What factors are driving the growth of your company at home and on the continent?
Our growth as a financial services group rooted in Africa is underpinned by a range of positive developments, including the growth rates achieved by many economies in sub-Saharan Africa, often above 5% a year, growing liberalisation of most economies, the growth of the middle class, growing disposable incomes, growing demand for consumer goods and financial services, growing liquidity on some markets, growing share values, and the development of African institutional investors such as pension funds, insurance companies and asset management firms. Another factor is growing awareness among ordinary Africans that provision has to be made for the future through savings, pension funds and other wealth-building instruments such as shares.
Growth can be quite dramatic. For example, in the year up to our fifth annual investor conference in Zimbabwe in early June the market capitalisation of Delta, Zimbabwe’s biggest brewer, rose from US$836-million to US$1.7-billion. Over the same period, the market capitalisation of the Econet telecoms group was up from US$677-million to US$1.1-billion. In the same period, the Zimbabwe Stock Exchange has registered gains of 39% in US dollars.
Gains of that magnitude indicate growing participation by equity investors in African listed companies and explain growing international investor interest in our markets. Rates of growth and levels of sophistication vary tremendously across Africa. The South African and Zimbabwean stock exchanges have been in place for over 100 years while a stock market has only recently opened in Rwanda. Varying levels of development obviously affect the rate of growth of our own business and the prospects in individual markets.
What problems did you overcome to find success that you are enjoying in other African markets?
The fundamental challenge relates to education. At an individual level, it takes time to develop a proper understanding of the need to save and invest. Our offices in all markets engage in on-going shareholder education and commit to constant communication. At a corporate level, you do also confront a similar educational challenge. For a financial services business like Imara to grow, we need instruments in which to trade, meaning market liquidity has to grow.
For this to happen, more private companies need to list on the stock exchanges. However, family owners traditionally grow their businesses out of their own cash flow or borrow money from a bank. The alternative is to issue equity or raise cheaper long-term finance. This in turn means a commitment to transparency and full reporting to shareholders or new partners. This involves a seismic shift in the mindset of owners who might have held total control of their businesses for generations. It is a slow process. Patience is required. Education takes time.
Where do you see future growth for your company coming from, and how do you intend to leverage on these opportunities?
There are specific opportunities relating to developments in certain markets, for instance, the plan to open a stock market in Angola and, hopefully, the opening up of opportunities in financial services in Ethiopia. But, the strategic opportunity for future growth relates to macro-developments such as the realisation in many of the world’s financial centres that Africa represents the last great opportunity, from a low base, to achieve sizeable growth for decades to come. This realisation will tend to support the growth in foreign direct investment and in portfolio investment.
Clearly, oil and gas discoveries in East Africa and other parts of the continent will have sizeable impact, but we also see potential for substantial growth in the non-oil economy across sub-Saharan Africa. The growth of the African middle class will deliver knock-on benefits across the financial services industry as families save, contribute to pension funds or drive the continued growth of listed companies through growing demand for consumer goods and services.
We see this as a 20-year journey. Being well placed on the ground across Africa will enable Imara to identify opportunities at an early date and then offer appropriate solutions.
What do you look for when deciding which countries/markets to enter?
The criteria we use to decide which countries to enter differs from case to case. However, there are some common themes such as political stability and some evidence that government has launched programs to liberalise the economy or has made a firm statement of intent to begin the process of reform.
We also scrutinise the regulatory and legal framework within which we are expected to work. A key factor is the presence on the ground of good potential partners. The search for credible partners may take two to three years. We are firm believers in the need for deep understanding of local conditions and will not enter a market unless we have a strong local partner.
How do you compete and interact with foreign companies in Africa?
Our competitive advantage that has put us ahead of our foreign competitors is our presence on the ground. Every Imara professional, with only two exceptions, lives and works in Africa. Imara has direct representation in eight African countries and has strong links in another two through enduring relationships with local partners. Our researchers do not depend solely on desktop research. They take a bottom-up approach and speak regularly to the executives of African listed and unlisted companies. They visit factories, speak to the local banks and have first-hand knowledge of the markets they study. This level of understanding and our direct, local representation bestow a sizeable advantage versus foreign competitors.
What tips would you have for companies that are interested in the African market?
The need for patience cannot be stressed enough. Coming in as a total outsider can be challenging. Invest time in finding the right local partner. You can’t achieve success from afar. A foreign investor looking to make a success of their investment should visit Africa, take time out to visit companies, speak to executives and local professionals and build a personal understanding of specific markets. Personal relationships count for a lot in Africa. You need to look people in the eye and make personal assessments for yourself.
Once you have developed better market understanding, commit to the long haul. Africa has boundless potential, but it will take time.
Click here to access Frontier's database of investment and business opportunities in financial and insurance sectors in Africa.
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