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Southern Africa ECONOMIC GROWTH FOLLOWS CHANGE
(Financial Mail Via Thomson Dialog NewsEdge)Southern Africa ECONOMIC GROWTH FOLLOWS CHANGE Mention SA's pan-African corporate giants and companies like MTN, Standard Bank and MultiChoice spring to mind. But, mostly out of the public limelight, Siemens Southern Africa operation has, as its name implies been one of the frontrunners on the continent for years.
The company has offices in 23 of the 52 states, of which 13 all in the Southern African Development Community (SADC) are run from Johannesburg.
These operations make a strong contribution to Siemens Southern Africa's business performance, accounting for between 20% and 25% of business volume of the total Southern African operation over the past few years.
That percentage fell to 13% this year, says Tony Correia, director of regional management. It's not because our turnover is dropping. On the contrary, we are performing well. But the SA operation is growing even stronger, so our share of growth is slightly down. The regional operation has grown to the point where there are now six registered Siemens companies in SADC: Namibia, Tanzania, Zimbabwe, Mozambique, Botswana and Angola. The remaining countries are serviced through an extensive network of agents and distributors.
Siemens even established an office in the Democratic Republic of Congo last year, where it planning to participate in the reconstruction of the war-ravaged country. Expansion of the office, though, will have to wait for greater political stability.
Siemens' SADC operations outside SA employ 150 permanent staff, mostly locals, while a further 600 are working on various projects at any one time. Over the past few years we have seen a steady increase in business coming out of SADC countries other than SA. And I believe growth prospects for the region are looking good, Correia says.
He says the environment for business in general and foreign investment in particular in most of the countries has improved dramatically.
SA's strong growth has definitely made a big difference in the region, though countries like Botswana and Namibia have always had stable economies with a sound infrastructure base, says Correia. He says countries like Mozambique and Tanzania are going out of their way to attract new investments.
It is not only Siemens that is benefiting. Correia singles out the strong and increasing presence of Chinese companies chasing many of the same tenders. As a result, Siemens is placing emphasis on local knowledge, with local staff being trained rapidly to fill posts, where possible. The financial risk of operating in many Southern African countries is higher than in developed nations, but Siemens has found that problems like bad debts are not much of an issue. Correia says that some risk is mitigated by the fact that Siemens often partners other companies in bidding for large tenders.
With the risks come higher profit margins. Siemens does not detail its financial returns but it has indicated previously that African operations often return more than 10% after tax. Siemens is extending its African footprint by growing the various country operations and also by letting individual business units grow with their SA customers as they expand into Africa.
Siemens CEO Pete da Silva says: By following in the footsteps of our customers, we will meet new opportunities while at the same time helping grow the business of our established customers. As in SA, telecommunications is the largest business segment for Siemens in the region, as it partners Telkom and Vodacom in their African expansion. But besides the communications sector the group is experiencing growth in all its business units. It starts with the availability of a reliable and dependable power supply, after which more advanced levels of infrastructure can be entertained, such as medical equipment, Correia says.
As these markets develop, the demand for logistics, support services and advanced business solutions such as IT outsourcing, are expected to escalate. For now the name of the game is resources and much of Siemens' workload stems from industries operating in the primary sector. This is particularly evident in Mozambique, where the company is already involved or seeking contracts in a number of large projects. With the appointment of former businessman Armando Guebuza as president in 2004, the business environment in Mozambique has improved substantially, says Rui Braganza, MD of Siemens Mozambique.
Siemens' strong move into Angola is also motivated by the resources boom, this time in oil & gas exploration, which is flourishing with the surging oil price. Its first large contract in the country, though, has been in its traditional telecommunications unit a US$70m contract for telecom equipment.
Namibia remains the largest contributor to the profitability of Siemens Southern Africa, after SA. And it is benefiting from its well-established presence in the country by winning further key contracts, including in 2004 a 10-year outsourcing contract for Namibia rail parastatal TransNamib. As trade picks up in the region, Siemens plans work with the Namibian rail operator in extending its network. A rail link between Walvis Bay and coal fields in eastern Botswana is one of the options being considered.
Siemens Namibia has also submitted a bid for a proposed 800MW, R4bn power station in Oranjemund, on the SA border, to be powered by gas from the offshore Kudu gas field. A decision is expected by midyear.
Bringing on board local companies is the norm in SA, with its black economic empowerment policies, but indigenisation regulation is not that well-established in the rest of Africa. Siemens has started to pursue this policy in other SADC countries, and last year the group sold 20% equity in its Tanzanian operation to the state-owned National Development Corp of Tanzania. Sven Lunsche
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