Launchpad to a billion consumers

10 April 2011

By offering to acquire South African retailer Massmart for an estimated US$4.2-billion (R28.5-billion), Wal-Mart has joined the parade of global companies looking to South Africa as a springboard into what is increasingly seen as the world’s last great investment frontier.

“What better evidence can there be of Africa’s burgeoning potential as a consumer market than Wal-Mart’s desire for a foothold on the continent?” the Financial Times’ Beyondbrics blog asked.

Wal-Mart’s move followed hard on the heels of Nippon Telegraph and Telephone’s $3.2-billion (R21.5-billion) bid for Dimension Data, HSBC’s expressed interest in acquiring 70% of Nedbank, and DuPont’s decision to seek a majority stake in Pannar Seed.

Andy Bond, chairman of Asda, Wal-Mart’s UK operation, said: “South Africa presents a compelling growth opportunity and offers a platform for growth and expansion in other African countries. South Africa possesses attractive market dynamics, favourable demographic trends and a growing economy.”

Headquartered in Johannesburg, Massmart operates 232 stores in South Africa stores and 32 in other African countries including Botswana, Zimbabwe, Tanzania, Nigeria and Ghana, according to its website. The company is known for its big box chains, which include Makro, Game and Builders Warehouse. Other South African retailers with growing African footprints include Shoprite and Pick n Pay.

The acquisition would be Bentonville, Arkansas, giant’s largest since 1999 when it purchased Asda. Wal-Mart has already been sourcing fruit from South Africa. It buys 500 000 cartons of citrus for its US stores each year, 2.4-million boxes of apples and pears for the UK and 50 000 boxes of grapefruit for Japan.

“Africa’s economic pulse has quickened, infusing the continent with a new commercial vibrancy,” McKinsey and Co concluded in a widely read report released in June, titled Lions on the Move (PDF, 2.8 MB). The report singled out the three sectors represented in the latest series of acquisition moves as “flourishing” – retail, banking and telecoms.

McKinsey reckons that by 2020 Africa’s consumer spending will reach $1.4-trillion (R9.5-trillion) up from $860-billion (R5.8-trillion) in 2008, and there will be 128-million Africans with discretionary income. “Africa’s long-term growth will increasingly reflect into related social and demographic trends that are creating new engines of domestic growth. Chief among these are urbanisation and the rise of the middle class African consumer.”

Wal-Mart’s initial offer of R148 ($23) a share for Massmart, a 10% premium on the previous close, reflected in part the solid track record South African companies have established in the rest of the continent.

That record, the Financial Times commented last April, gave “weight to government aspirations to occupy a place at the table of the BRICs, the big emerging markets whose rise has begun to transform the shape of the world economy.”

SAinfo reporter and MediaClubSouthAfrica.com – get free high-resolution photos and professional feature articles from Brand South Africa’s media service.