East Africa offers diversified growth opportunities for South African companies

The region’s industrial and services sectors could use South Africa's operational expertise

Three businessmen in an informal exchange at a business forum
Stanbic Bank Uganda chief executive Patrick Mweheire (left) with South African investors at the East African Oil and Gas Summit in Johannesburg. Credit: Standard Bank Group

The first East African Oil and Gas Summit is currently underway in Johannesburg, South Africa under the theme: “Getting Ahead of the Oil and Gas Opportunity”. Patrick Mweheire, Stanbic Bank Uganda’s chief executive, delivered the keynote address in which he positioned East Africa as the next investment frontier for oil and gas. Mr Mweheire was speaking to potential investors in South Africa.

JOHANNESBURG: East Africa’s highly diversified economies are growing northwards of 6% in a highly integrated regional market which is already attracting significant levels of Foreign Direct Investment relative to GDP. Even before the region’s oil and gas potential is taken into account, Africa’s most dynamic region presents a powerful investment case for South African corporates.

Since most East African domestic content policies set a premium on local business empowerment, the scale of global investment in the region to date offers broader opportunities for growth through local partnerships. “South African businesses across nearly all sectors have the opportunity to partner with well-capitalised East African firms needing increasingly advanced technical skills and knowledge to grow,” said Patrick Mweheire, chief executive at Stanbic Bank Uganda, which is part of the Standard Bank Group, Africa’s largest bank by assets.

Mr Mweheire added: “East Africa presents South African corporates an opportunity to diversify out of a persistent low growth domestic environment by deploying their skills and technology to, for example, leverage a minority interest in high-growth companies rapidly expanding across one of the world’s fastest-growing regions.”

Given the opportunity landscape that has been unfolding in East Africa for over a decade, there is untapped potential for South African Businesses. This will be a key area of discussion that Standard Bank will be working to understand at a gathering of about 160 corporate clients taking place in Johannesburg, this week.

There is a need to identify and address any perceived challenges about doing business in East Africa, Mr Mweheire, whose knowledge of the region is underscored by Standard Bank’s long investment and operations in the region.

East Africa represents one of Africa’s oldest trading areas with a deep history of integration having almost formed a customs union in the 1970s. Latest efforts at integration have seen regional trade and investment reach 30%, the highest in Africa, with goods, services and people moving freely across borders. This is supported by well-integrated and expanding road network and a rapidly growing regional standard gauge rail.

Augmented by a common English and Swahili language East Africa also shares a universal common law-based legal system operating in functioning democracies holding regular elections. The regions’ economies are supported by generally open floating currencies managed by liberal independent central banks.

“East Africa’s economies are supported by capital-friendly and globally-focussed governments with the political will to support and increase foreign investment, business growth and deeper regional integration,” said Mr Mweheire.

“At the same time, no other African region has so successfully deployed technology to leapfrog the need for legacy transactional infrastructure. With internet connectivity and even Wi-Fi widely available across the region, the number of mobile transactions far exceeds traditional bank transfers. This digital economy, literally in the hands of ordinary East Africans, has a huge multiplier effect on business and growth in the regions’ domestic and cross-border economies.

“Over time, East Africa will become even more relevant, servicing the eight landlocked countries to its west as they seek to access trade and growth opportunities in China and India.”

While the region currently sources about $30bn from domestic taxes, it has a development financing gap of about $25bn. To date, China Exim bank has addressed much of this need at the government-to-government level. More recently, however, as sovereign debt levels in the region approach 40 to 50% of GDP, opportunities are opening up for private infrastructure investors in public-private partnerships.

Unlike government-to-government projects which often exclude smaller and local players, PPPs generally focus on commercially viable projects with strong, cash-generative, business “These projects are also highly reliant on domestic and other foreign business involvement, support, supply, operation and outsourcing,” said Mr Mweheire.

“This is where, Standard Bank’s strategic partnership with its majority shareholder, the Industrial and Commercial Bank of China, is proving so valuable to our clients as we recognise synergies and jointly seek to link Chinese capital with local and other foreign businesses, skills and operational expertise,” Mr Mweheire added.

While East Africa has long represented a diversified services and industrials play, much of the current excitement in infrastructure and logistics is being driven by huge global investment in oil and gas infrastructure.

This is another area where South African corporates become relevant.

“Beyond the hard infrastructure, entire new urban centres and the populations that they will house, feed, clothe, educate, entertain and provide with services represent a huge opportunity for South Africa’s highly diversified industrial and services sector,” said Mr Mweheire.

Standard Bank, as a bank long-present and successfully invested in the region, has deep experience in identifying opportunities for clients across multiple sectors and then partnering them on their journeys to successfully leverage East Africa’s broad growth landscape.

As such, Standard Bank’s role at this gathering of 160 South African industrial and service champions is to understand their hurdles and propose solutions that unlock the powerful synergies that exist between Africa’s most developed industrial and services economy and one of the world’s most dynamic growth regions in high demand of exactly this expertise.

About Standard Bank Group

Standard Bank Group is the largest African bank by assets with a unique footprint across 20 African countries. Headquartered in Johannesburg, South Africa, we are listed on the Johannesburg Stock Exchange, with share code SBK, and the Namibian Stock Exchange, share code SNB.

Standard Bank has a 156-year history in South Africa and started building a franchise outside southern Africa in the early 1990s.

Our strategic position, which enables us to connect Africa to other select emerging markets as well as pools of capital in developed markets, and our balanced portfolio of businesses, provide significant opportunities for growth.

The group has more than 53,000 employees, approximately 1200 branches and over 9000 ATMs on the African continent which enable it to deliver a complete range of services across personal and business banking, corporate and investment banking and wealth management.

Headline earnings for 2018 were R27.9 billion (about $2.1 billion) and total assets were R2.1 trillion (about $148 billion). Standard Bank’s market capitalisation on 31 December 2018 was R289 billion ($20 billion).

The group’s largest shareholder is the Industrial and Commercial Bank of China, the world’s largest bank, with a 20.1% shareholding. In addition, Standard Bank Group and ICBC share a strategic partnership that facilitates trade and deal flow between Africa, China and select emerging markets.

For further information, go to https://www.standardbank.com