Summary: reasons why you should think about doing business in Africa
- A growing African population for volume count – About 2 billion by 2038
- Growing middle class
- A growing taste for alternatives
- Large informal sector with cheaper versions but a potential distribution channel
- Competing need for quality products against cheaper ones from China
- Higher margins in most countries where price is calculated in using USD exchange rates
- More stable countries and economies
- Skilled labour with specific field expertise is growing
The changing phase of doing business in Africa
Without a doubt, Africa is a continent on the rise, particularly in the private sector which is key to its current economic advancement. This is a region where the business environment is still underdeveloped with very few sectors being harnessed. The African business environment and business opportunities are growing by the day. For decades, investors and businesses on the continent looked to traditional sources of returns which included oil, gold, diamonds, coal, platinum, cocoa, coffee, timber, tea and leather. Today, with the new generation of Africans and a growing middle class, this is changing. The new norm is a mix of the traditional with emerging opportunities such as providing services, solving problems and adding value to a supply chain. These emerging business opportunities include business start-up support and funding, call and support centres, agro-processing, education, travel and tourism. Others include mobile apps and digital healthcare, public transport and logistics, renewable energy, solar power consumables, real estate, fashion, pay-TV and entertainment, including movies, cultural shows and songs.
It is encouraging to note that the incidents of conflict and war that characterised many developing countries in the region have decreased. Good governance stands out as one of the drivers responsible for the present democratic dispensation. Innovative financial markets have also influenced trade improvement and surging economic growth.
The opportunities you cannot afford to miss
Looking at the business opportunities in Africa, few people are aware of the prospects, but many are aware of the risks of investing in the continent. As much as Africa provides enormous business opportunities, the risk of doing business is also evident. Some of the key risks involved in doing business in Africa include vulnerable fiscal and monetary policies, high tax rates, currency volatility, inflation rates, nationalisation issues, inadequate infrastructure, skills shortages and red tape.
In contrast to this, new consumer markets in Africa have grown to almost one billion customers[i], and therefore offer huge opportunities for business on the continent. According to the IMF, the rise in the middle class has resulted in an increase in the need for consumer goods and services. The explosive growth in the African communication infrastructure is a key example of the rising customer demand. For example, the demand for cell phones in Africa rose at an annual rate of about 58 per cent between 1999 and 2004, compared to the growth in Asia which remained at 35 per cent for the same period. By 2015, over 41 per cent of Africa’s population had subscribed to mobile services, contributing over US$100 billion to the region’s economy.[ii]
Among other indicators, the growth of telecommunications in Africa demonstrates the increasing strategic significance of Africa to the global economy. Africa is currently the third largest mobile and smartphone market in the world after Asia and Europe. By 2023, over one billion mobile subscribers will be in Sub-Saharan Africa.[iii] Smartphone subscriptions will reach 85 per cent in the same year, according to “2018 Ericssion Mobility Report” analysis. Having swum against the current of the global recession, the majority of African countries emerged as significant markets for global investors. Soon after the global financial crisis, many African nations’ economies outperformed those of developed countries. This has increased the size of Africa’s existing investors and brought in new ones.
While most traditional investors go for natural resources, emerging trends and opportunities now exist in urban transportation and logistics. Due to the growing urban population, the demand for transport to and from work and other activities is high. Brands like Uber have seized the opportunity in urban transport. Furthermore, companies and individuals are delivering and stocking up as demand for goods increases. A growing number of busy middle-class populations now prefer to have products delivered to their door. Africa eagerly awaits the increase of logistics services apps to give consumers more options to request the pickup of parcels and shopping from source to destination to meet their lifestyle. This has started in countries like South Africa and Kenya. However, there are still vast opportunities for further development.
Sectors such as agro-processing need more investors. Since technology for processing agricultural products is underdeveloped, large volumes of post-harvest products go to waste due to limited processing options for perishable goods. For example, Nigeria and Ghana lose more post-harvest tomatoes than they can process and preserve. According to the CEO of Nigeria’s Erisco Foods Ltd, Chief Eric Umeofia, this wastage is up to 75 per cent of all annual harvests. If Nigeria were able to convert fresh tomatoes into tomato paste, it could save the nation a total of US$1 billion currently used on importing tomato paste from China.[iv] Other sectors ripe for investment include a growing taste for African fabrics and fashion, and funding and business support services for start-ups. The African Development Bank estimates that Africa’s fashion industry could generate about US$15 billion over the next five years.[v] Innovative business ideas on the continent are in desperate need of funding in exchange for good profits. Some of the ideas include the use of technology in providing services and delivering promising products that would add to the value chain.
~Photo by David Clode
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[i]IMF. (2014). AFRICA – IMF: ‘Africa Rising’ conference. Africa Research
Bulletin: Economic, Financial and Technical Series, 51(5), 20420A-20422C. doi.org/10.1111/j.1467-6346.2014.05834.x
[ii] Winsor, M. (2015, October 15). Mobile phones in Africa: Subscriber growth to slow sharply as companies struggle to reach rural populations and offer faster, cheaper services. International Business Times. Retrieved from http://www.ibtimes.com/mobile-phones-africa-subscriber-growthslow-sharply-companies-struggle-reach-rural-2140044
[iii] “Mobile Subscribers to Exceed 1 Billion by 2023 in Sub-Saharan Africa”, 2018, Dataxis. Available from https://www.africa.com/mobile-subscribers-to-exceed-1-billion-by-2023-in-sub-saharan-africa/
[iv] PUNCH “75% of harvested tomatoes wasted annually-industrialist”, July 2016 available from http://punchng.com/75-harvested-tomatoes-wasted-annually-industrialist/
[v]AfDB “Investing in the creative industries: The role of the African fashion value chain in creating jobs and inclusive growth”, available from https://www.afdb.org/fileadmin/uploads/afdb/Documents/Generic-Documents/Fashionomics-2-pager-EN.pdf