Doing business in South Africa.
"The business potential we as African-Americans have here is great," says Sharon Leslie Morgan, the joint managing director of Afritel Cellular Systems (Pty) Ltd., the country's only wholly black-owned cellular telephone service provider. "But it has a lot to do with how we carry ourselves. We can try to make this a little America, or we can fit in as people who understand what the struggle was all about."
To take advantage of business opportunities in today's South Africa, entrepreneurs will be expected to support the Mandela administration's Reconstruction and Development Program (RDP). The plan's goal is to narrow the economic gap between the nation's black majority and white minority.
That is a tall order. The New York City-based Africa Fund, one of the oldest anti-apartheid organizations, reports that apartheid left a harsh legacy. At present, South Africa has an estimated 50% unemployment rate. Black Africans, who make up 74% of the population, own 14% of the land, while whites, who make up less that 14% of the population, control 87% of the land. There is one brick house for every 3.5 whites compared to every 43 blacks.
Blacks are also nearly absent from the ranks of such skilled professionals as doctors, lawyers and engineers. And according to the last poverty survey, conducted in 1989, more than 50% of blacks live in dire poverty, making less than $170 dollars a month, compared with 2.6% of whites.
It may cost an estimated $10.5 billion over five years to implement the RDP. Goals of the program include redistributing 30% of the land, building more than 1 million new homes, electrifying 2.5 million homes and providing clean water and sanitation, universal access to affordable health care and telecommunications to all citizens. Naturally, African-American investment in every category is encouraged, particularly when it creates jobs.
The Clinton administration recognizes this potential. Commerce Secretary Ron Brown designated South Africa as a "big emerging market" and appointed Millard Arnold as minister counselor to promote bilateral ties between the United States and South Africa.
To better understand the potential of the South African market, BLACK ENTERPRISE spent several weeks in South Africa last October. In addition to speaking to African-Americans and South Africans in business and government, BE was also represented at the Made In USouth Africa Expo, a Johannesburg-based exhibition of goods and services attracting over 230 exhibitors. (See sidebar, "Resources To Help You Tap Into South African Markets," for details on these and other programs designed to open up South African markets to American entrepreneurs.)
What we found was that the African-American presence in South Africa was striking. There were black corporate executives from AT&T, Duracell and Chrysler at the Made In USouth Africa Expo, More than 30 African-American companies paid up to $7,500 for a booth, lodging and airfare with no guarantee of contracts to attend this event. These included several BE 100s companies new to the South African marketplace. Hair care products manufacturer Luster Products of Chicago and BET International, a subsidiary of Washington-based Black Entertainment Television, which broadcasts programs on a South African network, were among the newcomers. There have been joint ventures between major corporations, African-American investors and black South Africans. A prominent example is New Age Beverages Ltd., a joint venture between Pepsi-Cola International and Egoli Beverages LP, announced last June. New Age Beverages is a Pepsi bottling franchise owned by black South Africans in partnership with Egoli Beverages Ltd., a consortium that includes prominent African-Americans, such as BE Publisher Earl Graves, attorney Johnny Cochran and actor Danny Glover.
For three African-American enterprises, venturing into South Africa has already begun to bear fruit. The first are corporate lawyers who put down their torts and moved to Johannesburg to open a chain of laundry centers. The next is a veteran telecommunications company owner whose appraisal of South Africa's emerging black business class led him to enter the hot cellular phone industry with a South African partner. Finally, two New York businessmen and brothers have learned that a little seed money in Soweto can go a long way.
But before you book your ticket, do your homework. South Africa's urban business environment is similar but different from ours. In South Africa, general foreign ownership of local businesses is not restricted. Government approval for investment is neither needed nor are any areas prohibited. The new government also intends to reduce the tariffs formerly used to protect industry under apartheid. There are a host of investment incentives as well, including low electricity costs, port facilities, relatively low commercial real estate prices and a sophisticated industrial infrastructure.
