20130410a_009101002
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ABHINEET KUMAR Mumbai, 9 April It is no coincidence that the fifth BRICS summit was held in Durban, South Africa, last month. The country is the gateway to a continent that is catching up fast. Holding the summit in Durban, therefore, was a recognition of the changing dynamics of what was once a hopeless, strife-torn continent. Africa is now seen as the place where the next big opportunities are. A genuine middle class is emerging in the continent; its population of 1.1 billion has a median age of 18; and consumer spending, cur- rently over $920 billion, is expected to grow to $1.4 trillion by 2020. Obviously, the growth potential is huge. For new and old Indian companies alike in the continent, the untapped demand for consumer durables, automobiles, med- icines and mobiles phones offers a lucrative opportunity. India and Africa resemble each other, says Chandru Chawla, head of corporate strategy (international business),Cipla, referring to the huge opportunity at the bottom of the pyramid in the two geog- raphies. Cipla, the Mumbai-based phar- maceuticals company, went to Africa over a decade back and it is now trying to step up its presence in the continent. In February, it announced plans to acquire its South African distribution partner, Medpro, for $512 million. Cipla could gaze into the potential of Africa’s bottom-of- the-pyramid market early on. In 2000, Yusuf Hamied, the promoter of the company, decided to sell its three-drug combination for treatment of HIV/AIDS for around $800 for a year’s dosage. At that time, patent-holding multinational corporations were selling the combination for $12,000 per patient. Cipla could reap the benefits of economy of scale. Africa’s huge HIV- infected population allowed it to cut costs further to $140 for a year’s stock. “We found these markets attractive despite the challenges. We find that the opportunity is increasing exponential- ly,” says Chawla. Cipla, which has a turnover of about $1.3 billion, is expecting its Africa busi- ness to contribute $1 billion by 2020. For the purpose, it is changing its dis- tribution model. From getting into tie- ups with companies to market its prod- ucts, it is setting up its own distribution companies. India’s Tata Group, which has a turnover of $100 billion, set up Tata Africa Holdings about two decades ago to identify development opportunities. Its Africa operations, which include automotive, chemicals, smelting, among others, had a turnover of about $2.3 billion in 2011-12. The group has so far invested $1.7 billion in various proj- ects in the continent including a plant in Pretoria to produce commercial vehi- cles for the local market. “The kind of growth that the Tatas have experienced in Africa in the last decade is a reflection of the potential and promise that this continent has to offer,” says Mukund Rajan, the group’s spokesperson. The group is looking at annual revenue growth of 30 per cent from its Africa business, Raman Dhawan, managing director of Tata Africa Holdings, had told Business Standard recently. The Tatas are also planning to get into business hotels in Africa, expanding from the luxury hotels that it operates in Lusaka and Cape Town. Telecom is another sunrise sector in Africa, with Bharti Airtel leading the Indian charge. It acquired Africa’s mobile telecommunication company, Zain, in 2010 for $10.7 billion (enterprise value). Since then its subscriber base has risen to 62 million from 36 million. Bharti also offers high-speed data service in 11 coun- tries and mobile remittance service in 15 countries. Bharti has adopted a low- cost business model in Africa with the help of its global partners: IBM, Ericsson, Nokia Siemens, Tech Mahindra and Spanco. The low-cost model has helped the company expand its presence in the rural areas there. “It may have taken us a little longer than we expected but if you look at the overall trajectory and direction, we are on the right track in a continent that is the market of the future,” says a Bharti Airtel spokesperson. Africa is the fastest growing mobile market in the world. Over the past five years, it has seen a 20 per cent rise in the consumer base, according to a study by telecom indus- try body GSMA . India-Africa partnership is not lim- ited to companies setting up bases in that continent. In 2011-12, India-Africa