Africa moves beyond the myths
Throw out your preconceptions about doing business in Africa. It's currently the world's most exciting development region, and opportunities far outstrip obstacles.
Tanzania's Dar es Salaam port improved its operational efficiency between 2009 and 2011 by 40%.
In 1999, when Ebenezer Essoka went to Côte d'Ivoire to expand the business of Standard Chartered Bank, the odds were stacked against him. Days after he arrived, there was a coup d'état. But 18 months later Standard Chartered's business in the Ivory Coast was breaking even.
The case of Côte d'Ivoire exemplifies the paradox of Africa. On the one hand, it was in violent civil war as recently as 2011. On the other, it is a land of great opportunity - in terms of GDP per capita, the world's 15th fastest growing economy. "The myth is not around the reality of political instability in Africa," Essoka says. "The myth is around people saying you cannot operate in a country with such instability."
Taking a practical approach
Preconceptions and myths about Africa have given pause to some global companies looking to expand into new markets. Larger than China, India, the United States, Europe, and Japan combined, Africa's sheer size can be intimidating. And its reputation for poor infrastructure, corruption, unreliable power supplies, instable political systems, and opaque business regulations can seem to make it more trouble than it is worth. But Africa is undoubtedly the world's most exciting developing region right now. Rapid urbanization, a steady shift from agriculture to manufacturing, and service industries as well as the continent's surging population of working-age adults and middle-income earners mean that businesses around the globe cannot afford to ignore it.
The truth is, apparent barriers are not insurmountable. Once businesses understand their actual extent and start taking a practical approach to some of the obstacles, penetrating African markets becomes a reasonable and exciting possibility. "I am not going to be unrealistic and say that political instability is a myth, corruption is a myth, sub-standard infrastructure is a myth. Those are the real issues we need to deal with," says Essoka, now CEO of Standard Chartered Bank in South Africa. "The question is: have they made companies unable to perform on the continent? No. Maybe that's the real myth."
Dynamic new generation
News from Africa is more likely to cover ethnic clashes or civil wars, but the quiet, steady growth of economic opportunities is the real story. Steven Radelet, a former advisor to Hillary Clinton, argues in his 2010 book 'Emerging Africa: How 17 Countries Are Leading the Way' that five factors underpin Africa's promise: expansion of democracy, improved regulatory and tax policies, debt reduction, new technology, and a new generation of young and creative African business leaders. The Ghanaian scholar George Ayittey calls these young Africans "the cheetahs," describing an educated, dynamic, and agile generation looking at challenges and issues in Africa with a different and fresh perspective.
The spread of democracy has fostered the growth of public accountability and favorable business environments. Countries such as Senegal have had democratic traditions for the better part of a century. Mauritius, the continent's highest ranking democracy in 2012 according to the Economist Intelligence Unit, is becoming the Singapore of Africa, a modern hub for import and export.
Ethiopia held a multi-party election in 1994 and is now fighting corruption more aggressively than any place on earth, according to Essoka. African governments have also fought diligently to lower inflation, cut foreign debt, and rein in budget deficits. "In Africa most countries never felt the direct impact of the financial crisis," says Essoka. "Regulations in the banking industry are much more robust, and in some African countries regulators were more proactive and conservative than their peers in Europe and the States." And despite the global economic crisis, GDP in Africa has grown since 2000 at an average of almost 5% a year.
Investing in infrastructure
On the other side, infrastructure in Africa, including electricity and transportation, is still lagging behind but there are plans for substantial increases in investment, forecasted to grow to approximately $200 billion per year by 2020, according to an article by McKinsey's Africa and infrastructure experts for the New African. With these investments focusing on transport and utilities in the four largest economies, South Africa, Nigeria, Algeria, and Angola, more clearly needs to be done and investments still have to be deployed at the levels required.
At the same time some countries are already demonstrating how even existing infrastructure can be transformed. For instance, Tanzania's Dar es Salaam port improved its operational efficiency between 2009 and 2011 by 40%, reducing container clearance from 24 to 8 days among other things. Yet, aside from efforts to improve the infrastructure and the increasingly business-friendly environment, there is one source of wealth that will eventually drive more profits than any of the continent's natural resources: the rising generation of educated, technology-savvy, entrepreneurially minded Africans. This class of cheetahs is the future of Africa, reinforced by the young, educated African businessmen and women who are coming back from America or Europe after seeing the financial crises abroad.
In addition, by 2030, Africa's labor force is expected to reach 1.1 billion, exceeding India or China and making up almost a quarter of the world's potential workforce. Already about 40% of African workers have at least some form of secondary education, and that figure will rise to 48% by 2020, according to a 2010 report from McKinsey. In tandem with this, consumer spending on the continent is projected to reach $1.4 trillion by 2020 and by then there will be more than 128 million African households with discretionary income, McKinsey predicts. As consumers, Africans are especially interested in the latest technologies, whereas data about consumer needs and behavior are scarce.
Meanwhile, companies from around the world are racing to get into Africa's four main growth industries: agriculture, natural resources, infrastructure, and consumer-facing markets like retail, telecommunications, and banking. But there is plenty of room for more. According to KPMG, "there is a need for personal banking services, small and medium-size business financing, micro-finance, development finance, and opportunities for trade finance houses. The food and drinks sector needs to expand to keep up with the rapid rate of urbanization and the needs of this growing middle class, as does the retail sector. Formal retail penetration is among the lowest in the world throughout most of Africa, providing significant opportunities for the sector."
For those still waiting hesitantly in the wings: first-mover advantages in Africa are not totally gone, but will not last forever. The time for businesses to move is now. "In 2020, if you're not in, you don't need to come because the market will be saturated," Essoka says.
"In the next seven years you're going to see a lot going on in the continent." Companies like DHL, which has been in Africa for more than 30 years, are paving the way for other international firms. The only logistics company operating on the continent with its own airline, it has a footprint covering the entire continent, coupled with in-depth local knowledge and the experience of more than 11,000 logistics specialists ready to help customers navigate the perceived complexities of doing business on the continent. The company uses Lagos and Addis Abeba as hubs, landing large shipments there and using smaller aircraft to move goods up and down the coasts."
Africa less foreign than expected
"We can connect goods from Dubai and Leipzig to any place in Togo or Gabon in 48 to 72 hours," says Senegal-born Amadou Diallo, CEO of DHL Freight. "We have infrastructure that works." Diallo oversaw DHL Freight's business in Asia and Africa for 5 years and as far as he is concerned, the complexities are just that: perceptions. "It's more a lack of knowledge about infrastructure, than an actual lack of infrastructure," he says.
Companies will, according to Diallo, find Africa less foreign than they expect. "You have a French-speaking Africa that works like the French market, but without the strikes. You have English-speaking Africa, with legislation that looks similar to the British system. Then you have a Portuguese-speaking Africa with legislation like you might find in Portugal, and an Arabic-speaking Africa in the north," he says. "So if you can work in the Middle East and you can work in Europe, there is no place in Africa too exotic to communicate or understand the legislation."
While DHL's network can provide logistical support, Diallo argues there is no better experience for players looking to expand their supply chains into Africa than visiting the continent first-hand. "The best way to know a market is taking a flight and going there and spending time really feeling its pulse." In Africa's case, that heartbeat is strong, and getting stronger.