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Nov. 11 Chat: There's money to be made in Africa!

Date and Time: 
Thursday, November 11, 2010 - 12:00 - 12:30

Is Africa the future? Some American companies are betting it is. Walmart has offered $4.6 billion for a South African retail chain — potentially it's biggest deal in a decade. And Coca-Cola has announced a $12 billion investment. 

At noon on Thursday Nov. 11, GlobalPost hosted a web chat with GlobalPost deputy managing editor, Andrew Meldrum. He has 27 years experience in Africa, where he served as Zimbabwe correspondent for the Economist and most recently as Southern Africa correspondent for the Guardian, before being illegally expelled by the Zimbabwean government, which objected to his reports exposing state torture. 

Below is the transcript of the chat.

 

12:00

GlobalPost

Good afternoon everyone.

12:00

GlobalPost

Welcome to the membership chat.

12:01

GlobalPost

Today we're looking at investing in Africa.

12:01

GlobalPost

we're pleased to have Andrew Meldrum with us. Andrew is GP's deputy managing editor. He also has extensive experience in the field, and is a world renowned authority on Africa.

12:01

GlobalPost

Andy has 27 years experience in Africa.

12:01

GlobalPost

He served as Zimbabwe correspondent for the Economist and most recently as Southern Africa correspondent for the Guardian.

12:02

GlobalPost

He was illegally expelled by Robert Mugabe's Zimbabwean government, which objected to his reports exposing state torture.

12:02

GlobalPost

Welcome Andy

12:02

Andrew_Meldrum

Hi there - good to be with you.

12:02

GlobalPost

You just wrote an interesting article for GlobalPost

12:03

GlobalPost

about making money in Africa.

12:03

GlobalPost

Andy, at a time when the world is watching an incredible economic emergence in India and China, you argue that Africa's the future,

12:03

GlobalPost

that there's money to be made in Africa. What's your evidence?

12:04

Andrew_Meldrum

Too many of the economic stories about Africa concentrate on aid to Africa

12:05

Andrew_Meldrum

But in fact the most important sign that Africa's economies offer the promise of profits is private investment that comes of its own accord.

12:05

GlobalPost

Interesting.

12:05

Andrew_Meldrum

And recently there have been a couple of significant investments in Africa.

12:06

Andrew_Meldrum

Walmart has made an offer to purchase a South Africa retail chain, Massmart, for $4.6 billion.

12:06

Andrew_Meldrum

And Coca-Cola has announced it will invest $12 billion over the next 10 years in developing its markets in Africa.

12:06

GlobalPost

So you're arguing that private sector companies may succeed in making Africa a more economically vibrant continent, where the do-gooders of the world -- The World Bank, the US Agency for International Development, etc. - have not. Correct?

12:08

Andrew_Meldrum

Yes. The private investment comes from businesses that see they can make profits in Africa. The World Bank and aid agencies are donating and loaning money because they feel they should. Some African economists say this creates a donor dependency psychology.

12:09

GlobalPost

Why is Walmart investing in Africa? And do they have any significant presence there now?

12:09

Andrew_Meldrum

The most prominent African economist to against donor dependency is the Zambian Dambiso Moyo.

12:09

Andrew_Meldrum

Walmart's investment is a big jump for them. Walmart has no retail presence in Africa.

12:10

Andrew_Meldrum

And this is part of its big push into the international market. Walmart is breaking into China and India and Europe, so now it is starting up in Africa.

12:11

GlobalPost

Just a note to the members before we continue...

12:11

GlobalPost

We're trying something new today -

12:11

GlobalPost

the chat is NOT moderated.

12:11

Andrew_Meldrum

Walmart is buying the Massmart chain which is one of South Africa's biggest retailers.

12:11

GlobalPost

That means if you want to chime in with a question, you're free to do so.

12:12

TheGoldwatcher

what percentage of investment in Africa relates to developing resources?

12:12

GlobalPost

Yes, Andy, I wanted to ask you about Massmart.

12:12

GlobalPost

Isn't $4.6 billion a lot to pay for a chain of South African stores? What is this Massmart chain?

12:12

MinnieM

Great! what are the economic and cultural motivators for Walmart to make this move?

12:13

Andrew_Meldrum

Massmart is a major South African retailer and well positioned to fit with Walmart's high volume low price niche.

12:14

Andrew_Meldrum

Massmart has 290 shops that posted sales of more than $6 billion last year. And Massmart has 24 stores in 12 other African countries including Botswana, Ghana, Nigeria, Tanzania, Zambia and Zimbabwe. Operations outside of South Africa account for 8 percent of Massmart’s revenue. Walmart is buying a foothold into the

12:14

Andrew_Meldrum

entire African market.

12:14

GlobalPost

So Walmart's getting a big foot-hold in africa.

12:15

GlobalPost

Why don't you address the goldwatcher's question, Andy

12:15

GlobalPost

what percentage of investment in Africa relates to developing resources?

12:15

Andrew_Meldrum

Currently, I would say, most of the investment into Africa is into resources - oil, gold, platinum, diamonds - they are all valuable resources, but they are raw commodities.

12:16

Andrew_Meldrum

That is why these retail investments are noteworthy because they are going into Africa's commercial sector - and will help develop that sector.

12:16

MinnieM

Can you talk about China's investment in Africa--primarily infrastructure projects and mining, right?

12:16

GlobalPost

Okay, MinnieMhas two questions...

12:16

GlobalPost

The first one is about Walmart's motives:

12:16

GlobalPost

MinnieM: Great! what are the economic and cultural motivators for Walmart to make this move?

12:17

GlobalPost

Can you take that one, then let's move to MinnieM's second question...