bilateral trade was worth $63.1 billion, accounting for seven per cent of India’s global trade. Bulk of this, about $43 bil- lion, was still made up of Africa’s staple: oil, gold and metals. However, in recent years, export of manufactured goods such as machinery, transportation equipment, food and pharmaceuticals to Africa has also been on the rise. In 2011-12, it was $20.1 billion. “We see the growth trajectory in Africa is going to be higher in the years to come vis-a-vis other markets,” says Mahendren Moodley, chief executive and India head of Africa’s leading finan- cial group, FirstRand Bank Pune-based Bajaj Auto exports its two- and three-wheelers to 20 African countries. In African markets the pri- mary usage of motorcycles is in the taxi segment. Its Boxer brand with its robust exterior and fuel-efficient engines is a hit in the continent, accounting for 28 per cent of the market. The company has assembly lines in eight African countries. “For the last few years, Africa has been growing as governments are getting more stable. Also, demographics of the continent is such that it ignites con- sumption,” says Rakesh Sharma, presi- dent (international business), Bajaj Auto. For fast-moving consumer goods companies the story is no different. Africa presents a bright spot with its huge base of middle-income people. Godrej Consumer Products (GCPL) and Marico have been the flag-bearers of the Indian FMCG industry in the conti- nent. “We believe that Africa can be a game changer for GCPL,” says Vivek Gambhir, managing director designate, Godrej Consumer Products. But it is not just India that’s looking at Africa to fuel growth. “Indian companies will have to compete with other global companies in this market and it is up to them to make the most of the opportunity,” says the Bharti Airtel spokesperson. India Inc ups its stake in Africa WELL CONNECTED Bharti Airtel’s subscriber base in Africa has risen to 62 million from 36 million in three years PHOTO: REUTERS CALL OF THE CONTINENT Companies Turnover* (~ Cr) Tata Group (2011-12) 12,555 Cipla (Projected by 2020) 5,458 Godrej Consumer Products (2011-12) 700 *Africa business
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Transcript of 20130410a_009101002
ABHINEET KUMARMumbai, 9 April
It is no coincidence that the fifth BRICSsummit was held in Durban, SouthAfrica, last month. The country is thegateway to a continent that is catchingup fast.
Holding the summit in Durban,therefore, was a recognition of thechanging dynamics of what was once ahopeless, strife-torn continent. Africais now seen as the place where the nextbig opportunities are. A genuine middleclass is emerging in the continent; itspopulation of 1.1 billion has a medianage of 18; and consumer spending, cur-rently over $920 billion, is expected togrow to $1.4 trillion by 2020. Obviously,the growth potential is huge. For newand old Indian companies alike in thecontinent, the untapped demand forconsumer durables, automobiles, med-icines and mobiles phones offers alucrative opportunity.
India and Africa resemble each other,says Chandru Chawla, head of corporatestrategy (international business),Cipla,referring to the huge opportunity at thebottom of the pyramid in the two geog-raphies. Cipla, the Mumbai-based phar-maceuticals company, went to Africaover a decade back and it is now trying tostep up its presence in the continent. InFebruary, it announced plans to acquireits South African distribution partner,Medpro, for $512 million.
Cipla could gaze into the potential ofAfrica’s bottom-of- the-pyramid marketearly on. In 2000, Yusuf Hamied, thepromoter of the company, decided to sellits three-drug combination for treatmentof HIV/AIDS for around $800 for a year’sdosage. At that time, patent-holdingmultinational corporations were sellingthe combination for $12,000 per patient.
Cipla could reap the benefits ofeconomy of scale. Africa’s huge HIV-infected population allowed it to cutcosts further to $140 for a year’s stock.
“We found these markets attractivedespite the challenges. We find that theopportunity is increasing exponential-ly,” says Chawla.
Cipla, which has a turnover of about$1.3 billion, is expecting its Africa busi-
ness to contribute $1 billion by 2020.For the purpose, it is changing its dis-tribution model. From getting into tie-ups with companies to market its prod-ucts, it is setting up its own distributioncompanies.
