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SA still has most subsidiaries in Africa but rivals catching up

May 10 2017 06:02
Memory Mataranyika

Harare – South African companies have the highest number of subsidiaries in the rest of Africa market, but competition is fast rising from Kenyan and Nigerian firms seeking to capitalise on sub-Saharan markets not yet saturated by rivals.

The International Monetary Fund (IMF), which has projected economic growth of 2.5% for sub-Saharan Africa this year, said in a report released on Tuesday that Nigerian firms are now also major investors in West Africa.

"Firms headquartered in South Africa own the most subsidiaries in other Sub Saharan African countries with over 2 400 subsidiaries (but) other regional hubs have also emerged. 

"Kenyan firms play a key role in investing in neighbouring countries in East Africa, and Nigerian firms are the major investor in firms in the neighbouring region of West Africa," the IMF said in its Regional Economic Outlook for Sub-Saharan Africa entitled Restarting the Growth Engine.

SA companies that have expanded into Africa include Tiger Brands, Nedbank, PPC, Illovo, Shoprite and Pick n Pay among others. The South African is economy has been slowing down and is expected to grow by 0.8%, according to IMF projections, while Nigeria will likely grow by a similar margin.

Africa not for the faint-hearted

Other experts say SA companies have growth potential in the rest of Africa markets as competition intensifies back home. However, African markets are not for the faint-hearted, as they have their own unique challenges such as legislation, labour frameworks and corruption.

In the financial services sector pan-African banks have emerged across the region, many of them headquartered in countries such as Nigeria and South Africa where growth has been weakening, said the IMF. 

Subsidiaries have been established in numerous countries across the region as is the case for Nedbank, Ecobank, Standard Bank and others.

"The 14 largest pan-African banks now represent more than 50 percent of total deposits in 14 countries, and between 30 and 50 percent in an additional nine countries, surpassing the importance of long-established European banks in the region," the report adds.

Pan-African banks have expanded mainly through subsidiaries, with limited integration across affiliate networks or with parent banks in terms of funding or capitalisation. 

The report notes that Nigerian banking groups have the largest number of controlling ownership linkages with the corporate sectors of other African economies, while South African banking groups have comparatively few controlling ownership linkages. 

"However, these banks are heavily connected to the rest of Africa via non-controlling interests, particularly in the financial sector. This creates links between bank and nonbank corporate sectors and across banking groups, thus heightening possibilities of contagion within countries’ financial sectors and to the real economy."

imf  |  sub-saharan africa  |  banking  |  africa economy
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