is underdeveloped by a long shot … We have to create a whole new island for ourselves,” Mike Upton, Group Five’s chief executive officer told the Summit.

Others such as South African grocery retailer Pick n Pay only invest in markets where they have existing infrastructure.

“The reason why we invest in contiguous (markets) is that we have infrastructure to get to those markets,” said Pick n Pay chairman, Gareth Ackerman.

The company has no immediate plans to set up in Nigeria because the continent’s most populous country is too far from its existing businesses and distribution networks in southern Africa.

“It won’t be easy to supply into Nigeria from South Africa. There are no road connections and the ports are not always as efficient to get products in and out.”

The rewards for companies prepared to take the plunge can become quickly apparent though. SabMiller’s $39 million South Sudan brewery, which gave the nation its first locally produced beer in 25 years, doubled its capacity last year to cater for surging demand.

“If ports were easy to get into, highways were all over the place, competition would be very different in Africa,” SabMiller’s Bowman said.—Reuters