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.
-By Ruth Bender, Dow Jones Newswires; +33 1 40 17 17 54;
ruth.bender@dowjones.com
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