Monday, June 6, 2011

U.S. Companies Race to Catch Up in Africa

This has become a familiar storyline...

During a series of trips to Africa last year, Tim Solso had a realization: China was beating him at his own game. So the chief executive of Cummins Inc., a maker of truck and machinery engines, vowed to catch up. He plans to quadruple the company's sales in Africa to about $1 billion within five years, investing $15 million annually to train staff and build sales offices from Johannesburg to Casablanca. The company recently installed in South Africa an executive to oversee Africa operations, previously supervised from Europe and Indiana.

Cummins joins a growing number of U.S. companies vying for a stronger foothold on the continent. Caterpillar Inc., the giant maker of construction equipment, is selling more trucks to Mozambique and Zambia. Harley-Davidson Inc. is opening dealerships in Botswana and Mauritius. General Electric Co. has its first aircraft-leasing office in Ghana for Central and West African airlines. Google Inc., Archer Daniels Midland Co. and Wal-Mart Stores Inc. are among the dozens of other U.S. companies moving in or expanding.
U.S. companies' game of catch-up shows the perils of waking up late to the next big frontier market, Africa. The continent's economy is forecast to grow to $2.6 trillion in 2020 from $1.6 trillion in 2008, fueled by booms in mining, agriculture and development of ports, roads and other infrastructure, according to McKinsey Global Institute. The middle class is growing, and total household spending now exceeds that of India.
Getting in early to a developing market allows companies to build up strong brands and sales channels that can reap big profits in the long run. That's what China has done in Africa over the past two decades. It has aggressively promoted trade and investment, courting countries by offering aid in exchange for favorable trade terms. China's exports to Africa last year totaled about $54 billion, up from $5.6 billion a decade before, according to the IMF. U.S. exports to Africa totaled $21 billion last year, up from $7.6 billion in 2000.

The status quo is likely to change as many U.S. companies (and Europeans too!) now are "starting to wake up to the African opportunity," says Acha Leke, a Lagos-based director of the McKinsey Global Institute. To succeed, he says, they will need to find good local partners..."

Take for instance, Cummins. For decades, Africa wasn't a priority. However, in 2010, Africa accounted for about $264 million of sales for Cummins as it hopes it can now become a leader in power generators in African countries whose electricity supplies are notoriously unreliable.

Nigeria, where Cummins has a 50-50 joint venture with a local company, AG Leventis PLC, is among the most attractive African markets. Cummins estimates that only 40% of Nigeria's 150 million people have access to electric power.

Many businesses and wealthy homeowners buy diesel-powered generators either as primary or backup sources of power. Generators also power cell-phone towers, street lights and various types of equipment. Some 30,000 generators were sold by various companies in Nigeria in 2010, according to Cummins estimates, bringing total industry sales in the country to about $420 million. Of that, the Cummins joint venture has just an 8% market share, according to the company.

Expanding that share means overcoming the challenges to doing business in Nigeria. In Lagos, one of sub-Saharan Africa's biggest cities, grinding traffic means service vehicles take longer to arrive at customers' doorsteps, and employees have grueling commutes. "Just to get to work is a big challenge," says Koulis Schizas, general manager for Cummins power projects in Nigeria. "The average employee has a two-three hour drive to get here in the morning and a four-five hour drive to get home. It does affect the business."

Having a Representative Office goes a long way in reducing most of the teething problems of setting up in Nigeria. We have experience with two US federal states as Country Representatives, East Mediterranean Regional Office. We can help! Contact Ndudi Osakwe on +234 1 8782864 or email for more information.

Article written by James Hagerty and Will Connors, Correspondents, Wall Street Journal with contributions from Peter Wonacott and Jacqueline Bischof.



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