Africa’s economies have been called ‘lions on the move’. High growth, high return, is the mantra of investors looking for a way into the pride. Business commentators advise investors to study each economy as a separate, complex entity, to respect it and the rest of the pride, and to find an expert guide to improve chances of success.
“The statistics often associated with the rise of Africa as a business destination don’t reflect the reality on the ground,” said Dianna Games, CEO of Africa@Work – a company dedicated to facilitating business in Africa – at a roundtable discussion held at South Africa’s UCT Graduate School of Business recently.
Reflecting back on Kenya, there is an increase in the number of people living below the poverty line, it also has one of the world’s highest unemployment rates, yet it is headed to middle income status? Does not make sense.
She said that the main insights into African business that emerged from her research for her latest book, Business in Africa: Corporate Insights, were that the reported strengths of African economies are not what they seem, the fastest growing economies having the least diversification; there is a growing suspicion among governments of multinational corporations; the potential for meaningful acquisitions and partnerships has been greatly ignored; supply chain development is slumbering in the African sun; there is very little commitment to intra-regional trade; a stubborn ignorance persists among South Africans about the different parts of Africa; and unskilled workers, poor brand and reputation building, and ownership of property remain key obstacles to overcome.
“Only once you’re on the ground, running a business, does the real Africa emerge; unique in every way and bafflingly complex.”
She said that several investors have failed, over-eager to capitalise on Africa’s commercial opportunities but ill-informed about how to go about doing that.
“In an era of Afro-optimism we fail to see how small and dysfunctional these countries and economies are,” said Games. “The biggest economies could come to a complete standstill overnight.”
She said the only chance of success in these markets would come through partnerships with local businesses.
I feel that potential investors need to realize that Africa is a continent, made up of over 50 countries, some of which have over 30 different tribes and cultures, and therefore cannot be approached using “one size fits all approach”
Neil Hughes, of the Rezidor Hotel Group, said that local partners are immensely valuable to the hotel chain.
“The first thing we do when we enter a market is find a partner. You need a partner that can plug you into the social network, introduce you to the right people, and help you enter the market,” he said.
Kuseni Dlamini, former CEO of Old Mutual SA & Emerging Markets, finds that doing business on the continent is not as difficult as it used to be because Africa is open to new business, if mutually beneficial partnerships are involved.
“Long gone are the days of colonials coming in and taking money and living off the continent’s wealth. Africa is looking for partnerships,” he said. “The nature of the partnership and the richness of the relationships will determine sustainability.”
Partnerships also help with acclimatising to the nature of consumers in these markets, with better insights into their wants and needs – it is the rising consumerism in Africa that is driving major business interest. This consumer class, again, is not what the numbers make it out to be.
“African consumers are becoming very discerning brand-wise: Africa will not be a dumping ground for cheap products that do not sell elsewhere,” said Dlamini. “The whole idea of Africa as a dumping site for sub-par products and services has to change.”
For South African companies to get an advantage, Games said, it is time they start sharing their insights.
“Ignorance about different parts of Africa, and how they’ve all separately evolved and what their business cultures are all about, needs to be addressed,” she said.
As a continent, Games said, Africa needs to get its local and regional strategies in order, while at the same time strengthening institutions to improve regulatory environments and avoid neo-colonial relationships.
There are major challenges, Dlamini said, but things have changed dramatically.
“Things have certainly progressed. My experience has been that it is easier to do business in Africa than in Latin America, Asia and India.”
There is reason to be optimistic, but a more informed approach and support from local partners will ensure that optimism translates into sustainable success.
To be successful in Africa, it is important to form partnerships, and networks with the local communities where one wants to invest in. I highly recommend employing locals not only for the semi-skilled jobs but top level management, it is necessary to have one who knows the people when making those all important board room decisions.