Growth & opportunity in Africa – what does history tell us? Tony Hadley, Baobab Advisory (France)
Filmed at Cemtech MEA 2015, 8-11 February, Grand Hyatt Dubai, UAE
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So, I saw a couple of comments recently on Egypt. What it said, "Cement manufacturers hope cement demand will improve in Egypt." I think if you're in business, hope is probably not good enough as a lever for making your future profits, and the second point that, "Cement prices are largely affected by the lack of gas supply," I think that's also true, also affected by the crisis.
So I think, let's have a look, a little look at, should one invest in African cement? So in order to do that, we look at North Africa which is in a different position, a very much more mature position than Sub-Sahara. And if we look at the evolution of kilograms per capita over the last 20 or 30 years, we see we have had a phenomenal run-up.
It's not been smooth, there was a pair of stagnation in the 90s, and then an amazing run-up to where we're looking at 670 kilograms per capita average which is a very respectable amount, and if you compare that to Africa where it's probably around about a 100, it shows there's a great deal of potential. And Yuri earlier put up his famous slide on the evolution of markets.
I'm sorry, that's not very well focused, but each one of those dots represents a year in time and each one of the colors is the respective markets, and so if we look, there are two very distinct sets of markets. The emerging markets where you see all of those dots just going up almost vertically, and this is GDP per capita by kilograms per capita, and the developed markets where one sees a mess of dots going in all sorts of direction.
So, we need to take care when we get near the top there. So, if we just look a little bit more specifically, MENA while right up there, right at the top, almost 700 kilograms per capita. Eastern Europe had a good run up, Former Soviet Union, good perhaps not so smooth. South East Asia, amazing run up and right down here at the bottom, we see India and Sub-Sahara and Africa where barely on the off the starting grid, but doubling in the last 20 years, but barely off the starting grid at 100 and something kilograms per capita.
So this is what I call an insurance policy and maybe I should just sort of say that this presentation is rarely looking as a cement company, or as an investor in what should you be doing. Because ultimately, we are all here working for some business or other, aiming to make money, and a return on the shareholders investment which is sometimes forgotten in cement, I should add.
So, this is our insurance policy, growth becomes our fundamental insurance policy if we choose to invest in Africa. It's never going to make money, because as all insurance policies, it comes with some exclusions, some small prints. So, MENA has been a beautiful 30 year ride for most people and we're going to have a look at that what it means in terms of the context of Africa, and you still need to know when to get in there and when to get out, what markets to go in, what markets to void, and I think portfolio management is not a popular a thing.
Big companies don't like portfolio management, it's got a big HR issues, at the same time, it's very important and I think you can focus all you want on the micro and cement, but if you don't get the micro right, you'll never make money, and you only have to look at Cemex, Holcim, Lafarge, Heidelberg over the last few years, their big investment decisions have pretty