Editor’s Note: This is a viewpoint from an article posted on the Harvard Business Review.
The West and several parts of the world have a misconception about several issues pertaining to Africa and Sub-Saharan Africa. Be it the culture, political issues and of cause the business ecosystem. Many foreign business cannot boldly invest in this part of the due to many such misconceptions.
However, more and more multinational corporations are beginning to turn towards Africa and seriously consider its countries as their greener pastures. Nevertheless, very few businesses possess the knowledge required to make their investments in Sub-Saharan Africa a major success.
One cannot mention doing business in Africa without counting the cost and challenges involved. Every business venture comes with these, irrespective of the countries. Therefore the attempt to exaggerate this fact when talking of countries like Angola, Nigeria, Ghana, Kenya and South, which are some of the countries in Sub-Saharan Africa, does nothing but prevent well-meaning businesses from fully taking advantage of the opportunity.
If we should take the time to ask ourselves, what it would take to make a sub-Saharan investment a complete investment. Data gathered by the Havard Business Review through several different means like economic analysis, forecasting, interview with thought leaders indicate the following myths:
- There is no competitive urgency to build a present sub-saharan Africa
- Sub-saharan Africa’s growth is all about natural resources and consumer spending
- Fast economic growth means quick returns
- Sub-Saharan Africa is too volatile and unpredictable
- Sub-Saharan Africa markets can be prioritized merely by using data
- Relying solely on distributors is a sustainable Africa strategy
- South Africa is the natural hub from which to manage a sub-saharan Africa business
A look at all the all seven points and it is clear why most of the sectors and industries of Africa lack funding and investment, both home and abroad. Because clearly this misconceptions are inherent and believed by many indigenes who in turn spread them abroad. It is undeniable that the African market is competitive. Fact is, every market is competitive. It takes grit, expertise, know-how and many others to succeed in Business at anywhere worthwhile, not just in the countries of Sub-Saharan Africa.
A look at competition on the ground
For those on the ground, it is a totally different story. Many are the foreign companies and businesses that are making big killings in profits in the many African countries of the Sub-Saharan region. To be specific, companies from Asia are those dominating the African business landscape. Leaving the indigenous businesses desperately attempting to catch up.
So one asks, if there was no competitive urgency what are both the local and foreign companies struggling over?
Everyone wants a piece of the cake and would move fast in order to dominate the market place. Because mind you, competition only intensified as the business ecosystem sees growth.
The effects consumer spending and natural resources on growth in sub-Saharan Africa.
As research by HBR has revealed, oil and gas only made up 11% of Nigeria’s GDP in 2014 (bearing in mind that Nigeria is Africa’s most populated country), as compared with 20% for construction. This tells of the expansion and growth in the later sector, as opposed to the popular believe that natural resources account for the greater portion of sub-Saharan Africa’s economic growth.
To add to this, it is shown that the African people, especially in sub-Saharan Africa are driving economic diversification due to increasing demand for new and improved products and services. The younger generation to be particular are more inclined towards such goods and services. And making a large section of the overall population of the region, it is clear that this present a massive opportunity for growth and investment in industries.
Relating economic growth and returns on investment
Unlike the popular misconception that fast economic growth means quick returns, this returns might not be what foreign investments need to compensate for bad business elsewhere. Because unlike other more developed regions of the world, the African economy will need long term investment plans to truly turnover, rich its full potential and convert to the massive profits it is capable of returning to businesses.
Remember, Rome was not built in a day.
There are several companies now in the region that are already enjoying the fruits of a long term labor, some of which include Coca Cola and Nestle.
Unpredictability and volatility in the region
Risk is a factor everyone in business has to make their peace with. It is an integral part of business, especially in an emerging market and before anyone hoping to see any returns in the region can attain that goal, the various factors that affect the perceived unpredictability need to be taken into account accordingly.
Once that is done, businesses can confidently go ahead to operate and invest, knowing that they are well prepared for any eventualities.
Data collected on sub-Saharan African markets and its deductions
Fact remains that Africa has a lot of catching up to do when it comes to information, data collection, analysis and usage. Therefore it comes as no surprise when the major of the African markets and sectors lacking adequate data. Data that could help investors and interested businesses make informed decisions concerning the market sizes and various product categories.
It would be highly risky and reckless for a business to make major financial decisions just by looking at macroeconomic indicators like consumer spending and GDP.
Business Strategies based distributors
Successful business in the region know their customers and have familiarized themselves with their needs. Nearness to customers in 10 times better to remotely formulating theories and misconceptions about the possible outcomes in case of this or that. In light of this, no strategy can really be considered a solid one unless it is tested and found suitable to the local needs of the people.
Therefore, any company serious about investing in sub-Saharan Africa must have feet on the ground doing serious recon. Only then can a valid strategy by raised that will make fruitful any funds pumped in as investment.
Management of sub-Saharan business from a single hub in South Africa
It is true South Africa is a more connected and globalized market, as compared with other African countries, especially sub-Saharan African countries. However, one has to bear in mind that its business environment can be rivalled by many countries in the sub-Saharan region. Taking into account the cost of operations, hiring and acquisition of talents, among several other factors.
Therefore, should a business critically think about how to be better prioritize its resources, then the decision to manage from South Africa might be one that would have to be rethought.