Should Your Next Office be in Africa?
Contributed by Ed Trevisani
As an executive that has worked in 40+ countries and managed a $350MM business where a good part of the responsibility covered emerging economies in Russia, CIS countries, the Middle East and Africa, there are some interesting learning points to consider if your company intends to expand into these Regions.
Africa is a market full of opportunity and RISK. The World Bank and IFC indicate that improvements have been made to the business environment in the East African Community (EAC) (Burundi, Kenya, Rwanda, Tanzania and Uganda). Much had to do with regulatory reform and an increase in entrepreneurship.
According to the IFC, a total of 74 institutional or regulatory reforms have been implemented, thus improving the business environment for entrepreneurs.
Each economy is still evolving and as such continues to have a high degree of RISK.
Countries such as Burundi and Rwanda however have experienced progress in the business climate. Western companies and companies from China are taking advantage of a changing environment and weighing risk vs reward. China, however, is taking more risk than most in my experience and as such reaping more of the reward. To be fair, much has to do with culture and how countries deal with corruption. Western countries are very risk adverse, and as such have more constraints on doing business in countries that have different cultures and rules.
Rwanda was the second economy globally to advance in closing the gap to taking advantage of its resources.
- EXAMPLE: (cited by the World bank): “To start a business in the EAC now requires an average of 8 procedures and costs an average of 33.6% of income per capita — compared to 12 procedures and a cost of 140% of income per capita 7 years ago, in 2005.”
Africa, especially East Africa, could be closer than other emerging economies in becoming good global performers. Some statistics from the World Bankand IFC:
Although it is very difficult to fund a startup in Africa, there are a number of firm seeking help relative to labor. Many companies need to bring in outside skills in order to do business in Africa and using local skill can have its challenges. The culture in a number of place is such that if you are not sensitive to the local leaders, it might be impossible to hire local talent including laborers. In addition the infrastructure is still in need of major improvements – from roads to telecom services. Skilled labor needs not only include high tech but also individuals who can operate and maintain construction equipment.
Infrastructure is such in many places where a back-up system should be considered – eg gas or electric power.
The value of the mineral resources is virtually untapped and some countries – especially China are taking advantage of this. Lots of opportunity – lots of risk. Africa is indeed a market that is waiting to be tapped. If the right rules are in place by the local governments, than Africa will become a great place to do business.