But there are also differences in the way that business is conducted in South Africa compared with this country. For instance, Felicia Mabuza-Suttle, the host of the popular South African talk show, Top Level, is very familiar with these differences. After all, Mabuza-Suttle spent 20 years in America. She advises Americans that they must learn to build trust in a society that moves more slowly and makes decisions more deliberately. For example, she notes that black South Africans never talk business before enquiring about one's health or family. And as more Americans arrive, they have to avoid gaining the reputation, as she puts it, of "coming over, picking their brains, then, when they need to form partnerships, linking up with whites or some other non-black South African group," concludes Mabuza-Suttle, who is also executive manager, corporate relations worldwide, for South African Airways.
Samuel Noinyane agrees. He is chairman of Odyssey Sports (Pty) Ltd., which controls Nike Corp.'s distribution in southern Africa. He believes that African-Americans and black South Africans can prosper together, but only if "marriages of mutual understanding and assistance" are created. He contends that white South Africans prefer to work with black South Africans because they are a known--and malleable, or so they believe--entity. "We need to gain the Afro-American business and technical knowledge apart from the whites and then use it on them to get what we want," Noinyane emphasizes.
Managing expectations is another critical factor. Demand for job training in post-apartheid South Africa is intimidatingly high. You will be under tremendous pressure--in the form of angry protests--to provide training and opportunities for black South Africans. It is important that you do not promise more than you can deliver, and that you make clear how you intend to integrate South Africans into the labor and management of your business. The costs of doing so must be figured into your business plan.
Entrepreneurs who want to do well in South Africa should create a checklist of things to do to establish their bona fides, while doing their due diligence on potential opportunities. These include affiliating with people respected by both the black and white business communities. It's important to learn to read South Africa's varied racial and ethnic signals--and be sure that the signals you send out broadcast your own long-term commitment to doing business in this country.
CLEANING UP IN SOUTH AFRICA
Could you give up an American suburban lifestyle to wash clothes in Soweto? The husband-wife team of African-American Michael Giles add South African Bernadette Moffat have done just that.
But don't worry. The Columbia University Law School-trained attorneys, who are both 36 years old, plan to set up 108 laundry centers in South African townships, financed, in part, by private investors. The couple expects to get the first part of a $9 million Overseas Private Investment Corporation (OPIC) loan any day. With that in hand, Giles says their company, QuickWash-DryClean USouth Africa, will generate jobs "to attack South Africa's 50% unemployment rate."
The news pleases OPIC president Ruth R. Harkin. Last year, her agency, which offers loans, guarantees and political risk insurance to qualified U.S. investors in "less developed countries," set aside $35 million in guarantees for South African investment. She lauds the couple's ability to transform their business plan to entrepreneurial reality.
But how did the former corporate lawyers go from filing briefs to washing them? Over tasty ostrich sandwiches and hot Kenyan tea at a local restaurant, the couple explained their dramatic change in geography and vocation. They listed corporate burnout, a promising market niche and altruism as reasons why they left America for El Dorado Estates, a former "colored" township outside Johannesburg.
But first, they investigated, and then rejected working with major corporations. According to Bernadette, these companies were too controlling, "steering us to joint ventures with people they selected," while trying to lead them to the end of their distribution chain.
Next, they looked at consumer goods and service businesses. But the start-up costs were too high. Laundromats were their next consideration. Initially, Michael thought they were boring "until we saw their control and access to customers. If we added dry cleaning, we could become a category killer because you'd come to us for any fabric care problem."
There is also family ties to this business. Bernadette's family owns two supermarkets, a bakery and El Dorado Park's only dry cleaner, which serves 250,000 people. There is certainly a need to be filled, according to Gilles. There is an estimated one laundromat for every 400 white and 50,000 black South Africans; four serve Soweto's 3 million residents.
Expansion is in their future. During the next five. years, they intend to open 108 laundry centers in mostly black areas. Each will employ 20 unskilled workers, develop middle managers and anchor small commercial strips that the couple is designing. Once the chain is established, they intend to franchise their laundry centers to other South Africans.
