The acquisition of 63.35 percent stake in Dangote Flour Plc by Tiger Brands of South Africa signaled the renewed interests of foreign investors in marketable Nigerian brands. Earlier, Tiger Brands had bought 49 per cent stake in UAC Foods in addition to owning 100 per cent equity in Deli Foods, these are some of the deals the South African company has executed in Nigeria in recent times.
Tiger Brands is listed on Johannesburg Stock Exchange (JSE), being one of the 40 most capitalized firms on the JSE and its operations are split into three divisions, namely: domestic food, human and personal care as well as exports and international operations.
There are other South African firms already in the country, whose entry into Nigeria can be attributed to the gains the economy has recorded since the return to democratic governance. This list is not exhaustive, and these firms are MTN, Stanbic, Shoprite, PEP and TFG.
At this juncture, why is Tiger Brands acquiring firms that are into food business in Nigeria? A cursory look at some of its annual accounts will produce some information. Tiger Brands’ strength lies in the sale of grains. For some time, contribution of grains to the overall company’s financial performance has continued to dwindle. For instance in 2009, grains contributed 45 per cent to turnover and that contribution fell to 42 per cent in 2010. Groceries contributed 17 per cent to turnover in 2010 above 14 per cent which was its performance in 2009. All other segments of its operations remained steady at the end of 2010 financial year.
The management of Tiger Brands might have concluded that the effects of the factors that impacted on grain segment of their business would continue for some time. In the half year unaudited report released in March 2012, operations within South Africa was not too impressive. “Domestic turnover growth of 3.4% was negatively affected by volume declines across a number of product categories. Gross margins were negatively affected by significant raw material cost inflation as well as higher production costs due to above-inflationary labour and energy cost increases”.
However, exports and international operations rose to the occasion with superb performance. “The new international acquisitions performed to expectations, contributing R690.6 million to group turnover”. Therefore, the decline at home was compensated by their adventure overseas.
This is not the first time South African businesses in Nigeria will reap bountifully and therefore compensate for not-too-impressive performance at home. By the end 2010 financial year, the total revenue realized by the MTN Group amounted to N2.57 trillion. Of that amount, the Nigerian subsidiary, that is, MTN Nigeria made N794 billion representing 29 per cent of the group’s total revenue for that financial year. In effect, MTN Nigeria contributed the most to the group’s gross income for that year. Specifically, MTN’s operations in Nigeria produced 66 per cent of its revenue in Central and West Africa.
What impact will the entry of Tiger Brands have on Nigeria’s flour market?
There are many players in the flour milling industry only that majority of them are small scale; the big ones are Flour Mills of Nigeria Plc (FMN) 39%, Dangote Flour Mills (DFM) 31%, Olam Nigeria 11%, Honeywell 10%, Chagoury 6% and BUA 3%. By September 2012, Honeywell production will be raised to 2610MT per day, which will make it control 16 per cent of the flour market share.
At present, the new owners of DFM will want to bridge the gap between FMN and DFM in a bid to become the leading flour miller in the country. One of the things we expect to happen is the review of business segments in order to make it be in line with Tiger Brands’. Therefore some products may be dropped while new ones are introduced. Effectively, costs will be cut down and the entire modus operandi of DFM operations will be reorganized.
Having initially bought UAC and Deli Foods, the latest move by Tiger Brands is to ensure adequate supply of flour to their production through this acquisition. It will be able to carry out its operations without much control from suppliers who would have been responsible for the supply of flour if that acquisition had not been sealed.
Benefits of South African firms to Nigeria
From the mark MTN Nigeria has made in the telecommunications sector, we can say for sure that firms in South Africa come with the desire to redefine the sector or industry where they operate. They make the industry very competitive by injecting a whole lot of innovations. At present, the telecoms sector is dominated by MTN in terms of land mass coverage, subscriber base and numerous products to cater for different classes of the Nigerian people.
By so doing, other telecoms operators are always trying to catch up and even surpass it. MTN is responsible for the great dynamism in the telecoms sector in Nigeria today.
In the banking sector, Stanbic IBTC is a force to reckon with as it was among the Nigerian banks that made the list of top 50 banks in Africa, based on the report published by The Banker magazine in January 2012. Also, the bank won the award for Deal of the Year organized by the African Banker Magazine. There is professionalism in everything it does.
Again, Nigerians will have to thank Shoprite because the success recorded by this firm in the country has attracted some other retail stores such as Spar, Massmart and Woolworth. As more retail firms join the rank of existing ones, consumers will have a variety of choices. This is good because people will get value for their money. Above all, there are other benefits like skills transfer to their employees some of whom will later become entrepreneurs in similar business, job creation, improving internally generated revenue to government, beautification of landscape and higher growth of the gross domestic product (GDP) .
South African firms inject live into the inactive spirit within Nigerian businessmen. How come nobody ventured to establish a company of the same size and function before the advent of Shoprite into Nigeria? Nigerian firms in similar business, albeit small scale, are now everywhere. Just name them, Wellness, Addide, Tehila and a host of others.
Altogether, these foreign retail stores have impacted on the traditional open market model which exists in most parts of the federation. These days, consumers will buy the same goods that are sold in open market in most of the retail stores. Meanwhile, the open markets in the urban areas, especially during raining season, are eyesore, which makes modern retail stores the first port of call in the wet season. Therefore, we should not be surprised if overtime governments across the 36 states of the federation start to embrace the Tejuoso Model (initially partly open market) in Yaba area of Lagos State. In that case, open markets will be replaced with new modern structures.
Another quality of these firms is disclosure of financial information. Try and visit the official website of Tiger Brands, you will get virtually everything including who owns what, the new acquisitions and the costs of such deals, Black Employment Empowerment and proportion of employees’ equity in the company. We regularly get information on the financials of MTN Nigeria, but can we say the same thing of other operators in the same market?
Lessons for Nigerian government
Stanbic IBTC, MTN, PEP and TFG are some of the South African firms that are redefining the landscape of the industry they operate in Nigeria. The question now is that, how many Nigerian firms are making such in-roads into South African economy? Anyway, First Bank has a representative office and Dangote Cement acquired a controlling stake in Sephaku Cement (Pty) Limited. The list ends there.
The fact that Nigerian firms in South Africa are not as many as theirs in our country indicates our businessmen overtime were not adequately motivated to be ambitious. There has not been a successful programme in the country with the sole aim of developing local entrepreneurs, and this further stresses the fact that past Nigerian leaders did not implement beneficial policies for the nation.
Other countries have successfully done this. We have Cheabol of South Korea. The group has as its members Hyundai, Samsung, LG, SK, Daewoo, Hanjin, Lotte, Kumho, Hanhwa and Ssangyong. The government of South Korea went all out to support them since the 1950s. After success at home, they ventured overseas, and have all become global brands.
In Nigeria, however, government persistently supported a few businessmen by given them excessive waivers some of whom were foreign nationals. Again, some of the beneficiaries of these waivers were import oriented firms as against manufacturing firms in South Korea, thereby depriving the nation of making progress in technical know-how.
If South Korea, a country of about 49 million people has ten big of such companies, and all are producing companies, why can’t Nigeria with 167 million population have twice as much as that number of firms, also in manufacturing?
Now that the federal government has introduced You Win project, it should be monitored to produce Nigerian brands that will soon become global brands like Microsoft and Apple, which started as small scale firms.