Tata on African safari as developed world slows

Written by MG Arun | Debabrata Das | Mumbai | Updated: Oct 8 2012, 20:09pm hrs
Having established the UK and the US as prominent destinations for businesses of its group companies outside India, the $83.3-billion Tata Group is now beefing up its presence in Africa as the region sees a radical shift towards industrialisation, higher consumption levels and increased investor friendliness supported by more accountable governments.

Although the US and the UK still comprise a major portion of the Tata Groups international revenues (the group derives close to 60% of its revenues overseas), the emerging nations in Africa offer new opportunities to group companies in the automotive, IT & communications, energy, chemicals and now business consultancy sectors, unlike the developed markets that have seen saturation.

Africa is the future food bowl of the world, and we need to create capacities there, said R Mukundan, managing director, Tata Chemicals, the worlds second-largest soda ash manufacturer and Indias largest branded salt maker. We are taking baby steps there.

Africas economy as a continent grew 5.5% in 2012 to date. The number of foreign direct investment projects in Africa grew 27% from 2010 to 2011, and have grown at a compound rate of close to 20% since 2007. While other large Indian business groups like the Aditya Birla Group, Vedanta and the Mahindras have engaged the region either for its natural resources or rising consumption, none has the spread and scale as the Tatas in Africa.

Tata Chemicals' 2006 acquisition of UK's Brunner Mond brought Kenya's Magadi Soda Company (now Tata Chemicals Magadi), Africa's largest soda ash maker, into its fold. It also operates a port terminal in Durban, a urea plant in Gabon, and has investments in bio-ethanol in Mozambique.

We are seriously looking at Africa both as a market and a place to get resources for the Indian market, Mukundan said. To begin with, Tata Chemicals will start importing urea into India from its Gabon plant once the government allows private firms to do so.

Meanwhile, Tata Strategic Management Group (TSMG), the consulting arm of the Tata Group, has shortlisted South Africa, Kenya, Nigeria and Zambia for its Africa foray.

TSMG will make an entry into these markets through the existing channels of sister company Tata International, which has its Africa headquarters in Johannesburg.

A lot of what we do in India here is applicable to Africa as well, since theirs is also an emerging economy, said Raju Bhinge, CEO, TSMG. That's not the case with the UK or the US as they are mature and advanced. Hence, it is much more logical for us to look at Africa.

For TSMG, opportunities in Africa are opening up as more companies look to improve operational performance, beef up supply chain & logistics to improve sourcing and delivery excellence, and sharpen organisational effectiveness.

Meanwhile, group company Tata Steel has begun shipping iron ore from Mozambique to solve the raw material problems of its European arm, Tata Steel Europe, the erstwhile Corus. Tata Steel Europe is battling slowing growth in Europe as demand falls and input costs rise. Tata Steel's consolidated net profit for the quarter to end-June fell to Rs 598 crore from Rs 5,350 crore in 2011 as steel deliveries in Europe fell 9.5%.

The real growth in steel demand will come from Asia, Africa and Latin America, outgoing chairman Ratan Tata wrote in a letter in the companys annual report for 2011-12.

Africas growth story is about rising domestic consumption, said consulting firm Ernst & Young in its Africa Attractiveness Survey 2012. This shows that growth is not entirely unbalanced and not purely dependent on resource exports. Also contributing to the improved economic performance in Africa is the emergence of accountable and democratic governments.

Although the Tata Group entered Africa in 1977 to set up Tata Zambia to market Telco (now Tata Motors) vehicles, it set up its headquarters for African operations only in 1994 through Tata Africa Holdings. In the last two decades, the group has invested $576 million in projects in the continent. But with the economy slowing down in traditional markets like the US and the UK, the Tata Group has renewed its focus on Africa.

For instance, Tata Global Beverages, which sells the Joekels brand of coffee in South Africa, has stated its intent to expand outside that country within the continent. The company has also built a soluble coffee-processing factory at Jinja, Uganda to export to markets in China, Scandinavia and East Europe.

Meanwhile, Tata Power has set up a 50:50 joint venture with Exxaro Resources, South Africas second largest coal producer, to explore opportunities in power generation. Cennergi, the joint venture company, will look to develop power generation projects in South Africa, Botswana and Namibia.

Tata Motors, Indias largest truck and bus maker, has also upped the ante in Africa. In 2011, it set up an assembly plant in South Africa to export trucks. Overall, exports for Tata Motors grew 6.6% in 2011-12 to 61,835 units, driven primarily by the growth in the African markets.

Meanwhile, Tata Communications investment in South African telecom firm Neotel remains unprofitable. The investment in Neotel is in gestation phase and more investment is required before it turns profitable, Tata Communications said in the annual report for 2011-12.