Exploring Africa: Can Singapore's trade with the continent expand further?

Exploring Africa: Can Singapore's trade with the continent expand further?

Africa - a vast continent of 54 countries - only accounts for 1.5 per cent of Singapore's total trade, smaller compared to that from the United States and European Union.

Singapore skyline, CBD
Singapore's skyline. (File photo: AFP/Roslan Rahman)

SINGAPORE: Trade between the Republic and Africa has been growing at 12 per cent between 2009 and 2013, and was even valued at S$15.4 billion in 2014. Despite that, Africa - a vast continent of 54 countries - only accounts for 1.5 per cent of Singapore's total trade.

This is small compared with that from the United States and European Union, which accounts for 8 and 28 per cent of total trade respectively, according to IE Singapore.

But while it is not yet a major trading partner for Singapore, it is a market of opportunities for companies looking to internationalise.

The trade agency said that there are also at least 60 Singapore firms there, and added that it has helped more than half of these companies venture into the market in Africa. There, the Republic has invested in areas like commodities and agriculture, and there are other opportunities of growth, including infrastructure, education, retail and consumer products, IE Singapore said.

For instance, infrastructure such as malls did not exist, even in big cities such as Lagos and Nairobi, making it hard for retail brands to enter the market at where millions of people reside. Said G Jayakrishnan, Group Director for Middle East and Africa at IE Singapore: "The lack of integrated developments such as malls was a challenge for retailers even in big cities, but this is now changing."

A Singapore company that has tapped these opportunities is Hyflux, which has built one of the world's largest desalination plants in Algeria. The company is also involved in building integrated development projects in Tanzania and in Egypt.

However, Hyflux’s Business Development Group Senior Managing Director, Kum Mun Lock, said operating from Africa is not the same as Singapore, which has better infrastructure and easier access to information.

“Political risk is present in most parts of the world and not just in Africa," he added. "We do have to buy political risk insurance if necessary for some of these markets, but that is really dependant on the countries.

“In terms of the ease of operations, we will set up a team when we decide on a project, and this helps to transcend the language barrier, as well as the cultural barrier."

Hyflux is currently exploring other opportunities in Africa, including in Kenya, Mozambique, Nigeria and South Africa.

Another company in Africa is engineering consultancy Meinhardt. It is involved in several projects, including the Nairobi Tower in Kenya, which will be the tallest building on the continent, when completed in 2018.

The company has its base in Nairobi, Kenya, and also has a presence in Egypt and Libya. According to the company, East Africa is a good gateway to the rest of the continent, and Africa is a growing part of its business. It is looking at setting up offices in other parts of Africa, including Kigali in Rwanda. Infrastructure and real estate development are key areas of growth, the consultancy firm added.

Group CEO of Meinhardt, Omar Shahzad, said: "The one good thing about Africa is that they follow British law, because they were previously British colonies. So, that makes operating in these sort of countries that much easier.”

IE Singapore added that the potential for growth is not just for the larger corporations, but for SMEs as well. It has 2 overseas centres in Africa - one in Accra, Ghana and another one in Johannesburg, South Africa. Some of the ways the agency tries to help businesses include identifying and recommending local partners, and playing an active role in developing trading or investment opportunities.

Mr Jayakrishnan said that signing bilateral agreements with African countries, for instance to avoid instances of double taxation and bilateral investment treaties can help companies grow in Africa.

“SMEs have tended to move into markets like Africa, faster than larger corporates,” said Mr Jayakrishnan. “Perhaps this has something to do with less certainty of these markets.”

He added: “SMEs, given their nimbler structures, tend to be able to deal with the risks quite comfortably. I should also state that in Africa, I think competition is there, but I don't think it is as intense as you might find in other markets closer to home."

To help companies learn more about the continent, IE Singapore will organise the fourth edition of the Singapore-Africa Business forum in August this year.

Source: CNA/xk