12:17

Andrew_Meldrum

Thanks for that question - Walmart wants to make sure it is part of Africa's future. It wants to be a dominant retailer in Africa.

12:18

Andrew_Meldrum

So it is not just buying a successful high volume/low price chain in South Africa.

12:18

GlobalPost

Um, building an empire can't ignore the 1.4 billion people in Africa?

12:18

Andrew_Meldrum

It is buying a firm that has a successful track record in other African countries.

12:19

Andrew_Meldrum

Walmart will want to expand those stores to set up a retail network across the African continent. And Massmart knows how to operate in Africa.

12:19

GlobalPost

And now for MinnieM's second question

12:19

GlobalPost

MinnieM: Can you talk about China's investment in Africa--primarily infrastructure projects and mining, right?

12:19

TheGoldwatcher

Any idea what multiple of price to sales Walmart is paying?

12:19

Andrew_Meldrum

China has shown a great deal of interest in Africa.

12:20

Andrew_Meldrum

It is mostly mining and access to key minerals and other resources that are key to China's continuing industrial expansion.

12:21

Andrew_Meldrum

China has also won contracts for big infrastructural projects, such as railroad, highways and stadiums.

12:23

Andrew_Meldrum

But what is very interesting is that many individual Chinese have come in after the big mining firms and construction and engineering firms.

12:23

Andrew_Meldrum

We're seeing a big expansion of small Chinese businesses, small stores selling very, very cheap Chinese goods, and Chinese restaurants and Chinese money-changers. They, too, see the opportunity for doing profitable business in Africa.

12:23

GlobalPost

As for the GoldWatcher's question, a September article in the Guardian stated that Walmart is paying a nearly 10 percent premium over recent prices

12:23

GlobalPost

...also

12:24

GlobalPost

MassMart's 2009 annual report is available online

12:24

GlobalPost

http://www.massmart.co.za/invest_profile/financial_results/2009/massmart_ar09/sustainability/geographic.asp

12:24

GlobalPost

Andy other questions from the audience? Otherwise, I could go on...

12:24

Guest63975

How long has Coke been operating in Africa?

12:25

GlobalPost

Good question, Mr./Ms. 63875

12:25

Andrew_Meldrum

Or I could go on - I would like to point out that several international banks are buying African banks because of the profitable market there.

12:25

GlobalPost

I mean 63975

12:25

Andrew_Meldrum

Coke has been operating in Africa since 1929

12:25

TheGoldwatcher

Except I think for

12:26

Andrew_Meldrum

Coke operates in every one of Africa's 54 countries. And I can say from personal experience, that Coke reaches even the continent's most remote corners.

12:26

Andrew_Meldrum

Coke now wants to expand in order to control its dominance in Africa. It does not want to see its competitors expand into the African market.

12:27

MinnieM

What does all this investment mean for Africa's future?

12:27

GlobalPost

Just an aside, back to MassMart and Walmart - it appears Massmart reported sales of $6.1 billion last year.

12:27

Andrew_Meldrum

The investment is a vote of confidence in Africa's future.

12:27

MinnieM

Will Africa be able to manage some of it's major problems -- political unrest, water resources, etc.?

12:28

Andrew_Meldrum

It is from hard nosed business people who believe that they can make a profit and that Africa is more than just wars and famine and poverty.

12:29

Andrew_Meldrum

A growing economy is one of the best ways to bring stability to political systems. Competition for resources will continue to be tight in Africa, as around the rest of the world.

12:29

GlobalPost

Okay I have one last question.

12:29

GlobalPost

Then we'll need to call it.

12:30

GlobalPost

Here goes:

12:30

GlobalPost

Why don't African economies do better? Why are so many African countries poor?

12:30

Andrew_Meldrum

That's a big question - but it is the key question.

12:30

GlobalPost

Can you give us just a big picture take on this, given your vast experience?

12:31

Andrew_Meldrum

Many African countries have made significant economic gains - only to see the profits be swallowed up by corruption. Better governance is important to

12:31

Andrew_Meldrum

improve Africa's overall economic performance.

12:32

Andrew_Meldrum

Also more economic investment in serving Africa's 1.4 billion people. The continent has a growing middle class that is often overlooked.

12:33

Andrew_Meldrum

And when big international firms start trying to do business with that middle class - that is a quantum jump from the investment that simply wants

12:33

Andrew_Meldrum

to extract Africa's gold and other valuable minerals. Oil extraction, in particular, has not helped African countries.

12:34

Andrew_Meldrum

You can look at virtually every African country with oil - from Nigeria to Sudan to Equatorial Guinea to Angola - and you will find that the billions earned by the oil revenue

12:35

Andrew_Meldrum

have not reached the ordinary person. Instead they have gone into state coffer and then out to those at the top.

12:35

GlobalPost

So it sounds like the big shift represented by Coke and WalMart's investments is that Africa is increasingly being viewed as a consumer market -- the way China first attracted attention a quarter century ago or so.

12:35

GlobalPost

Okay. Many thanks Andy.

12:35

MinnieM

Great call, thanks!

12:35

GlobalPost

Many thanks to the members for joining us this week. We'll be back next week. Let us know if there are any topics you'd like us to cover. And please, if you're interested, don't forget that you can suggest story ideas and vote on this page:

12:35

GlobalPost

http://www.globalpost.com/suggestion/suggest-and-vote-story-ideas-1

12:36

Andrew_Meldrum

Thank you Minnie M - I appreciate your interest.

12:36

GlobalPost

Many thanks for joining us this week.

12:36

GlobalPost

We'll be back soon.

12:36

GlobalPost

Good day, and stay stylish.