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Doing business in Africa

Nov 11 2012 12:00 *Ian Mann

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Business in Africa: Corporate Insights, compiled by Dianna Games

GAMES' compilation of articles is a much-needed tool. It provides a very different perspective on doing business in Africa and fills the gap between data-heavy analyses and the popular press.

The book is divided into three parts. The first is an overview of the business environment by Games and provides a valuable gateway to a more positive, but measured view of the continent.

How things have changed is succinctly illustrated by the appeal from Portugal to its former colony Angola to increase its investment in Portugal’s ailing economy. Angola is now one of the fastest-growing economies in the world.

Large corporations such as Standard Chartered Bank, Unilever, Diageo and Nestlé are increasing their investment in Africa and there is no shortage of other good news stories. However, perspective is necessary.

Most of the growth is coming from economies which rest on a single economic generator, a natural resource and which indicates nothing about the general economy, the physical infrastructure or the quality of life of the citizens of these endowed lands. 

The restraints on growth remain: corruption, weak legal systems, obstructive bureaucracy and more.

For those who want the added depth that comes from an historical perspective, Duncan Clarke's essay on Africa’s economic evolution is a short and very manageable overview that adequately provides context.

Some futurists, he reports, claim that Africa is capable of 5.1% growth from 2010-50 based on its demography and natural resources. This will make its gross domestic product similar to that of the US or Europe in 2010 - hardly shabby.

However, this level of growth for 40 years will be challenged by the capacity to absorb the growing workforce and by what Clarkes calls “the inherent curses on Africa’s economic house”. These include low competitiveness, poor land usage, weak nation states and more.

The essay by Leke and Chironga focuses on the growth story, which they tell succinctly and incisively. They see business opportunities lying in four distinct categories. There are consumer-facing opportunities in areas such food, telecommunications and housing.

There are also agricultural opportunities, particularly in the production of higher value items such as horticulture, all possible with the enormous amount of available arable land - some 60% of that available in the world!

The infrastructure needs of the continent are an obvious opportunity which the authors believe will attract $200bn by 2020. And of course, there is Africa’s resources including much-needed oil, gas, coal and iron ore.

All of the four opportunities come with the challenges of a slowing global economy, the necessity to maintain stability and the desperate need to avoid jobless growth.

The third part of the book is a collection of essays by or about corporations that have had important African experiences. All the reports cast light on the challenges of doing business in Africa from different angles.

What does emerge is that Africa has all the same challenges that are attendant to moving into any foreign country, such as unfamiliar business practices and legislation. However, the continent has many additional challenges.

The contributions are wide-ranging, from miner AngloGold Ashanti, to food franchiser Nando's; from property company Liberty Properties, to the environmental tourism of Wilderness Holdings.

For the mining sector, the instability of the legal framework of African countries is a particular challenge, as is a changing tax regime. Ghana raised the corporate taxes for miners from 25 to 35%, in addition to a 10% windfall tax.

The significant contributions of these companies to the national economy reach far beyond tax contribution and extend to healthcare, employment and skills development. This is only gradually being acknowledged by the host countries, as is the fact that the country earns far more from the mining house’s efforts than do the shareholders.

The growing interest in Africa has spurred demand for more accommodation and, on the surface, appears to offer enormous opportunities. This, however, has to be counterbalanced by the lack of infrastructure, trained staff, materials and available land.

While there may be open spaces aplenty, the rights to the land is not as clear as it is in South Africa, for instance, where the ownership of each piece has been identified.

The Nando's account of their forays into Africa offers some sobering lessons, the most pointed being the need to choose local partners with extreme care.

Knowing who you are entrusting your business or its reputation to will determine your long-term success or failure. No amount of legal work will ensure the relationship; this has to be built in the old-fashioned way, gradually, with constant communication of values and expectations.

The aim has to be to grow trust in both directions. 

Nando's co-founder Brozin offers sobering advice: “Humility is a big factor in operating in Africa. You need to be humble and listen a lot.”

Being a collection of stand-alone essays unified by the theme, the book can be dipped into at any point, but one chapter should not be omitted – the 20 Tips on Doing Business in Africa, a quick set of lessons that could save the bold much trouble.

Readability:  Light --+-- Serious
Insights:      High -+--- Low
Practical:     High -+--- Low

 - Fin24

*Ian Mann of Gateways consults internationally on leadership and strategy.
 

 

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