Agencies line up for a place in ‘next big thing’ Africa

They’ve been colonising China, trying to find a way through the bureaucracy in India and throwing dollars around like beachballs in Latin America. Now it’s Africa the big agency groups have in their sights.

According to this comprehensive report by the Wall Street Journal’s Ruth Bender and Suzanne Vranica, WPP’s Sir Martin Sorrell reckons Africa is currently worth $500m to WPP (half of what India is worth) and is growing at ten per cent a year. What’s not to like?

‘In early 2009, Kofi Amoo-Gottfried, a nephew of former United Nations Secretary General Kofi Annan, was asked by a global ad agency to set up its new advertising operation in his homeland of Ghana.

“Fifteen months after Kofi started to set up shop, we already have higher revenue in Ghana than in South Africa,” says Richard Pinder, chief operating officer of Publicis Worldwide, a unit of Publicis Groupe S.A. (PUB.FR), which wants to increase its business on the continent. The reason: advertising growth in Africa is soaring, driven by the telecom companies, financial services firms and increasingly by household and personal care companies.

“All of our major clients, as they are looking for geographical expansion opportunities, have Africa and the Middle East high up on their priority list, if not at the top,” Martin Sorrell, chief executive of WPP PLC (WPP.LN), the world’s largest advertising company by revenue, told The Wall Street Journal.

Ad executives believe Africa is the next big market opportunity, after China, Latin America and India – three areas in which advertising holding companies, such as WPP, Publicis and Omnicom Group Inc. (OMC) have been increasing their presence. The agencies are searching for markets where spending is seeing big gains, a strategy they hope will offset other regions, such as Western Europe, where expenditure growth is slowing.

To meet rising demand from local and multinational clients the agencies are increasing their footprint beyond South Africa, which for many years has been the industry’s main focus on the continent. Ad spending in South Africa is expected to reach an estimated $4.7 billion this year, according to Publicis’s ad tracker ZenithOptimedia.

For Sorrell, being present in Africa is as important as being in China or India. WPP currently makes approximately $500 million revenue a year on the continent and expects revenue to grow around 10% this year. The group has grown its revenue from just under $150 million four years ago, helped by acquisitions, such as the purchase of a 33% stake in South Africa’s Smollan Group and 27.5% in Kenya-based Scangroup Ltd., among others.

“People say it’s small, but $500 million is the same as [WPP makes in] India, about half of China and the same as Brazil. And it’s growing very rapidly,” Sorrell says.

Omnicom is also increasing its mergers and acquisitions in the region. “Africa is going to be the next China,” says Patrick Ehringer, president of the Middle East and Africa for DDB Worldwide, a unit of Omnicom Group. Ehringer says his agency is looking to “bulk up in Nigeria, because of the volume of business that is going on there.” Another Omnicom unit, TBWA Worldwide, which has a strong presence in South Africa, says it is planning to acquire offices in Nigeria, Ghana, Uganda, and Mozambique.

Expansion on this continent can be challenging. Hurdles include political unrest, poverty and corruption.

In 2008, WPP sold its minority stake in Zimbabwean ad firm Imago Y&R after it emerged that a senior member of the agency’s management had been advising President Robert Mugabe in his re-election campaign. Several years ago, Interpublic Group of Cos. (IPG) was forced to sell off equity positions in some of the agencies it had invested in the region because the business practices of those agencies didn’t meet new U.S. accounting standards.

“Risks have become fewer, though, in recent years; there is a lot more law and order now,” says Bharat Thakrar, chief executive of Scangroup, an East African marketing services group. Luring talent to the region can also be tough. And with so many languages and big cultural differences, crafting ads can be labor-intensive, marketing executives say, For example, if a marketer wants to advertise in Nigeria and reach a large audience, it needs to create the ad in five different languages.

Official estimates for growth in African ad markets are scarce. According to market-research firm eMarketer, Africa and the Middle East together represent only about 2.9%, or around $14 billion of the total $482.6 billion global ad market. While the bulk of this is from the Middle East, both regions are the fastest growing worldwide and in 2014, they should increase their share of global ad spending to 3.5%, the research firm says.

Nigeria, Angola, Kenya and Ghana have some of the highest growth potential, ad executives say. The Nigerian market alone grew 20% last year, according to Media Monitoring Services Ltd., an ad tracker, as telecoms and banking firms boosted spending in the run-up to last summer’s football World Cup tournament in South Africa, in which Nigeria took part. The country, along with others such as Kenya and Angola, has also attracted more investment due to its richness in natural resources, particularly oil.

Media usage still varies widely on the continent. In many countries, radio and newspapers are still the most common source of information, while in others, for example Egypt and South Africa, TV is big and the Internet is growing.

WPP, whose clients in Africa include Nokia Corp. (NOK) and Unilever N.V. (UL), wants to expand its position in the 29 African countries in which it already has a presence, either by increasing existing stakes or through new acquisitions and partnerships. “We want to see a steady penetration of sub-Saharan Africa and North Africa,” Sorrell says.

Others prefer to start new ad businesses from scratch. In January 2009, after working for major clients such as Nike Inc. (NKE) and Kellogg Co. (K) in the U.S., Kofi Amoo-Gottfried, then 32 and a former Leo Burnett employee, returned to Ghana with a check in his pocket from Publicis to rent an office, buy computers and hire some employees. There are now 24 staff and the agency counts firms such as Nestle SA (NESN.VX) and Vodafone Group PLC (VOD) among its major local clients.

The plan to open an office in Ghana was part of Publicis’s review of its Africa strategy. “The idea was to move away from the affiliate model to a fully owned agency model,” says Amoo-Gottfried. Publicis is focused on growing its business through four fully owned hubs on the continent, with Ghana as the hub for central and West Africa, Morocco for North Africa, Johannesburg for South Africa and Kenya for East Africa.

Publicis’s smaller French rival, Havas SA (HAV.FR), is taking a similar approach. Implementing what it calls its Africa Project, Havas this year opened an agency in Tunisia, its second-largest on the continent after South Africa, as well as smaller offices in Nigeria, Kenya, Ivory Coast, Cameroon and Senegal, working for clients such as cosmetics giant L’Oreal SA and carmaker Hyundai Corp. “Africa was a main priority for us this year,” says Havas’s chief executive, Fernando Rodes Vila, adding that the group aims to have about 3% to 4% of its total $2 billion annual revenue in Africa by the end of 2012, compared with just over 1% today.

For now, Havas and Interpublic Group aren’t interested in acquisitions in Africa. The goal is to boost revenue by continuing to start up their own agencies across the continent. Interpublic says it will open more offices for some of its agencies such as DraftFCB and McCann Worldgroup while Havas is banking on support from group chairman Vincent Bollore’s investment company Bollore S.A. (BOL.FR), whose activities stretch from Morocco to Madagascar.

One of the advantages of Africa is there has been a relative lack of competition between agencies looking for local ad firms outside of South Africa, which has kept deal prices relatively low. By contrast, in other emerging markets, places such as Brazil and China, frenetic dealmaking has caused prices to soar. “Prices are ok…we aren’t seeing the insanities there that we are seeing in Brazil or in digital in the U.S. But it will get, I’m sure, more competitive,” adds WPP’s Sorrell.’

So that’s the message for budding African entrepreneurs: set up a digital agency with a social networking twist in Accra. The cheque’s in the post.

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