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Africa is not for sissies. The adage underscores the continent’s difficult trading conditions, but in truth it is opening up for companies willing to provide the infrastructural expertise that it lacks – and much of that expertise comes from South Africa.
The South African economy operated in isolation for decades because of the country’s apartheid policy. By necessity, local companies developed world-class competence in-house that traversed just about all sectors of commerce and industry.
Since the end of apartheid, however, it has become an African gem, flaws and all. Positive economic fundamentals and a stable trading environment mean that other African nations are open to – and even eager for – trade with South Africa.
Racec is an engineering infrastructure group based in Cape Town. The medium-sized company, which employs roughly 1,000 people, is listed on the Johannesburg Stock Exchange AltX alternative bourse for small caps.
Racec focuses on rail and electrical engineering infrastructure projects. It also has a supply and manufacturing arm for electrical equipment, including control and switch gear, electrical kiosks and generators. Its clients include the Department of Transport, electricity utility Eskom, Airports Company South Africa, petrochemical firm Sasol and the Richards Bay Coal Terminal.
Gary Harrod, chief executive, says trading conditions for the 2010 financial year have been tough, but infrastructure contracts put on hold during the recession are now being revisited. Many of those opportunities are in surrounding territories such as Botswana, Namibia and Mozambique, but markets are opening up further afield in Zambia, Angola, Ghana, Nigeria, Kenya and Uganda.
“Domestic infrastructure projects in the run-up to the 2010 World Cup were good for business,” he says. “But cross-border expansion forms an important part of our strategy going forward. There is an appetite for trade in the rest of Africa, but we are selective about the ventures we undertake.”
Instead of blazing its own trail into Africa, which is fraught with risk but offers potentially high returns, Racec exercises caution and follows large companies into markets that have already been established north of the border.
“We partner with main contractors throughout Africa that are rolling out rail and electrical infrastructure, particularly in oil-rich countries on the continent’s west coast,” Mr Harrod says. “Mining companies are also good to do business with; they have the resources and incentive to find ways to transport commodities – rail is a good option.”
Much of the company’s work is rehabilitative, he adds. “Neglected facilities and lines are in urgent need of repair.”
Other South African firms have recognised business opportunities in Africa and done well out of them. Mobile telecoms giants Vodacom and MTN have successful operations throughout the continent, but there is room for smaller businesses, too. An example is 1time, the low-cost airline that operates services to Zanzibar, Livingstone and Maputo.
South Africa’s Department of Trade and Industry is keen on bilateral African trade, but much of the traffic emanates from the southern tip of the continent – and most of it is one-way.
“Things are turning around in Africa. South African companies of all sizes are able to bring their products and skills to new markets,” Mr Harrod says. “Working in Africa can be challenging – logistics are difficult and cost-of-living expenses are high. That said, however, South African companies are well positioned to capitalise on African business opportunities by nature of their geographical location and their understanding of the business culture on the continent, varied as it is.”