“Has Africa’s growth run out of steam?” begins a McKinsey Global Institute (McKinsey) report. It’s called Lions on the move II: Realizing the potential of Africa’s economies, dated September 2016. My short answer is: no. But you must embrace the nuance of what it is to do business in Africa, says CHAD BAKER, VP at NEC, and 15-year veteran responsible for the Africa strategy and growth in the region.
Barclays Bank may be in the process of changing its investment status in Africa. Car manufacturer GM is undergoing a similar process. Other companies are also shifting their interests elsewhere or perhaps not putting as much of their focus on Africa as they previously considered. But the reasons behind those moves are not necessarily that the African renaissance has stalled. In many cases there are reasons for their moves that lie beyond Africa’s borders.
However, investors, business leaders, and policy makers, continues the McKinsey report, want to know if Africa’s growth trajectory has plateaued as they “observe the effects of lower resource prices and higher levels of socio-political instability on the continent’s GDP.”
McKinsey’s previous report, released in 2010, projected consistently positive growth but today the researcher says the picture of African economic growth is more complex. And that’s why I say that if you understand the nuance of doing business in Africa then it will reward you and your shareholders with loyal customers and long-term growth prospects.
The first thing to know is that you do not operate in Africa as a single entity. The continent includes numerous economic regions such as the Economic Community of West African States, the East African Community, the Southern African Development Community, and more. They include the 54 individual African countries, each with its own currency and legal system, its own rich history and powerful cultures.
These regional economic groupings, the individual countries, and the powerful cultures shape the nuance of how to operate in Africa. You have the same effects in other parts of the world where Brazil may demand a different approach to business from Chile, or Thailand from that of China, or Germany that of Britain. The 54 African countries shouldn’t be and aren’t any different.
Conducting business in other African countries may lead to longer sales cycles compared with domestic markets. It’s only logical as there are simply many more issues to contend with when operating outside your country’s own borders. Forex, logistics, different legal systems, bureaucratic idiosyncrasies, and sheer distance, for starters. It’s the same, to greater or lesser extents, anywhere in the world.
Those issues combine to increase costs compared, again, with domestic operations.
However, these issues need not necessarily become impediments to establishing profitable, long-term, sustainable operations and customers in African markets. For example, the requirement in some countries to find a local business partner – with shareholding or not – can actually help to mitigate the overall risk bouquet and generate more rapid and ultimately reliable returns. The upfront investment of time and resources to establish effective partnerships undeniably increases short-term expense. But a bonafide partner smoothens bureaucratic processes, eases forex issues, rapidly establishes local credibility, and facilitates cultural adaptations.
That’s if you choose your partners wisely. How to do so may at first glance appear a bewilderingly complex task. But tapping your networks – competitors, partners, and suppliers – divulges who they use, what their experiences were, and any snags that hung them up. There are other avenues to explore too, such as chambers of commerce, digital sources, and more.
The financial considerations can be insurmountable challenges for some. The cost of forex, sourcing and obtaining compliant letters of credit and requisite confirmations, country risk insurance, and sourcing co-funding through trade missions must all be factored into business arrangements upfront to ensure mutually beneficial agreements. Some clients, destined to be long-standing loyal customers, may not have the funds to seed initial developments. Infrastructure requirements can be far more onerous than immediate markets will fund, which requires progressive market development strategies allied to creative funds sourcing. I’ve witnessed companies neglect offshore co-funding opportunities from national trade missions themselves seeking to promote their presence in select African markets. It defies the logic of capitalism and sustainable development. Those organisations either have or want to build their own reputations in select markets. They often offer preferential rates compared with established banks precisely because they are not established banks. And their finance options can easily reduce risk and produce guarantees for payment upon successful completion of projects.
Logistics can often be a challenging aspect of African operations. Yet, again, even as some local agents may attempt to bamboozle sincere efforts, selecting the right partner will clear a path for rapid imports founded on spotless paperwork in desired local formats. Many customers in African countries also expect terms to include vendor delivery of product to port thereafter becoming the customer’s process to clear customs.
These and other hidden costs manifest as risk when operating in African countries. But the same holds true for any country different from ones own. And, as with those, come prepared and you can expect smooth operations. Take the time and effort to do so and simultaneously follow through by keeping your promises to African customers who have been burned by unscrupulous operators dumping product, among other poor business practices, and you additionally stand a solid chance of creating unshakeable customer loyalty.
About XON Systems
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