Business in Africa: Some challenges on the road to a promising future

In 2010, Canadian journalist Geoffrey York characterised Africa as “an economic giant that’s ready to wake
up”. In 2012, it is safe to say that the giant is up and going strong.

Africa is set for growth

The April 2012 World Economic Outlook report published by the International Monetary Fund presented a sturdy but cautiously optimistic future for the various African economies. Sub-Saharan
 Africa particularly recorded a strong 5 percent growth in 2011 and was one of the regions least affected
by the global financial crisis. With the exception of South Africa, limited financial ties to Europe helped shield the region from the financial havoc that tore through Western economies in late 2011.

The report indicated that despite slower growth in South Africa and Botswana, growth in other African countries,
 such as the oil-exporting economies, was expected
 to accelerate. It was anticipated that other countries, such as Nigeria and Ghana, would demonstrate stable but robust growth rates. In an uncertain global financial climate, stable economic growth should encourage multinationals to invest in such a promising continent.

Conducting due diligence

As with any case of establishing a presence in a new country, companies must be thorough in conducting their due diligence. Doing business in Africa, however, requires some unique enquiries such as:

  • “How frequently are there power outages?”,
  • “Will there be cell phone coverage where we set up our offices?” and,
  • “How will traffic congestion impact the operation of the business?”

A further consideration will inevitably be the fact that some of the 10 most expensive cities in Africa are also among the 10 most expensive cities in the world, with Luanda (Angola) and N’Djamena (Chad) respectively taking first and third positions on the global list, according to Mercer’s 2011 cost of living survey. All this notwithstanding, the objective 
of this article is not to deter multinationals from expanding their African footprint, but to encourage circumspection when doing so. The aim here is to outline some key challenges to establishing a presence in African countries.

Telecommunications infrastructure in Africa: a significant challenge

No discussion on the challenges of Africa would
 be complete without some reference to the telecommunications infrastructure. This issue remains a significant challenge when doing business in Africa. Although landlines are prevalent in urban centres, call quality is not always adequate and infrastructure does not always extend outside the cities. This may create difficulties, not only when communicating with international colleagues but even with local clients. Most African societies rely heavily on mobile phones, with the added challenge that coverage is often restricted to urban centres with limited to no signal in rural areas.

It is not an uncommon occurrence for local residents to carry two or more cell phones,
 each with SIM cards from various mobile networks to mitigate the risk of being out of contact. Contacting clients outside urban centres may be problematic, but such difficulties also extend to those situations where employees (or directors) are expected to travel into more out-of-the-way places. In addition, cell phone contracts are more the exception than the rule in many African countries − with cell phones being operated largely on prepaid packages. Where employees are likely to be working out of the office, they must ensure that they have sufficient airtime and incorporate contingency plans where travelling into regions with no or unreliable network coverage.

Needless to say, Internet access is substantially more restricted than in more Westernised nations. Wi-Fi availability is increasing but bandwidth restrictions provide their own host of challenges − the most significant being the continent’s inability to enjoy the benefits of cloud computing, which has exploded around the globe. However, the recent establishment of Microsoft’s regional office in Abidjan, Côte d’Ivoire, bodes well for the continent. In an interview with Richard Miles, “How We Made it in Africa” correspondent, Microsoft’s general manager for francophone West and Central Africa, Simon Ouattara, was extremely optimistic about the continent’s future in this area. He advised that, with the highly anticipated arrival of new undersea Internet cables
 on the continent’s West Coast during 2012, Africa’s Internet access could soon be on a par with the other continents’. Improved Internet access will have an impact on several elements of a new business opening up in Africa, including more feasibility for online advertising as more people gain access to the Internet.

Legislative obligations and foreign investment

In addition to technological limitations, certain legislative obligations may prove challenging for foreign investors in Africa. All South African financial institutions are by now au fait with the ‘Know Your Client’ or KYC requirements imposed by the Financial Intelligence Centre Act. South Africans speak with some nonchalance of identity documents (green bar-coded ID books or driver’s licenses) and ‘proof of residence’.

For various reasons, such simplicity is not always found in the rest of Africa. Although many countries have KYC legislation in place − including Egypt, Uganda, and Mozambique − not all enforce the provisions with the stringency of the South African government. In many African countries, KYC legislation is applicable to any entity governed by the relevant central bank, entities which may include insurance companies. Furthermore, although some countries issue some form of identity document to their citizens, many do not have the requisite capacity to do so or are forced to direct resources towards more pressing socio-economic concerns. The result is that reference letters from tribal or religious leaders must very often suffice as proof of an individual’s identity.

In many African countries, proof of residence is not
 as simple as presenting a statement on a lights-and- water account. The challenge often lies in defining
the individual’s address. Some local residents will provide their address with reference to the nearest landmark. Such addresses are also sometimes recorded on a person’s identity document, leaving a degree of uncertainty regarding their validity. For this reason, Botswana has recently initiated a drive to 
issue new identity cards to citizens, to record more recent information. In certain situations, the individual’s employer will provide the company’s address in lieu of the individual’s ‘proof of residence’. This should always be borne in mind when employing local resources and must be remembered when the individual terminates their employment.

What are your thoughts on the challenges facing investment and business in Africa, and do you think the continent is ready to take on the challenge of being an ‘economic giant’?

Watch this space for more on the challenges on the road to a promising future

David Okwara

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