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Singapore searches for growth in 10 promising African countries

Africa's total population of 1.2b with a youthful median age of 19.5 years presents huge market for financing, logistics, trading and other services
Tuesday, June 6, 2017 - 05:50

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There are already some 50 Singapore firms operating across the continent in sectors ranging from agribusiness to fast-moving consumer goods, according to IE, and awareness is growing.

Singapore

KASIVISWANATHAN Muthiah has been working for two years in Kigali, the capital of Rwanda in East Africa as deputy chief executive of warehouse operator Magerwa, a subsidiary of Singapore-headquartered Portek, which operates ports and provides port equipment engineering solutions. During that time, he has met fewer than 10 Singaporeans.

But all that is changing soon, with the growing awareness in Singapore of opportunities in Africa.

Earlier last month, both Deputy Prime Ministers Tharman Shanmugaratnam and Teo Chee Hean flew to the continent, with Mr Tharman visiting South Africa and Mauritius, and Mr Teo heading to Ethiopia and South Africa. Both men met with government leaders in these countries, on top of other engagements.

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The need for Singapore to enhance its economic resilience by diversifying its links with other countries has grown in recent times because of moves by the West towards greater protectionism and isolationism, said Robert MacPherson, junior partner at Reciprocus International, a global boutique investment advisory firm headquartered in Singapore.

"I think for Singapore it's difficult to put a lot of faith on the global economy because there's just so much uncertainty at the moment," said Mr MacPherson, who is also an adjunct researcher at the NTU-SBF Centre for African Studies.

"Looking at the (current) situation, there's a wide range of scenarios that could ultimately play out for Singapore. With that in mind, Singapore can no longer attach its growth strategy to be a function of overall economic growth globally."

He noted that this move to step up engagement with Africa also ties in with a recommendation by the Committee on the Future Economy (CFE): to diversify Singapore's international connections by building inroads to emerging markets. "That's really where Africa now fits into the Singapore framework."

For G Jayakrishnan, group director for Middle East and Africa at International Enterprise Singapore (IE), the search for growth naturally takes Singapore businesses to Africa.

"Africa, unlike most of the world, is growing - and growing at a fast clip," he said. The region is projected to grow at 4.5 per cent over the next few years, a rate much faster than most other regions outside Asia, he added.

Africa's total population of 1.2 billion and young median age of 19.5 years present tremendous opportunities. "Imagine that band of young people moving into the economically active stage, having families, consuming, wanting the best education and healthcare and food," said Mr Jayakrishnan. "That demographic dividend is happening across the continent."

africa beckoning

While the government agency has been doing work in the region for some time - it started two overseas centres in Johannesburg, South Africa and in Accra, Ghana, in 2013 - now is a good time as any for Singapore businesses to penetrate the region, he added.

"The competition is not as fierce now, so we have to go. In some places we might be the first mover. In most others we can be early movers, if not the first. This is the time where we really have to start going (in order) to beat the competition."

Furthermore, with the Chinese having built a lot of infrastructure in the past few years, especially in transport, certain markets have become more accessible.

An example is a 750km train line linking Addis Ababa, the capital of landlocked Ethiopia, to the Red Sea port city of Djibouti - previously, the only option for passengers and goods to travel from Djibouti to Ethiopia was a multi-day trip along a congested, pot-holed road.

"It's going to open up a lot of what has been until today locked up for lack of access," said Mr Jayakrishnan. "In the days and years to come, as these transport nodes get built, these markets that were previously very hard to access become accessible."

This is true not only for Singapore, but also for other countries.

Even as trade between Singapore and Africa grew at a compounded annual growth rate of 5.2 per cent since 2005 to reach S$11.5 billion in 2015, this is dwarfed by the US$271 billion trade between the Asia-Pacific and Africa.

As trade and investment linkages between the two regions expand, financing, logistics, trading and other services will have to be arranged, Mr Jayakrishnan pointed out.

"Some of it is being done out of Dubai, a lot out of London. If most of the origination of those trades are happening in Asia, then we probably are in a good position to get some of that market."

There are already some 50 Singapore firms operating across the continent in sectors ranging from agribusiness to fast-moving consumer goods, according to IE, and awareness is growing.

"Five years ago, maybe companies won't even have an appreciation of how diverse the continent is, and how varied the opportunities and challenges are. Now they do," said Mr MacPherson. Increasingly, the hesitation for companies is in terms of finding the right timing and best approach to expanding in the region, he added.

Agreeing, Mr Jayakrishnan said that companies are now going to IE proactively. Questions that are put to the government agency these days also differ from before.

"Their understanding of the market is now much more nuanced...They now know roughly which two or three countries they want to expand in, (and are asking about) what kind of partners, what kind of payment terms they should get into."

On the government-to-government level, there is notably more buzz than before.

Singapore in August last year signed an avoidance of double taxation agreement (DTA) with Ethiopia, an investment treaty with Mozambique and an air services agreement with Nigeria. A few months before that, it also agreed to start negotiations on a DTA with Uganda.

The city state has, in all, signed seven bilateral investment treaties, eight DTAs and over 20 air services agreements with African countries.

These are significant, said Alexander Benard, chief executive officer of Schulze Global Investments, a Singapore-based private equity firm focused on emerging and frontier markets. "It sends a signal to these countries that Singapore cares and is interested in building this relationship."

Building relationships at the government level is important, Mr Benard emphasised. "In Africa everything is, at the end of the day, linked; you can't separate the government from the business."

"If there's a lot of goodwill at the government level, then Singapore companies will benefit," he added. "It becomes a door-opener for relationships."

Going forward, free trade agreements are on the cards, said IE's Mr Jayakrishnan. These, however, are "more complex undertakings" and will come during the next stage, after the investment treaties and DTAs are in place.

Even without these, the general consensus is that Singapore enjoys a favourable reputation among African countries.

Singapore companies are perceived as reasonable business partners making commercial decisions based on economics rather than politics compared to the Chinese, said Mr MacPherson of Reciprocus.

Besides, Singapore's expertise and experience dovetail very well with the needs of African countries, such as solutions for urbanisation, he added.

"A lot of bottlenecks that can strain economic progress in Africa, (they) correlate to a lot of the areas where Singapore has unique expertise, experience and know-how."

READ MORE: Doing business in Africa? It's similar to S-E Asia - and many speak English

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