Family businesses in Tanzania take on international giants

Azam Sealink 1 ferry
Running a tight ship: ferries are one of many products and services included in the Bakhresa family’s Azam brand

Come 10am on a Saturday, 64-year-old Said Salim Bakhresa is not off enjoying the leisure pursuits of an ageing multimillionaire; he is checking up on developments at his factory just outside Dar es Salaam, Tanzania’s commercial capital.

But that makes perfect sense for a family business that has reached its $600m-plus turnover thanks to five decades of his own hard work.

“It’s a true rags to riches story,” says Abubakar Bakhresa, his son, who now runs most of the family businesses as executive director. “He built it from scratch – he started at 14 – he made shoes, ice-cream, he was a trader – he did everything.”

Bakhresa Group is similar to many of Tanzania’s leading conglomerates – private, family-run affairs with reclusive founders who started out very small.

In what was long a closed economy, suspicious of outside investment, they built up diversified companies that supply the nation with everything from soap to soft drinks, ferries to fuel. These little-known home­grown multimillionaires are now fast expanding their businesses throughout the region and beyond, taking on international giants.

“We’re fighting now Omo and Unilever,” says Mohammed Dewji, group chief executive of another diversified company, MeTL. He is the grandson of its founder, who ran a small shop in a market town.

“We want to expand in Malawi, Mozambique, Rwanda, Burundi, Uganda and eastern Congo in the next 24 months,” he says of the company, whose products range from toothpicks and lollipops to cooking fat and wheat flour.

Of 50 industrial companies in Tanzania analysed by the London School of Economics in a study published last year, 29 had their origin in the domestic private sector. They took off when Tanzania loosened its statist ways and started allowing private business back into the economy from the mid-1980s, and a handful of family-run businesses bought out state entities that went into receivership. They went on to develop into multimillion-dollar conglomerates.

Abubakar Bakhresa says of his father, now group chairman: “He was one of the first people that went into industry when the economy was opening up in the mid-1980s and from then on he grew.”

His father’s big break was to buy a state flour mill when it was sold as part of a privatisation programme in 1988. “He slowly realised the country was moving away from socialism; [until then] we were not allowed to [have] a flour mill.”

Only in the past few years have these companies really accelerated, after riding assured growth in a market largely closed to outside investors for a generation. Some 10 years ago the Bakhresa Group turned over $60m a year; today it exceeds $600m.

As with Bakhresa, MeTL ploughs its profits into expansion. Mr Dewji says his company will turn over $1bn this year, up from $28m in 2001.

As a result, international private equity houses are keen on taking a stake in these fast-moving consumer goods companies, which all turn over between $100m and $1bn a year. Most of their targets are determined to stay private, however.

“Most of the family businesses are reluctant to take on private equity,” says Jayesh Shah, group managing director of Sumaria Group, another of Tanzania’s leading family-owned manufacturing conglomerates, which was set up in the 1940s by a group of brothers.

Unlike many others, Sumaria Group has sold part of its business in private equity deals in the past – for example, its pharmaceuticals business – and Mr Shah also sits on private equity firm Aureos East Africa’s investment advisory committee.

Another family-run conglomerate is MAC Group, founded in the 1980s by Yogesh Manek, who is now its chairman. It sold a stake in its consumer goods company, Chemi & Cotex, which manufactures toothpaste among other products, to two private equity groups based in the UK and Kenya.

But Mr Shah says most prefer to keep their books private and retain all their shares, and so are keener on debt to expand their companies. Sumaria is developing a mezzanine debt fund to serve this market.

In MeTL’s case, Mr Dewji says that although sourcing capital has long been “my biggest challenge”, he prefers debt to equity for now, and this year raised a $100m syndicated loan from South African banks.

“Many people are looking to come in and take 50 per cent of our business, but we do not think it is the right time to sell – we believe we are still very undervalued,” he says of his business, which he believes is worth $5bn.

Over long years of exposure to the market, these trading families have come to know and understand their customers, have established well-loved brands and can largely draw on their own internal finances to power their growth according to classic management principles.

The Bakhresa family’s brand Azam, for example, puts its profits into high-end machinery and inputs – milling plants from Switzerland, fizzy drinks concentrate from Germany – and runs a tight ship.

“We are a lean organisation, with fewer management reporting lines and more of a family feeling,” says Mr Bakhresa of the 6,000-strong organisation that employs only 90 expatriates. “We’re not trying to cash in. We have to try to make as [little] margin as possible” – to keep products affordable and boost sales volumes.
Source: Financial Times, reported by Katrina Manson, from Dar es Salaam, Tanzania
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