In early 1993, their initial capital of $150,000 came from loans provided by 11 American friends and relatives who had read their 80-page business plan. But Giles, the Newark, N.J.-born son of a police officer who became a lawyer and a school principal, says these loan sources have no stake in the company. "Only people who come to South Africa get equity," he stresses.
In September 1993, after completing a $1,000, three-week course at the International Fabric Care Institute in Silver Spring, Md., the couple arrived in Johannesburg. They now used their industry knowledge to order U.S. dry cleaning and laundry equipment, which meets tougher environmental standards than the local products. They also plan to build on township commercial strips; these offer access to water and electricity and are within walking distance of their customers.
The couple soon found that doing business in South Africa is much different than it is in the States. The most difficult thing for them is the South African attitude toward time, deadlines and details. Both black and white South Africans lack the sense of urgency that Americans are used to. Another issue, which Giles attributes to decades of authoritarian rule, is a reluctance, even among professionals, to challenge authority. For example, he says, "If you are an African-American arriving in South Africa who knows what you want to do, how you want it done and when you want it done, you find that even if you hire first-rate lawyers, you really have to make sure you follow up on them."
Progress comes particularly slowly when this reluctance combines with the passive resistance of whites who balk at sharing their economic monopoly, Giles explains. "Whites are used to living in a coddled, cloistered environment," he explains. "Even though your business is not a dire threat to them, in a sense it threatens their perception of themselves and their place in the society as economic mandarins."
Entrepreneurs have to arrive armed with patience, perseverance and deep pockets, say Giles and Moffat. Things always take longer and become more expensive than anticipated in this country. And if at all possible, you need to have someone in South Africa to watch over your business full-time. "It would have been much more difficult for us to shepherd things along if we had not been here," Giles reflects.
A CALL FOR ECONOMIC INDEPENDENCE
Operating a cellular phone company in a new market can certainly prove nerve-racking--but not for telecommunications veterans Mathule Mark Headbush and Eugene Jackson. After all, the black South African and the African-American are chairman and deputy chairman of Afritel, the only black-owned cellular telephone service provider among 17 cellular companies in South Africa.
Afritel is one of 12 services working with Vodacom, one of South Africa's two cellular network operators. And Headbush, Jackson and Sharon Leslie Morgan are selling phone service and phones on a digital system to an overwhelmingly corporate market
When founded in 1993, Afritel competed with Vodacom and MTN--the other network operator--for their liceses. They lost. But Jackson says that by year-end, a request will be made to the new government to issue a third license, and he is confident that this time Afritel will win the license by teaming up with a U.S. firm.
Such intentions are not wishful thinking. The 51-year-old Jackson has an undergraduate degree in electrical engineering and a master's in business. In 1971, he created Unity Broadcasting, a news service distributed by satellite to 125 black stations in the United States. In 1984, he formed Unity Telecommunications System, Detroit's cellular phone system. Currently, he is the largest shareholder of the $63 million New York-based Queens Inner Unity Cable Systems. He is also founder, chairman and CEO of the World African Network, a 24-hour paycable network scheduled to go into service this year.
But nothing is cheap. Jackson has invested close to $1 million in Afritel. And Headbush has invested a similar amount. Their equity ownership and profit split mirrors their investment in Afritel: Jackson controls 25% and Headbush 75%. A former executive committee member of the National African Federated Chamber of Commerce, Headbush is chairman of the African Telecommunications Forum. The pair met in South Africa in 1992 and became friends.
The cellular business keeps score by subscriber sales and retention rates and Afritel's competitors had a four-month head start. Recently, Finance Week, a South African business magazine, projected that financially weak cellular firms may be acquired soon, and that some are seeking buyers. At that time, South Africa's cellular market had 255,000 total subscribers, and a Vodacom executive declared that a firm needs a minimum of subscribers to survive.
Last March, Afritel had 1,600 subscribers and projected more than 2,500 by December. So, do Vodacom's comments faze sales manager Sharon Morgan? Morgan acknowledges Afritel's late start, but says the company not only hit its 1994 projections but has broken even. Morgan, who had a consumer marketing firm in Chicago, says the presence of many cellular service providers is not unusual in other countries. Citing state-sponsored monopoly capitalism, she says that South Africa's network operators want an industry dominated by only a few major players.