India’s Tata Group, which has aturnover of $100 billion, set up TataAfrica Holdings about two decades agoto identify development opportunities.Its Africa operations, which includeautomotive, chemicals, smelting,among others, had a turnover of about$2.3 billion in 2011-12. The group has sofar invested $1.7 billion in various proj-ects in the continent including a plantin Pretoria to produce commercial vehi-cles for the local market.
“The kind of growth that the Tatashave experienced in Africa in the lastdecade is a reflection of the potentialand promise that this continent has tooffer,” says Mukund Rajan, the group’sspokesperson. The group is looking atannual revenue growth of 30 per centfrom its Africa business, RamanDhawan, managing director of TataAfrica Holdings, had told Business
Standard recently. The Tatas are alsoplanning to get into business hotels inAfrica, expanding from the luxuryhotels that it operates in Lusaka andCape Town.
Telecom is another sunrise sector inAfrica, with Bharti Airtel leading theIndian charge. It acquired Africa’s mobiletelecommunication company, Zain, in2010 for $10.7 billion (enterprise value).Since then its subscriber base has risen to62 million from 36 million. Bharti alsooffers high-speed data service in 11 coun-tries and mobile remittance service in15 countries. Bharti has adopted a low-cost business model in Africa with thehelp of its global partners: IBM, Ericsson,Nokia Siemens, Tech Mahindra andSpanco. The low-cost model has helpedthe company expand its presence in therural areas there.
“It may have taken us a little longerthan we expected but if you look at theoverall trajectory and direction, we areon the right track in a continent that isthe market of the future,” says a BhartiAirtel spokesperson. Africa is the fastestgrowing mobile market in the world.
Over the past five years, it has seen a 20per cent rise in the consumer base,according to a study by telecom indus-try body GSMA .
India-Africa partnership is not lim-ited to companies setting up bases inthat continent. In 2011-12, India-Africabilateral trade was worth $63.1 billion,accounting for seven per cent of India’sglobal trade. Bulk of this, about $43 bil-lion, was still made up of Africa’s staple:oil, gold and metals. However, in recentyears, export of manufactured goodssuch as machinery, transportationequipment, food and pharmaceuticalsto Africa has also been on the rise. In2011-12, it was $20.1 billion.
“We see the growth trajectory inAfrica is going to be higher in the yearsto come vis-a-vis other markets,” saysMahendren Moodley, chief executiveand India head of Africa’s leading finan-cial group, FirstRand Bank
Pune-based Bajaj Auto exports itstwo- and three-wheelers to 20 Africancountries. In African markets the pri-mary usage of motorcycles is in the taxisegment. Its Boxer brand with its robustexterior and fuel-efficient engines is ahit in the continent, accounting for 28per cent of the market. The companyhas assembly lines in eight Africancountries.
“For the last few years, Africa hasbeen growing as governments are gettingmore stable. Also, demographics of thecontinent is such that it ignites con-sumption,” says Rakesh Sharma, presi-dent (international business), Bajaj Auto.
For fast-moving consumer goodscompanies the story is no different.Africa presents a bright spot with itshuge base of middle-income people.Godrej Consumer Products (GCPL) andMarico have been the flag-bearers ofthe Indian FMCG industry in the conti-nent. “We believe that Africa can be agame changer for GCPL,” says VivekGambhir, managing director designate,Godrej Consumer Products. But it is notjust India that’s looking at Africa to fuelgrowth. “Indian companies will have tocompete with other global companiesin this market and it is up to them tomake the most of the opportunity,” saysthe Bharti Airtel spokesperson.
India Inc ups its stake in Africa
WELL CONNECTED Bharti Airtel’s subscriber base in Africa has risen to 62
million from 36 million in three years PHOTO: REUTERS
CALL OF THE CONTINENTCompanies Turnover* (~ Cr)
Tata Group (2011-12) 12,555Cipla (Projected by 2020) 5,458Godrej Consumer Products (2011-12) 700*Africa business
