Dangote, UBA Others target Africa as investment destination

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aliko-dangoteNigerian firms in diverse operations, such as financial services, industry and telecoms, are moving into the rest of Africa, with the booming domestic market helping to fund such expansions.From Dangote Cement to United Bank for Africa (UBA) and Globacom, Nigerian firms are fast growing their footprints within the continent.

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Firms in the country are piggybacking on the booming economy to fund their expansion with retained earnings and utilising capital from the home market.

This practice is not unfamiliar with developments in Africa’s leading economy South Africa. Firms in that country have been making inroads into the heart of Africa with Nigeria as major target.

Nigeria is Africa’s second-biggest economy behind South Africa and its $279 billion economy is forecast by the International Monetary Fund (IMF) to expand at an average of 7 percent per annum over the next 3 years.

The country’s 15 commercial banks that have released half-year results reported a 17 percent increase in net income for the period, while the cumulative after-tax profits of the banks grew to N285.01 billion ($1.78 billion) in the first half of 2013.

The appetite for offshore locations is growing and becoming competitive. The rise of Nigerian firms, like Dangote Cement, and their expansion into Africa might signal a shift to a conglomerate-led growth phase for Nigeria, according to Bryan Mezue, a member of the Forum for Growth and Innovation at Harvard Business School.

“The expansion of Nigerian firms into Africa is the next logical step, and makes business sense,” said another analyst. “It is also helping to put the country on the map.”

At least seven of Nigeria’s 19 banks operate units across Africa, with the United Bank for Africa having the most locations.

UBA, Nigeria’s fourth-biggest bank, has 15 foreign subsidiaries in Africa and expects them to contribute 25 percent of its profit this year, Phillips Oduoza, the bank’s chief executive officer, said on a conference call on July 18.

Guaranty Trust Bank plc (GTB), Nigeria’s largest lender by market value, only in July announced plans to acquire 70 percent of Kenya’s Fina Bank Ltd for $100 million. The bank, which is currently operating in six countries outside Nigeria, also has plans to open units in Tanzania and Uganda owing to their “appreciable gross domestic product (GDP), growing investments and ease of doing business”, according to Segun Agbaje, its chief executive officer.

In the same vein, Nigeria’s oldest bank, First Bank of Nigeria Ltd, in the course of the last two years has also gone continental with the acquisition in October 2011 of Banque International de Credit (BIC), a leading bank in the Democratic Republic of Congo (DRC). It also acquired early in the year Ghana’s International Commercial Bank (ICB). The acquisition was reportedly finalised in January, after completion of due diligence in December 2012.

Dangote Cement, another firm, is working on an ambitious expansion plan across Africa, including Senegal, Zambia, Tanzania, Congo, Ethiopia, Cameroon, Ghana, Sierra Leone, Ivory Coast and Liberia as well as in South Africa, through its 64 percent-owned subsidiary Sephaku Cement, at an investment cost of $5 billion.

Dangote Cement, Nigeria’s largest company by market capitalisation, grew first half by 52 percent on record sales in Nigeria, as after-tax income for the six months through June 2013 advanced to N107.7 billion ($670 million). In September, it announced a new $400 million investment to expand in Kenya.

“Dangote has a fantastic position in its domestic market that has enabled these new projects to be funded,” said one analyst.

The speed and scale of Dangote’s rise has been astonishing. Cement demand in Nigeria rose to 11 million metric tonnes a year (Mt/yr) during the first half of 2013, a 14-percent year-on-year increase compared to the same period in 2012.

By contrast, South Africa’s largest cement firm, Pretoria Portland Cement (PPC), is battling a stale construction market in South Africa. South African cement sales fell by 3.8 percent year-on-year in the fourth quarter of 2012.

Globacom Ltd, with 25 million subscribers in Nigeria, is leveraging its Nigerian operations to fund expansion into the rest of West Africa. It currently has operations in Ghana, Republic of Benin and Ivory Coast.

The pursuit of expansion by Nigerian firms follows economic benefits predicated on economics of scale, according to Abiodun Keripe, research analyst at Investment-One Financial Services Ltd.

“Naturally, capital flies to where returns are attractive,” Keripe said in response to questions. “Over a longer period of time, the strong fundamentals of the African continent will justify the capital deployment.”

The race by Nigerian firms to expand in Africa began after the banking consolidation exercise of 2005 but was cut short by the global financial crises of 2009.

Source:Businessday

Babatunde Akinsola
Babatunde Akinsolahttps://naija247news.com
Babatunde Akinsola is aNaija247news' Southwest editor. He's based in Lagos and writes on the Yoruba Nation political issues, news and investigative reports

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