Is Africa the next growth driver for Indian companies? - Views on News from Equitymaster

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Is Africa the next growth driver for Indian companies?

Apr 17, 2013

Like India, Africa is also on the threshold of reaping the demographic dividend.

When developed economies are struggling to grow, the African economy is projected to grow by of 5% in 2013 and accelerate to 5.7% in 2014. (Source: International Monetary Fund). As per United Nations Development Programme (UNDP), Africa is expected to double its population to 2 bn by 2050. The percentage of the African population in the working age bracket of 25-29 is forecast to rise from 34% to 45% by 2050. According to the World Bank, most of Africa is expected to be middle-income by 2025. The continent is expected to increase its share of the world's urban population from the present 12% to 20% by 2050.

Thus robust economic growth, rising working population and widening middle-class are expected to result in higher disposable income. This coupled with rapid urbanization will drive higher consumerism in the African continent.

To capitalize on the huge demand potential, a number of Indian companies have entered the African soil long ago.

Size of operations of Indian companies in Africa
Company nameRevenues from Africa (in Rs bn)
Bharti Airtel198.3
Tata Group125.4

Tata Group set foot in the African market in 1977 and presently manages its operations through Tata Africa Holdings that was established in 1994. Currently, it is present in 20 African countries in diverse sectors such as automobiles, steel and engineering, chemicals, information technology, hospitality, food & beverages, energy and mining. Tata Group expects revenues from its Africa operations to grow at the rate of 30% from the current level of $2.3 bn. The Group seeks to invest $1.7 bn in various projects.

Several domestic FMCG companies entered Africa to cater to the hair care needs of population with similar ethnic profile. Godrej Consumer Products has made acquisitions such as Rapidol, Kinky, Tura and Darling and is the market leader in the ethnic colour groups in most of the African nations. The company derives 10% of its revenues from the African market. Dabur has 7% of its sales coming from Africa. The company has recently acquired Namaste Laboratories in the US which is present in the ethnic hair care segment and caters to the African markets. Marico entered the South African market in 2007-08 and has a presence in ethnic hair care & healthcare markets. Marico's revenues from South Africa crossed the Rs 1 bn mark in FY12 and comprise 2.5% share of its overall sales.

Apart from personal care products, demand for affordable drugs is on the rise. Cipla set up operations in the continent more than a decade ago to sell drugs for the treatment of AIDS. Currently, the company earns 40% of export turnover from Africa. The company sees a huge jump in opportunity and expects revenues from its Africa business to reach $ 1 bn by 2020. To benefit from the robust growth potential for generic drugs, Cipla has announced plans to acquire South African company Medpro for $ 512 m.

Mobile telephony is also rapidly picking up in the African market. The subscriber base grew by 20% in the past five years as per telecom body, GSMA. Sensing opportunity, Bharti Airtel acquired African telecommunications company Zain in 2010 and entered 15 countries across Africa. Its subscriber base has risen from 42 m to 53 m as at the end of March 2012. The company has also launched 3G services in seven African markets. Bharti Airtel's revenues from African operations constitute more than a fourth of its overall revenues.

In a nutshell

Currently the Indian economy has been hit by slowdown arising from a host of factors such as delay in policy reforms, difficult economic environment and high interest rates. However, companies present in emerging economies have been shielded to some extent. Among emerging economies, Africa shares a number of distinct advantages such as the rising middle class and growing disposable income. Thus, companies that have already set up base in the country are expected to ride the demand curve, going ahead.

Madhu Gupta

Madhu Gupta (Research Analyst), ValuePro has a post graduate degree in both physics and finance. Having worked with India's leading economic research agency, she has a natural flair for numbers and analytics. She brings with her a near-decade long rich experience in the field of finance. A firm believer of the principles of value investing, she looks for robust businesses with durable competitive advantages.

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1 Responses to "Is Africa the next growth driver for Indian companies?"

manoj chatterjee

Apr 27, 2013

Only some superficial information,no in-depth analysis.Leads us nowhere.

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