Ultimate magazine theme for WordPress.

Doing business in Africa: Factors to be considered

New York

MANY companies from the developed world are setting their sights on Africa as a new frontier for business. Reasons to believe include improved political environments, above-average GDP growth rates and the promise of rich opportunities in a continent where everything still needs to be developed from scratch. However, Africa – like any other emerging economy – is a tricky terrain to enter. In light of this, below is a summary of the key tips.

1. Focus geographically: one country, one approach. Africa is huge, and, as obvious at it may sound, it is not a connected economy but a myriad of truly “isolated” countries from both an economic and geographic point of view (try to get from Freetown in Sierra Leone to Monrovia in the rainy season; or look for the flying time from Harare to Lagos). Hence, each country often requires an independent approach and effort, and companies will need to consider carefully which countries to enter.
Criteria like an abundance of natural resources such as oil and gas (for instance in Nigeria, Mozambique, Angola) are critical for energy, construction or industrial goods companies. Population size, a growing middle class concentrated around cities or the degree of literacy (eg, Kenya, Ghana) may be good considerations for consumer goods companies.

2. Look for the long run. African economies are growing but still small (by comparison all Sub-Saharan economies together are smaller than France’s). So, do not expect big volumes and returns from the outset.
Furthermore, making a business run smoothly requires time. Specifically you need time to overcome three main hurdles: getting around the complex political and regulatory context, developing an extended “operational perimeter” and developing local talent. Hence, in your business or personal plan, add some contingency time to reach your goals – at least, according to experienced foreigners, 2-3 extra years minimum.

3. Local context: identify clearly your “local connection”…acquisition maybe an option. Connections and local knowledge are key to navigating the complex forest of approvals and regulations, to get access to local resources like land and to manage local talent.
Successful foreign business incursions have often relied on historical ties with local governments (French in West Africa, British and Dutch in East Africa) or on strongly-connected local “diaspora” communities with foreign economic ties (Lebanese in West Africa, Indian in East Africa).
An alternative way to overcome these initial hurdles is the direct acquisition of established local entrepreneurship venues.
This seems to be the road chosen by many multinational companies, like L’Oreal in Kenya. There are increasing opportunities in this regard, particularly in sectors like consumer goods, agro-business, internet companies or professional services.
4. Extended perimeter: plan for doing more than you are used to. The auxiliary services –– power, water, transportation, supplies –– that you take for granted in many countries are often missing in Africa, even in large cities. Hence, you may find that your company needs to develop its own small power generating facility or sewage system, or import fuel, like Coca-cola bottlers do.
In the same way, professional service companies that do your marketing or accounting will typically not live up to the standards you are used.
Nevertheless, you can see this “extended perimeter” as an opportunity as well, since some of the knowledge you develop can be a good barrier to entry for other western companies following your path.

5. Develop local talent from the outset. Shortage of local talent is by far the largest problem is Africa. Both at the lower end, because of lack of training and illiteracy, and at the upper end, because the shortage of managerial expertise creates huge competition for talent and commands salaries for managers even larger than that in developed economies.
Expats can only be a short-term solution because of the salary “premiums” associated with the risks of living in Africa and the high living costs (African cities like Luanda, Lagos or Maputo are among the most expensive in the world to live with western standards.)
Hence, talent development requires a grass-root approach in collaboration with local NGOs and local universities, which forces again companies to extend beyond their traditional boundaries.
6. Face corruption: be public…. Yes, there is a corrupt side to Africa, like in any place of the world. But there is also an emerging African business community that understands corruption is not the way. As a local Kenyan entrepreneur mentioned to me, “In these small economies, everybody knows who is on each side.
Choosing the right side will likely make your business grow slower, but will not prevent you from eventually being successful”.
Here is one additional piece of borrowed advice from Africa’s top management at General Electric, one of the companies that take corruption very seriously: Be public and open to the media in everything you do.
In a good deal of African countries, today you have well developed and “relatively independent” media. Corrupt politicians will be very careful to stop good deals when the communities are aware of the benefits of the projects you propose.

… But also understand the power of communities in traditional Africa. Sometimes beyond “apparently” corrupt politicians there are hidden duties to the communities they belong to. Getting to know the real needs of these communities will help you open many doors… without having to slip envelopes below the table.
Hopefully all these tips do not deter any of you from considering Africa as an opportunity.
Of course, nobody said doing business in Africa was going to be easy – but precisely because it is not easy is why it could be where the real opportunities lie. — Forbes

Comments are closed.