Africa and Asia: Weaving an $18 bil. African 'Batik'
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January, 2015
Published in: Asia Africa Business
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Business synergies are emerging between Southeast Asia and Africa, a powerful economic narrative that cannot be ignored.
[1] Batik – Batik is a traditional artisanal textile made from wax-resist dyeing. African and Southeast Asian countries both have a tradition of batik making, particularly in Nigeria, Senegal, Indonesia, Malaysia, and the Philippines.
Nigerian rice and noodles
I remember my first visit to Lagos in 2009. The commercial heart of Nigeria, equivalent to the entire population of Malaysia, or four times that of Singapore, was like no other city I had ever visited. Chaotic, vibrant, and energetic – Africa’s most populous city of carried with it not only the electrifying promise of business opportunities in the air, but also the high risks that came with it.
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Certainly not an easy country to operate in, I was therefore pleasantly surprised to find Southeast Asian companies already successfully operating there. Singapore’s Tolaram Group, for one, in partnership with Indonesia’s Salim Group, is the reason why Nigerians enjoy the enduring taste of “Indomie” branded instant-noodles. Such is the extent of Nigeria’s love affair with “Indomie”that, as I was told by a Nigerian diplomat in Singapore, “no Nigerian family will leave overseas for a trip without packing a few packets in their luggage.” The IndoSingaporean joint venture currently has three noodle plants located in Nigeria, namely Port Harcourt, Ota and Kaduna; as well as a pasta and cooking oil business.
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I also met entrepreneurs and SMEs from Southeast Asia in Nigeria. One of them was a Malaysian female entrepreneur who owned two thriving businesses in Nigeria. She was involved in electronics retail, with swanky downtown showrooms in Lagos and Abuja; as well as the supply of DVD packaging to Nigeria’s burgeoning music and film industry called “Nollywood”. Over a surprisingly good meal in a Chinese restaurant in Lagos, she shared with me how West Africans liked rice the same way Asians did. In fact, more than 60% of Thailand’s rice exports go to Africa, to top importing countries like Benin, South Africa, Nigeria and Senegal.
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Supporting a US$500bn trade flow
Instant noodles, pasta and rice are but one of the pieces of the booming consumer sector in Nigeria and across the entire African continent today.
“While China and India are the obvious contributors, in absolute terms, to the numbers behind Africa-Asia trade flows, the various trade-related services and infrastructure supporting this flow are equally, if not more important.”
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With rising disposable incomes and a growing middle class, Africa’s consumers are buying everything from electronics, mobile phones, and photocopiers, to rice, water purifiers, furniture, and used cars from Asia. According to a recent survey by Standard Chartered of 5000 consumers in Nigeria and Ghana, 91% of Nigerians plan to buy the latest technology goods; while 72% of Ghanaians plan to buy a new car or motorcycle.
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Statistics from UNCTAD indicate that Asia-Africa trade grew almost 6 fold, over a 10 year period from 2003 to 2013. To this end, the annual flow of goods between both regions is significant, at almost US$500bn.
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“Our proprietary research findings reveal that Southeast Asian investments into Sub-Saharan Africa to date amount to some US$18bn, or 6 times more than what is shown on publicly available statistics.”
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While China and India are the obvious contributors, in absolute terms, to the numbers behind Africa-Asia trade flows, the various trade-related services and infrastructure supporting this flow are equally, if not more important. If we delve deeper into the overall trade infrastructure supply chain between Africa and Asia, one begins to see the contributions of Southeast Asian companies.
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For instance, Singapore’s Pacific International Lines (PIL) Group, one of the largest ship-owners in Asia and the world’s second largest container manufacturer, has almost 30 local offices on the African continent, ensuring that just about anything to be shipped from or to Africa will be delivered. Meanwhile, Philippines’ International Container Terminal Services Inc (ICTSI) has three container terminal projects in Africa: in Nigeria, the Democratic Republic of Congo and Madagascar. Quietly behind the scenes, while containers are being loaded and unloaded in ports in Ghana, Mozambique and Kenya, Singapore’s Crimson Logic ensures that customs and trade facilitation processes are automated and administered efficiently through an electronic single window platform.
And what about the financial aspects of Africa-Asia trade? What of those who handle letters-of-credit, middle-office processing and those who hedge traders’ foreign currency exposures? How about the firms who assess differing counter-party and product risks and those who underwrite trade credit insurance? The intricate trade finance processes related to crude oil, refined products, palm oil and agro-commodity transactions between Africa and Asia, are probably handled by one of the many counterparty banks in Singapore, who serve the critical mass of almost 500 global energy and commodity traders headquartered on the island.
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“The new Asian-African nexus would be driven by pragmatic and hard-nosed commercial interests."
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Moving beyond trade, a look at the flows of investments from Southeast Asia to Sub-Saharan Africa reveals that the relationship between Southeast Asia and Africa is deeper and more broad-based than publicly perceived.
