World Cup Scores a Goal for Southern African Businesses

July 16, 2010. The 2010 Football World Cup has, by all measures, been a resounding success. How has the World Cup changed Southern Africa and how has it impacted the future for the continent’s investors?

We ask Stuart Maclachlan, head of M-Brain (formerly GIA) Member company in South Africa, Butterfly Effect Intelligence, to identify some of the effects of the World Cup on Southern Africa.

How successful was the World Cup?

“The World Cup was an outstanding success. More than 3 million tickets were sold, tourism-related businesses showed massive growth and over 500,000 tourists visited South Africa during the tournament. FIFA’s president, Sepp Blatter, rated South Africa 9 out of 10 for their hospitality.

According to a research study conducted amongst international tourists who attended the World Cup, 92% said that they would recommend South Africa to their friends and family as a travel destination.

The World Cup 2010 is the first World Cup where social media were in full force, to such an extent that Twitter broke all records for the number of tweets per second. The vast majority of these comments were positive, although it is hard to gauge the long-term economic value of such word-of-mouth endorsement.

Socially, the World Cup managed to unite South Africans, crossing income and race divides and installing a belief that anything is possible. Spain may have won the 2010 World Cup trophy, but South Africa was the overall winner by proving pre-World Cup doomsayers wrong and hosting a world-class event.

From an investor perspective, experts say it is hard to gauge the benefits derived from an event like the World Cup. It may take three to five years to quantify the spillover effects.”

What has the World Cup meant for South Africa?

“Over the five weeks and the time leading up to the games, South Africa has managed to achieve what it may take others five years to attain.

Infrastructure, employment, governance and skills have all improved as result of preparing for and running the World Cup event.

In terms of tourism, South Africa has been recognized for its hospitality and beauty. This can only bode well for the future. The World Cup has also put South Africa, and Africa in general, on the map. 700 million people watched the closing ceremony of the World Cup, more than any other event.

Africa was previously viewed with Afro-pessimism and was seen as the dark and hopeless continent. Post-World Cup, I believe South Africa has demonstrated that it can excel at hosting world-class events with first class precision.

The financial crisis has shown that growth in the next 15 to 20 years will not come from traditional economies, but rather from fast-growing developing and frontier economies. Prior to the World Cup, investors feared the unknown in Africa but the World Cup has helped dispel fears and demonstrated the ease of doing business in South Africa.

If a plastic horn called the Vuvuzela can take the world by storm, who knows what other things might be discovered in South Africa!”

What are some other attractions in Southern Africa, particularly for foreign investors?

“In the past, many African countries were viewed as being too small to warrant investment but this is rapidly changing. For example, the Angolan economy was worth less than US$5 billion just 10 years ago. It has since grown to US$70 billion. Sonangol, a Chinese oil company has already seen the potential in Angola and is currently investing US$ 8 billion to build a new oil refinery. Similarly, Chevron, Sonangol, BP and Total have invested in a new liquid natural gas plant in Angola at a cost of US$ 8 billion. This plant is due for completion by 2012, and a second is in the pipeline. Global companies are fast identifying the potential in Angola.

There are various industries that show strong growth potential within Africa.

In the area of financial services, several factors beckon life insurers. Firstly, Africa has very low penetration levels of less than 2% on average, making growth potential high. Secondly, Africa is not as fiercely competitive as developed markets. There are few local and global players on the continent. Another motivator for large insurers is the attractive margins, anticipated to be two to three times higher than those in developed markets.

The Information and communication technologies (ICT) and telecommunications industry in Africa is experiencing phenomenal growth. Compared with Asia where growth was 29% between 2001 and 2007, Africa’s telecommunications industry grew by 49%. This has been boosted by the completion of ICT infrastructure that connects Sub-Saharan Africa to the rest of the world via a submarine fibre-optic cable in 2009. The fast growth in the telecommunications industry has not gone unnoticed. France Telecom merged with Kenya Telkom in 2007 and India’s Bharti Air Tel purchased Zain Africa, a major mobile operator with a presence in 17 African countries, for US$ 10.7 billion.

Some of the other attractive industries in Southern Africa include; Agriculture, Alternative Energy, Automotive Parts/Service Equipment, Aviation, Computer and Computer Peripherals, Electrical Power Systems, Food Processing, Franchising, Information Technology, Mining and Mining Equipment, Medical Equipment, Pollution Control Equipment, Safety/Security Equipment, Solar product, Telecommunications Services and Equipment, and Transportation, Infrastructure and Civil Construction.

Africa with its predicted economic growth of 6%, has a young energetic population hungry to work and consume. It offers underexploited agricultural expanses and large mineral and oil reserves. Sub-Saharan Africa’s growth rates are surpassed only by those of China and India. This can be attributed to good policies, regulations and large infrastructure programs.

Africa is an untapped market waiting to be discovered by international companies!”

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