SA companies use Ghana as gateway to West Africa

Image: Flickr, Elliott Brown
Image: Flickr, Elliott Brown

Ghana has emerged as the hub for SA companies seeking to do business in West Africa.

This is at the expense of the larger Nigeria, which is still seen as a risky investment destination, and Côte d’Ivoire, which descended into civil war two years ago.

A recent SA Institute of International Affairs (SAIIA) survey shows that 40 SA companies are doing business in that country, most of them listed on the JSE Securities Exchange.

The list of companies is headed by AngloGold, whose US$1,4bn merger last year with Ghana’s Ashanti created the world’s second-largest gold miner. AngloGold Ashanti’s subsequent investment in Ghana has dwarfed other SA investments to date. Food retailer Shoprite and brewer SABMiller also have a large presence. Other, smaller SA companies are involved mostly in the supply of goods.

The secretary of economic affairs in the Ghana high commission, McArios Akanbong, says that though Ghana is a small market with 20m people, its good infrastructure has attracted many investors from SA, Europe and North America. He says SA is challenging the market share of traditional investors from Europe and North America.

‘Ghana is fairly stable and has a predictable economy which is conducive to investment,’ says Akanbong.

Economic growth shot up to 5,8% last year from 5,2% the previous year. This is attributed to strong growth in the output of cocoa as a direct result of the turmoil in Côte d’Ivoire . The size of the economy is just under US$9bn.

Experts say it is impressive that Ghanaians have maintained stability in a volatile region. ‘We have bilateral agreements with SA and we do not allow nationalization. That is why SA companies feel safe doing business in our country,’ says Akanbong.

According to the survey, most SA companies have managed to find a niche for their products despite fierce competition from the better-established European companies.

SAIIA researcher Hany Besada says Ghanaians have responded well to SA services and products. Those interviewed said they would like to see South Africans becoming the leading investors in Ghana.

Besada’s survey shows that many SA companies plan to improve their Ghanaian foothold. ‘The prospects for the expansion of this relationship are very positive even though Ghana’s investment relations with SA are still young,’ he says .

‘Given the government’s investment incentives and strong commitments to economic liberalisation, SA companies are eager to expand their existing operations,’ says Besada. He says SA companies view Ghana as a gateway to the rest of West Africa. Many of those surveyed plan to expand their operations and investment in the region.

‘Though the majority of companies have indicated that profit margins are a factor for investing, many stated that the contributions of their Ghanaian operations to the parent company’s earnings were less than 10% on average,’ says Besada.

The Ghanaian government, through the Ghana Investment Promotion Centre, has been actively encouraging SA companies ‘as SA is perceived to be politically neutral and economically advanced’, says Akanbong. He adds that Ghanaians in business perceive SA companies as having a good understanding of the market and as able to adapt to new challenges.

A sectoral breakdown of total investment shows that the mining sector has attracted the greatest amount of SA foreign direct investment since the AngloGold Ashanti merger.

In the beverage industry, SABMiller entered the beer market through a merger with the ailing Ghana Brewery in 1997. It invested $9m initially in rehabilitating the Accra brewery and turned it into one of Ghana’s strongest companies. By 2004, Ghana Brewery had doubled its operating profits and increased its turnover by 60%.

SA entrepreneurs have also poured more than $21m into the service sector, of which about $10m went into telecommunications, $5m into general trade and $4m into the building, construction and manufacturing industries.

Besada says SA companies cite as market difficulties the low disposable income, bureaucracy, corruption, and problems in securing tenure and property rights . A slow legal system, lack of access to finance and a lack of infrastructure outside Accra are problems too.

‘As with other investment destinations in West Africa, setting up a business in Ghana is costly and time-consuming. But, in comparison with Nigeria, Ghana is more competitive and it has been identified by the World Bank as one of the least expensive countries in sub-Saharan Africa in which to open a business,’ Besada says.

18 Apr 2008