Friday, October 1, 2010

Analyzing Walmart's Head Start In The African Race

Ending all speculations of a possible acquisition in Africa, Wal-Mart Stores Inc's has become the first major retail giant to jump in the African market with a $4 billion acquisition for South African wholesaler Massmart. The move comes just a couple of months after World Market Pulse research report highlighted in its research report the beginning of growth period for the African continent

The move by the US retail giant one the hand highlights the company’s futuristic approach by betting on growth in the African continent but also suggest emerging patterns of moving away from the sluggish US markets for better international ventures.

There is no doubt that some African nations offer a tremendous growth opportunity for the investors especially for those looking at emerging economies outside the bric nations. Of course there are people who are skeptical of the kind of growth African nations can achieve but like South Africa showed with the successful completion of the Fifa World Cup Football 2010, the continent is ready to attain its lost glory.

Massmart, South Africa's third-largest listed store group by value owns chains such as Game and Makro and has been among the most aggressive South African outlets in expanding into the rest of sub-Saharan Africa, operating in 14 countries. Walmart offered 148 rand per share for Massmart, valuing it at 28.9 billion rand ($4.1 billion) or a premium of nearly 10 percent over the share price at Thursday's close of 134.75 rand. While it might take some time for the acquisition to make statistical sense most analysts are of the opinion that the retail giant with more than $10 billion in cash on the books at the end of July is well within economic business sense to go ahead on the African safari. Moreover its not the first time that the company has focused more on the international front as Wal-Mart's international sales rose about 11 % last year as the company started focusing on expansion outside the United States with international revenues accounting for about a quarter of the company's overall sales. Highlighting the company's international plans, the company has added more than 60% of its new international retail space in the first quarter of this year alone.

South African Growth Overview:

As much as the South African Reserve Bank lowers interest rates, consumer spending remains unchanging. Rather than being a consumer-driven economy South Africa thrives on a product-based economy. Materials production is at its highest. South Africa’s ports help transport the majority of the world’s oil. Apart from currency ETFs, the South African stock exchange operator JSE Ltd hopes to list a platinum exchange traded fund (ETF) on the bourse this year as it looks to capitalize on increasing investor appetite for commodity-based products. JSE was also looking at launching an Africa ETF in South Africa, which would trade blue chip firms from other big economies on the continent, particularly Egypt, Kenya and Nigeria.

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