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Southeast Asia and Sub Saharan Africa – more than just trade partners
Firstly, our proprietary research findings reveal that Southeast Asian investments into Sub-Saharan Africa to date amount to some US$18bn, or 6 times more than what is shown on publicly available statistics. This number is all the more significant, given that we have excluded Mauritius bound investment data. In this manner, we were able to attribute the overall investment exposure from source Southeast Asian country to the host African country more accurately.
Secondly, we observe that the size of Southeast Asian companies’ investments into Sub-Saharan Africa fall into a broad spectrum - from as low as US$500,000 to over US$1bn, across a broad variety of sectors. Be it a large oil and gas investment in Tanzania, a refinery in South Africa, a rubber plantation in Cameroon, or a hospital and manufacturing plant in the East African region, the number of projects by companies from this part of the world contribute meaningfully to the Africa’s business eco-system in terms of technology transfer and jobs created. I can quote some numbers to illustrate the impact and value being created. For instance, the numbers of local jobs in Africa created by merely four companies from Southeast Asia at our Chamber exceed 17,000.
Source: Africa Southeast Asia Chamber of Commerce
Thirdly, from Southeast Asia, Singapore and Malaysia are significant players in Africa. Corporates from Singapore and Malaysia account for over 93% of all Southeast Asian outbound investments into Africa. While the major sectors of investment are in oil and gas (49%) and agriculture (29%), there are growing numbers in real estate, manufacturing, ICT and other services related investments.
An analysis of the type of investments undertaken by Singapore and Malaysia companies in Sub-Saharan Africa also display differing trends. Singaporean companies’ investments vary widely in terms of project size, sectors and exposure to the number of countries in Africa. For example, almost half of the total investments from Singapore to Sub Saharan Africa fall into the US$30m and US$200m range. This is not the same for Malaysian companies, whose investments in Africa are lumpier in terms of individual project size, more narrowed scoped in terms of sectors, and focused on a smaller number of African countries. Finally, in terms of absolute numbers of investment projects into Sub Saharan Africa, Singaporean companies are well ahead of their peers in Southeast Asia.
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From Singapore, besides the firms earlier mentioned in this article, our research shows that notable investors include Temasek Holdings and its energy subsidiary, Pavilion Energy; and agrocommodity players Wilmar, Olam, and GMG Global. From Malaysia, national oil company Petronas has the largest exposure to Africa, followed by other agriculture players such as Sime Darby Plantations, KL Kepong, and Wah Seong. The list given is merely illustrative and not exhaustive.
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Bandung ’55 : Renaissance
This coming together of Southeast Asia and Africa, seems to suggest a “renaissance” of the Bandung Conference in 1955, where twenty-nine Asian and African nations convened in Bandung, Indonesia, to discuss cooperation and partnership. While the aspirations then were driven by political and nationalistic sentiments, the new Asian-African nexus would be driven by pragmatic and hard-nosed commercial interests.
As such, the role of the private sector from both regions will become increasingly important, and relevant. Entrepreneurs from Africa, new and seasoned, are discovering that Asia is more than just China and India. Southeast Asia offers them a compelling alternative to both Asian giants. Equally, African businessmen can consider adapting systems of governance and models of corporate structuring from this part of the world.
Source: Africa Southeast Asia Chamber of Commerce
Likewise, companies from Southeast Asia can observe how indigenous African corporates are adapting their products and services to emerging markets in Africa. In the financial services space, I hear fascinating stories. Ecobank, Africa’s panafrican bank, is offering letters-of-credit denominated in the Chinese reminbi to African traders so as to reduce their transaction costs; while Kenya’s mPESA is leading global innovation in mobile banking. In fact, you can pay for or receive credit dollars for just about anything using your mobile phone in Africa -- from salaries, electricity bills, to solar energy credits and probably coffee.
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With improved flight connectivity and ICT infrastructure between both regions, the increasing flows of people from Asia to Africa will hopefully de-sensitize them to bloated perceptions of ‘African’ risks related to war, famine, political strife and more recently, Ebola. The impact of enhanced people-to-people flows: be it a Singaporean trader dealing in crude oil from Gabon or a visiting professor teaching in a Malaysian-owned university in Swaziland, will be meaningful and long lasting. As While Asia-Africa relationships flourish, partnerships with companies from Southeast Asia continue in a broad-based manner all across Africa. With Malaysia -- from a US$20m steel factory in Namibia to a US$ 400m housing estate in Abuja, Nigeria. With Thailand – from a US$ 2.7m health screening center in Ethiopia to a US16m body care products manufacturing facility in Uganda. With Indonesia – from a US$ 150m telecoms project in Gambia to a US$530m pipeline in Sudan. The list goes on.
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Much like the infinite and myriad permutations of a batik print, commonly found in markets in Southeast Asia and many parts of Africa, these pragmatic partnerships will inevitably lead to a stronger commercial fabric of investments and trade between Southeast Asia and Africa. And yes, it will be sustainable.
The author wishes to thank Ms Ruan Ningzhen and Ms Linda Mulyani, who have contributed towards the research for this article.
