Despite big falls in the value of most of Africa’s largest companies, the ranking order of the continent’s five largest firms remains the same as last year.
Mining giants BHP Billiton and Anglo American lead the way with market capitalisation of $71.5bn and $54bn respectively, although these figures represent big falls on last year’s $99.4bn and $77.2bn. In the context of such substantial reductions, third-equal-placed SABMiller has done well to record a value of $35.0bn, almost the same as last year’s $35.7bn.
Synthetic fuels producer Sasol and MTN Group of the telecoms sector retain fourth and fifth spots with modest falls in value to $32.0bn and $29.5bn. South African firms fill the top nine positions, before Maroc Telecom of Morocco comes in at 10th place. Despite moving up our rankings from last year’s 12th position, the company’s market capitalisation has actually fallen from $16.0bn last year to $13.8bn in 2012. The fall in stock values has not just affected those at the top of the table but is apparent throughout our rankings. While Egypt’s Oriental Weavers needed $312m to secure 250th spot in the 2011 survey, fellow Egyptian firm Citadel Capital took the same position with just $210m this year. Despite its takeover of Rift Valley Railways in East Africa, Citadel has suffered a similar fate to many other Egyptian firms, falling a dramatic 105 positions in a single year.
However, it should be noted that African bourses generally performed very well in the first two months of this year. Egyptian share prices rose by a massive 47.5% over that period, helping to recoup most of the losses recorded last year, although Tunisian share prices registered little change. Elsewhere, an average increase of 14% was achieved by the Johannesburg Stock Exchange; 16% in Namibia; and 10.5% in Kenya. The only poor performers were Zambia and Zimbabwe, where prices fell by an average of 9% and 6% respectively.
Demand for commodities
Although mining stocks fell sharply over the period covered by our 2011 and 2012 tables, the performance of individual commodities has been much more mixed. While copper prices have fallen over the past six months, this was from a very high level; and relentlessly strong global demand for iron ore continues to drive up prices and encourage the development of new projects, particularly in Africa.
When announcing its 2011 results, Anglo American’s chief executive Cynthia Carroll said: “Sustained growth in the emerging economies should underpin robust demand for commodities, albeit with a degree of short term volatility, while the signs of economic recovery and stimulus in the US should provide a further fillip.”
A recent report by JPMorgan Chase forecasts that a massive $25bn will be invested in new railways and ports in West and Central Africa over the next eight years in order to serve iron ore mining projects in the region. Guinea, Sierra Leone, Liberia and Congo-Brazzaville will attract most of this investment and are collectively expected to produce 250m tonnes of iron ore a year by 2020, equivalent to 9% of projected global output by that date.
In addition, Transnet Freight Rail continues to ramp up handling capacity on the Sishen Railway from iron ore mines in the Northern Cape to the Atlantic port of Saldanha.
Elsewhere, telecoms stocks have lost a little of their lustre in recent years, as the telecoms industry as a whole has begun to mature and the pace of revenue growth has slowed. As the table on page 22 demonstrates, the sector now comprises 8.62% of the value of Africa’s Top 250 companies, in comparison with 32.67% for mining and metals and 15.48% for banking and financial services.
Competition is increasing in many national banking sectors. The number of licensed banks in Uganda has increased from 15 in 2002 to 23 this year. This is probably insufficient business at present to justify the number of banks, as there are just 3.2m accounts in the country out of a population of 35m and some people hold several accounts. However, this means that there is lots of scope for growth and so banks from neighbouring countries and further afield are expanding into Uganda.
Overall stock values have fallen in Nigeria as elsewhere on the continent. Yet one area where Nigerian firms have performed well in our table is in consumer goods. Nigerian Breweries, Guinness Nigeria and Nestlé Nigeria have all shot up the table, moving up 11, 29 and 33 places respectively, suggesting that more Nigerians have more money for beer, chocolate and other relative luxuries.
Otherwise there is relatively little strength in depth, particularly as so much of the Nigerian economy is based on the oil and gas sector, which remains dominated by the global oil giants.