She adds that Afritel's strategy of targeting corporate customers-80% of sales, particularly in the black community--protects it since these clients pay on schedule. "If we keep them very happy they are not going to switch," she claims. "In 1995, I project we'll have a nice year-end profit and may even try to make our own acquisitions.
What is the difference between a dream and a reality? For Soweto resident Bertha Thangelane, it may be $18,000. That is how much seed capital two American brothers and business partners invested in her vision last October. Now the hard-working seamstress is co-owner and managing director of RNB Creations (Pty) Ltd., a Johannesburg-based school uniform manufacturer.
Thangelane's transformation from working to managing director began at the Made in USouth Africa Expo. It was here that she had a fateful encounter with Nicholas B. Jones and his brother Robert R. Jones, who are currently owners and managing directors of two-year-old Global Empire Services Inc., a New York-based products services trading company.
She met Robert in his stall as he was waiting for his brother. Then he left and Nicholas appeared. "I asked him to stop a while and tell me waht he did. Then he asked me what he did and wanted."
She told him that she had a small sewing machine shop that produced school uniforms, which must be worn by all public school students. She wanted to expand her three-machine shop but had no money. The response of the 60-year-old Nicholas surprised her, "I can he p you," he told her, reassuring her that she should not worry about money constraints.
The following morning, Nicholas says, she arrived with three letters of intent. This confirmed "our gut feeling she was the type of person we could trust."
Things hummed the rest of the week. The Jones brothers and Thangelane got quotes on commercial sewing machines at the local singer store. Then the brothers did profit/loss projections and consulted with local black business organizations. The latter confirmed that the new government's emphasis on education and the use of minority contractors would lead to sales growth.
They were right. Since November, Thangelane has hired 10 employees and acquired five sewing machines, a cutting machine and a presser. To provide security and expansion room, she moved her company from Soweto to a Johannesburg building she found. There she designs and makes uniforms for more than 3,000 students, who attend six schools ranging from elementary to high school.
For competitive reasons, none of RNB's principals will discuss their pricing. They say the company is paid by the schools when the uniforms are delivered. Then the schools sell them for $25 to $35.
Business is so good, says the 58-year-old Robert, that they are considering a second shift and buying more equipment. The next expansion will raise the brother's investment to $40,000, all of which is personal money.
Their main problem is restraining Thangelane and her sister, Teresa, who is RNB's sales manager. Teresa has 40 schools interested in ordering. Bertha sounds genuinely surprised when informed that many small companies fold when orders outstrip capacity.
This scenario worries Nicholas. In fact, he and Robert recently traveled to Johannesburg to check on the business. "There is no way we can satisfy that many orders. We have to meet them first, then expand," he declares. If expansion occurs at a calm pace, he projects RNB could have total 1995 revenues of about $300,000.
To their newest undertaking, the Jones brothers bring many years of experience: They've been in business for themselves and as salesmen for others for more than 80 years combined. Their Global Empire Services exports automotive products to Nigeria. Prior to that they owned a leasing business for five years.
Robert notes that "Americans come to South Africa and promise but never set up anything. We thought we could gain credibility by starting up this business immediately." Thangelane says meeting the Jones changed her life. With a catch in her throat, she says, "We have been waiting to do business for so many years. Now, we have the machines. We have the jobs."
RELATED ARTICLE: RESOURCES TO HELP YOU TAP INTO SOUTH AFRICAN MARKETS
The following sources will help you do business with the new South Africa
African-Americans who want to succeed in the emerging market of South Africa need every bit of pertinent information they can get. The following are some invaluable resources to get you started. But remember: South African time is seven hours ahead of U.S. Eastern Standard Time.
* Embassy of South Africa, 3051 Mass. Ave., N.W., Washington, DC 20008; 202-232-4400. South African Consulate General, 333 E. 38th St., 9th Floor, New York, NY 10016; 212-213-4880. Information can also be obtained from consulates in Chicago and Beverly Hills, Calif.
