North Africa: Stability jitters take toll

Taken as a whole, the region’s companies have not enjoyed the same increase in value as those in the rest of the African continent. The 25 biggest North African companies were all valuable enough to secure a position among Africa’s 100 biggest firms. Only 20 have sufficiently large market capitalisation to do so this year. […]


Taken as a whole, the region’s companies have not enjoyed the same increase in value as those in the rest of the African continent.

The 25 biggest North African companies were all valuable enough to secure a position among Africa’s 100 biggest firms. Only 20 have sufficiently large market capitalisation to do so this year. Moreover, this year’s 25th ranked firm, Banque Marocaine du Commerce et de l’Industrie, is valued at $809m, a full $98m less than Egypt’s Commercial International Bank needed to take the final position in our regional table this year. As last year, the 25 biggest companies in North Africa all come from just two countries: Morocco and Egypt. This year, Morocco provides 13 and Egypt 12, demonstrating a substantial recovery by the region’s most populous country, as there were just nine Egyptian firms in the regional top 25 in our 2012 survey.

Greater political stability would see investors place more value on Egyptian stocks. However, the economy is expected to grow by just 1-1.7% this year, which is insufficient to cope with population growth.

Any recovery from the economic downturn triggered by political uncertainty will have to wait until next year at the earliest. By contrast, the Moroccan economy is now growing more quickly, record-ing a 4.8% increase in GDP over the past year, as its manufacturing sector begins to recover.

Maroc Telecom remains the biggest listed company in North Africa, with a market capitalisation of $10.8bn, although this is down from the $13.8bn recorded in last year’s survey. It will be interesting to see what impact a change of ownership has on the company’s operations and value. The company is currently 53% owned by Vivendi and 30% by the government of Morocco, with the balance freely traded on the Casablanca and Paris stock exchanges.

However, Vivendi has decided to divest some of its assets as part of a large restructuring programme and both Etisalat of the United Arab Emirates and Qatar’s Ooredoo have submitted offers for the French firm’s stake.

A spokesperson for Etisalat said: “Etisalat firmly believes that Maroc Telecom fits within its international expansion strategy and would complement its existing West African portfolio.” Rabat must sanction any deal and could be persuaded to sell some of its own stake in order to balance its books. Any majority shareholder would also be required to make an offer for freely traded shares. Orascom Construction Industries leapfrogs Attijariwafa Bank into second place with a rise in value from $6.7bn to $7.1bn. However, in May the Egyptian company announced a $295m profit for 2012, down from $678m in 2011.

Orascom blamed the big fall on cuts to natural gas supplies to its Egyptian fertiliser plants, tax problems with the Egyptian Tax Authority and construction problems in Algeria. Its new parent company, OCI NV, which is based in the Netherlands, will soon be listed on the NYSE Euronext stock exchange.

One sign of North African corporate weakness is the rise of Telecom Egypt from fourth last year to fifth in this year’s table, despite a fall in value from $3.7bn to $3.3bn over the same period. Given the size of its domestic market and the fact that it has a monopoly on the provision of land-line services, it might be expected that the company would have a higher valuation.

However, the firm recorded an 11% fall in international call revenue during the first quarter of this year, which it attributed to a “continued drop off in general business activity” in the country. Egypt Telecom remains 80% state owned and also holds a 45% stake in Vodafone Egypt but plans to launch its own mobile subsidiary later this year, once it has received clearance from industry regulators. The government is also considering plans to allow the country’s mobile operators to offer land-line and broadband services in competition with Egypt Telecom. Although this would eat into the firm’s market share, the impetus injected into the domestic telecoms sector could improve the company’s performance. However, it could find it relatively difficult to become a major player.

According to the Cellular Competition Intensity Index for 2012, Egypt is the most competitive mobile market in North Africa.

Africa in a global context

Some globally important companies are listed on African stock exchanges, but even BHP Billiton and SABMiller, with market capitalisation of $72bn and $52bn respectively in our survey, are just a fraction of the size of the world’s biggest corporations. The biggest companies on the planet are Apple and ExxonMobil, both of the United States, which are valued at $416bn and $400bn. Eight of the 10 biggest companies are based in the US and two in China, while the UK and particularly Switzerland are disproportionally represented among the ranks of the world’s 50 biggest firms.

It is perhaps fairer to compare the size of Africa’s biggest companies with their competitors in Asia and Latin America. Most big firms in these two regions come from countries with bigger populations than any African state. Brazil’s Petrobras, Value and Itaú Unibanco and the 10 biggest Asian companies are all bigger than any African company. The gap in size becomes even more apparent if we look at sub-Saharan corporations outside South Africa. The biggest company here is Dangote Cement with just $14.5bn, far behind Colombia’s Ecopetrol with $116bn and Samsung Electronics of South Korea with $174bn. Yet recent trends suggest that the gap is narrowing a little. As discussed in this report, West and East African companies in our Top 250 have increased by about 50% in value since our 2012 survey. Rapid growth needs to be sustained for many years if Africa is ever to be considered a centre of genuine corporate muscle but it is at least a start. Perhaps the biggest obstacle to the emergence of larger African companies is the lack of cross-border trade. The African continent is divided into more markets than any other and too many companies continue to focus on their domestic markets. Whether through the removal of investment barriers or expansion into other parts of the world: this needs to change.

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