Nigerian Breweries is the highest ranked of the three companies, placed third in West Africa and 30th in the continental Top 250. The company recently announced a 24% increase in turnover, from N185.8bn ($1.2bn) in 2010 to $1.5bn in 2011, plus a 25.3% rise in profits to N38.0bn ($240m). Despite its success in our table, Guinness Nigeria has announced a 2.5% fall in profits for the second half of 2011 at $45m, perhaps because of growing competition in the sector.
Guinness Nigeria has invested $225m in its Ogba and Benin breweries in order to increase production capacity from 3.5m hectolitres a year to 7.5m hectolitres a year. The expansion manager Adebayo Alli said: “The new plant is fully automated, attesting to the quality of products and backed by an equally excellent workforce. The increased demand for our iconic brands such as Guinness and Harp requires us to invest in our breweries and infrastructure.” He added: “The factory is fitted with some of the best production, packaging and storage facilities with effluent treatment facilities which are some of the best in the industry, making by-products and wastes from the factory harmless to the environment.”
Nestlé Nigeria opened its second factory in the country last year and announced plans for further expansion at the end of February. Chief executive Martin Woolnough said: “We’ve got a lot of money going into the country and that will be to do with improving capacity on our key brands.” The company posted a 33% rise in annual profits for 2011 to $107m, ahead of a 22% increase in revenues, and has also begun to market its brands in other West and Central African countries.
First Bank’s investment offshoot FBN Capital forecasts continued strong growth in the Nigerian brewing sector, which is currently dominated by Nigerian Breweries and Guinness Nigeria. A report from the company stated: “Although the subdued outlook for the global economy poses a downside risk, we observe that the sector has proved to be very resilient in the face of economic downturn. We believe that the Nigerian market portends more opportunities for growth than any other on the continent. Based on the entrenched positions of the two leading brewers, and their ongoing efforts to expand their capacities, we do not see any threat to their competitive positions in the near to medium term.”
There appears to be plenty of room for expansion within the domestic beer market. Nigerians drink an average of 11 litres of beer a year, in comparison with per capita consumption of 59.5 litres a year in South Africa. However, consumption has increased by an average of 11.8% a year over the past six years.
Moreover, Heineken and SABMiller have now entered the Nigerian market and growing competition may help to push prices down. Elsewhere, Nigerian Bottling Company, which just makes it into our table, may move up the rankings next year as a result of a $300m investment from parent company Coca-Cola Hellenic.
Despite the fluctuating fortunes of African stock exchanges, many commentators remain positive that the African economic renaissance will continue. Speaking in February, Iqbal Survé, the chairman of South African investment firm Sekunjalo Group, said: “This is an exciting time on our continent. This is Africa’s century. And if you don’t know that yet, you need to wake up to that fact. I see an Africa that is changing. I see an Africa that is not at risk. I see an Africa that has got a great future for young people. And if we do the right stuff, we are going to be a place where you just want to be.
“For the first time, African countries are talking about linking countries together – physically, infrastructure wise, technologically, culturally, politically. You must believe in this continent based on sound fundamentals.”
Those that are enjoying the fruits of sustained economic growth are particularly upbeat. Ghana’s President John Evans Atta Mills said: “The easing of the global crisis is likely to give rise to economic stability and expansion that will impact on our economy; there is apprehension because further weakening of the Highly Indebted Rich Countries and of the global economy will have serious economic consequences not least on commodity prices. Even though we have experienced internal and external constraints, we have reason to be hopeful of Ghana’s future.” Accra is currently the shining star among African economic prospects.
Inflation is a major problem across much of the continent, with the result that bank lending rates are often unhealthily high. In Uganda, for example, base rates increased from 16% in June 2011 to 29.5% by January this year. Uganda is something of an exception because the anticipated oil boom is driving up costs but high food prices have produced double-digit inflation in many other countries. Nevertheless, the economic mood across the continent is far more hopeful than in much of the rest of the world. African economies are widely expected to account for about six of the world’s dozen fastest-growing economies this year. Such growth is likely to feed into the increasing value of African companies.