* The South African Trade Organization (SAFTO) is a private-sector corporation formed to promote South African exports. For program information, call SAFTO at 011-27-11-883-3737.
* Foundation for African Business and Consumer services (FABCOS) is a business development vehicle serving small, self-employed business owners. Its members provide a window on black consumer demand in Africa. To get on its mailing list, call 011-27-11-832-1911.
* WESGRO is the business development organization for the Western Cape province. To obtain the investment guide on this vineyard-laden area, call 011-27-21-461-6161.
* Assist International Trade Promotion and Consulting Group, 60 Madison Ave., 2nd Floor., New York, NY 10010; 212-725-3311. Publishes a biweekly newsletter, Global Glimpses, listing trade fairs, newsletters, conferences and organizations.
* National Minority Business Council Inc. has a matchmaking program for New York state firms and South African partners. 235 E. 42nd St., New York, NY 10017; 212-573-2385.
* Investor Responsibility Research Center's South Africa Review Service provides current private-sector data. Its monthly newsletter costs $395. Write to 1350 Connecticut Ave. NW, Suite 700, Washington, DC 20036; call 202-833-0700.
* The Corporate Council on Africa, a nonpartisan, tax-exempt organization--with major corporate backing--advocates stronger American-African business links. Hosts frequent seminars with African political and business leaders. Annual membership $3,000. 1666 Connecticut Ave. NW, Suite 510, Washington, DC 20009; 202-667-7330.
* Ernst & Young International has a Doing Business in South Africa guide. For details, contact: Ray Eskinazi in Johannesburg, S.A. at 011-27-11-498-1578.
* U.S.-South Africa Business Council is a nonprofit private-sector organization dedicated to facilitating U.S.-South Africa trade. Hosts seminars with South African political and business leaders. Yearly dues depend upon company revenue with a minimum of $1,000 annually. 1625 K St. NW, #1090, Washington, DC 20006; 202-887-0278.
* International Minority Business Corporation is a nonprofit organization formed to help create global business opportunities. Park 80 West, Plaza 1, 4th Floor, Saddle Brook, NJ 07663; 201-843-4499.
INFO YOUR TAX DOLLARS HAVE PAID FOR
* The Small Business Administration offers loans for exporters to fill select foreign orders through the export revolving line of credit. Call your local SBA office for details.
* U.S. Department of Commerce, International Trade Administration, Room 7424, Herbert C. Hoover Bldg., 14th St. and Constitution Ave. NW, Washington, DC 20230; 800-USA-TRAD. This agency can, for a fee, conduct customized market research.
* Overseas Private Investment Corporation provides investment financing in the form of loan guarantees and investment insurance. For service description, call 24-hour OPIC Infoline at 202-336-8799; or OPIC Factsline for faxed data at 202-336-8700.
* Every state has an export assistance office. Check the government section of your local phone book.
* Afribuild '95 is an affordable housing trade fair to be held in Johannesburg this July. For information, call 203-840-5359.
* The South African Township Annual is an invaluable, one-stop sociopolitical and economic review. For details, call 011-27-11-803-3537.
* Africa News is a U.S.-based on-line African news retrieval service. For details, call 919-286-0747.
* Worldwide Business Practices Report, published 12 times yearly, provides information on doing business throughout the world. Cost: $195 for a one-year subscription. International Cultural Enterprises, 1241 Dartmouth Lane, Deerfield, IL 60015; 800-626-2772.
* Global Business Information Catalog is a resource of resources. It has 2,000 international business listings, including tapes, books and reports. It is on-line, and is free of charge. Contact: Mark Owens. Owens OnLine Inc., Airport Business Center/Free Trade Zone, 4707 140th Ave. N., Suite. 208, Clearwater, FL 34622; 800-745-4656
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|Title Annotation:||Business Opportunities in South Africa; includes a directories of helpful resources|
|Article Type:||Cover Story|
|Date:||May 1, 1995|
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