Computing giant HP is expanding its presence in Africa in a bid to drive growth, following on the heels of other peers such as IBM and enterprise software developer SAP.
Africa is seen as the “final frontier” as it offers growth opportunities that will outstrip those in developing markets, and its telecommunications infrastructure is rapidly overtaking speeds available in South Africa.

In a bid to get in early, companies such as HP, SAP and IBM are scaling up their advances on the continent. Global companies are seeing growth flattening in their traditional markets, and are looking to the continent to boost sales volumes.

According to the International Monetary Fund, global economic growth will moderate to about 4% through 2012, from over 5% last year. Advanced economies can only expect to gain about 2% next year, it says.

Sub-Saharan Africa, however, is expected to grow at around 6% next year, faring better than Northern Africa where political instability has weighed down on several economies.

According to Ernst & Young’s 2011 Africa Attractiveness Survey: “Africa could be on the brink of an economic take-off, much like China was 30 years ago, and India 20 years ago.”

The continent has already seen a wave of mobile operators battling it out to gain market share, and now that connectivity is available, IT companies are moving in to bolster growth rates, a sign that the market is maturing and a ‘hands off’ approach is no longer good enough.

All aboard

HP is set to open 10 new operations in Africa’s “fast-growing” economies as it invests for growth. The technology company says this is part of its recently announced plan to accelerate growth in the world’s fastest growing economies by creating “specialised go-to-market strategies”.
Recently, HP announced plans “to fundamentally transform the company”, saying it would buy UK-based Autonomy for $11.7 billion as it refocuses on higher-value offerings, and could sell off its low-margin PC unit.

Last month, it announced new offices in Angola, Botswana, Congo, Ghana, Senegal, Tanzania and Uganda, and said news of openings in Ethiopia, Mauritius and Mozambique would be made by the end of the year. HP also appointed a new country manager in each country to lead local operations.
The new African offices add to HP’s existing seven operations in Algeria, Egypt, Kenya, Morocco, Nigeria, South Africa and Tunisia. HP first opened operations in Africa in 1994.

Brian Humphries, senior VP of HP’s Growth Markets Organisation, explains the role of the recently created unit is to accelerate revenue across about 60 of the fastest growing economies in Africa, Middle East, South and Central America, and South East Asia.

HP, which posted double digit growth from its African operations last year, says it has the potential to reach between 45% and 80% of a market worth $5.5 billion annually, says Humphries.

“The population of the African continent will triple to three billion in the next 40 years. This creates a significant demand upon governments to scale their capabilities to meet the needs of their citizens in everything from healthcare to education to other services or industries such as agriculture and mining,” says Humphries.

“By being an early mover in growing our direct presence in Africa, HP hopes to make a big impact in the market. Seven of the world’s 10 fastest growing economies in the next three years are in Africa,” says Humphries. HP already has an office in one of these markets and will open in another five.

International legal practice Norton Rose South Africa assisted HP to incorporate its subsidiaries in several African countries, including in Botswana, Cote d’Ivoire, Congo Brazzaville, Ethiopia, Ghana, Mauritius, Mozambique, Senegal, Tanzania and Uganda.

HP’s Africa expansion reflects the appetite of technology companies to accelerate their business growth in developing markets in Africa, says Norton Rose.

On the ground

HP’s announcement followed one by IBM, in which the company said it had opened a branch office in Luanda as part of its “geographic expansion to increase its presence in key growth markets in support of its global strategy.

“The Angolan arm is part of a broad programme of investment that IBM is making in Africa, and follows the recent opening of new locations in Dakar, Senegal and Dar es Salaam, Tanzania,” says the computing company.

IBM now has a direct presence in more than 20 African countries, including SA, Ghana, Nigeria, Kenya, Morocco, Egypt, Tunisia and Algeria.

“Expanding into Angola offers IBM an important business opportunity as we expand our presence throughout the African continent,” said Bruno di Leo, GM of IBM Growth Markets. “Luanda is one of more than 230 IBM branch offices across 55 growth market countries,” he added.

“By opening a direct presence in Angola and many other markets on the African continent, IBM overcomes one of the biggest barriers to entry in Africa, namely, being able to offer local support and insights to their clients and business partners,” says Hannes Fourie, IDC senior analyst for systems and infrastructure solutions.

Plans in the pipeline

German software giant SAP has said it wants to move aggressively into Africa in a bid to double turnover from the continent in the next few years.

The company wants revenue growth of between 15% and 25% from Africa within the next three to four years, it said earlier this year. SAP has operations in the Americas, Europe, Africa and the Middle East, as well as in Asia Pacific.

Franck Cohen, president of SAP’s Europe, Middle East and Africa (EMEA) region, says SAP grew revenue almost 20%, to €12.4 billion, last year. EMEA contributed just over half of this amount. “It’s a significant proportion of the total number,” says Cohen.

Africa, as a region, experienced double-digit growth last year, says Cohen. “It was a great year for SAP.” The company will invest an unspecified amount to grow its footprint and forge partnerships in Africa, said Cohen. “The idea is to develop the business outside of SA in the rest of Africa.”

Meanwhile, Japanese-based Hitachi Data Systems (HDS) is buying South African firm Shoden Data Systems in a bid to boost its presence on the continent.

HDS, a subsidiary of New York and Tokyo-listed Hitachi, will acquire Shoden for an undisclosed amount.
Hitachi said, in a statement, the proposed acquisition “will form a key element of the company’s growth strategy throughout Africa”. Shoden provides data centre technology solutions in SA and across sub-Saharan Africa.

Hitachi, which has turned over $112.2 billion, or about R905.8 billion, was founded in 1910, and is already present in more than 100 countries and regions.

Niels Svenningsen, senior VP and GM of HDS in Europe, Middle East and Africa, says the proposed buyout “is the natural next step in a relationship that has blossomed throughout the years”. The joint company will be committed to “continue to grow across Africa”, he notes.

Tony Reid, CTO of HDS in the UK, Ireland and sub-Saharan Africa, says buying Shoden will give HDS the footprint it needs in the region. He says Shoden was already expanding into Africa and this drive will continue.

Shoden, which has about 140 staff members, is based in Johannesburg and has subsidiaries in the UK, as well as in Nigeria, Ghana, Kenya, Uganda and Tanzania. Reid says HDS wants to tap into Africa’s growth potential.

Early bird

Ovum senior analyst Richard Hurst says large companies are moving to gain a direct presence in Africa and bolster existing channel relationships. He says the shift indicates that there is a degree of maturity hitting African markets.

Hurst explains that companies previously had an “arm’s length” approach, working only through a channel arrangement. He says there is a “hell of a lot of interest” from investors and more companies are likely to make the move to get in early.

Africa is the “last frontier for the IT sector”, says Hurst. According to data from the International Monetary Fund, seven of the top 10 fastest growing economies between 2011 and 2015 will be in Africa.

Hannes Fourie, IDC senior analyst for systems and infrastructure solutions, says IT companies need to have a presence on the continent. “It’s not a fly in, fly out, scenario.”

Fourie says Africa accounts for about 20% of all IT spending in the Middle East and Africa region, and growing fast, as several countries on the continent have buoyant economies, such as Nigeria.
As companies from other sectors move into Africa, they will need hardware and infrastructure, says Fourie. “Africa is the last big opportunity left.”