Doing Business in Africa

Not only since the implementation of the EU de-risking strategy, Africa comes more into the international spotlight. While China has strengthened important trade relations with Africa over the last 15 years, according to the Friedrich Naumann foundation, for instance based on infrastructure projects or the trade with raw materials, Europe needs to catch up.

Of course, Africa with its round about 1.4 billion population does not exist as a homogeneous continent: Each of the more than 50 countries has its own specific characteristics that need to be considered. It’s not the same doing business in the most populated country Nigeria, as doing business in South Africa or Tanzania.

The countries differ significantly, for example due to their geographical location, different purchasing power, differently developed industries, and cultural characteristics. These mentioned vast differences of the continent can be very challenging for companies and foreign investors. Besides, other challenges can be the following:

Challenges doing business in Africa

• Very scattered markets, which makes a common strategy impossible.
• Time to do business in Africa: Takes more time and patience is fundamental.
• Limited markets: Still small market seizes in comparison to China or the US.

When we talk about challenges on the one hand, there are of course also opportunities on the other hand for companies and investors doing business in Africa. In accordance with the BDI (the Federation of German industries), Africa should be considered as a promising economic partner and future market and not just as a recipient of development aid. The association even goes one step further by stating that German companies highly depend on Africa, for instance for the solution of geopolitical and ecological challenges. So, what are some of the opportunities doing business in Africa?

Opportunities doing business in Africa

• Large population with growing middle class and huge potential workforce
• Understanding the African population as consumers, by finding new clients
• Interesting markets in selected industries: Food, pharma, or medical applications
• Access to wide-ranging raw materials

Although we are undoubtedly living in uncertain times right now with a fast-changing, volatile economic environment, some companies exploit the mentioned opportunities in Africa, whereas others are hesitating and focusing on the reduction of risks or at least put more emphasis on risk management.
However, there is often no perfect time to start, neither on the stock exchange, nor during the expansion to new potential target markets. Undoubtedly macroeconomic factors can be an important indicator, but still are not the only decisive factor. Why should companies invest in Africa right now and not wait any longer until the worldwide economic environment returns into calmer waters?

Reasons, why companies should invest (right now) in Africa

• Rising consumer class developing new consumer needs
• Fast-growing industries: Packaging industry, payment & IT- sector
• Skilled labor talents working for highly competitive wages
• Diversification, reducing dependency on other markets (e.g., Asian countries)

If you are not convinced yet of your market expansion to Africa, an impression of the target market on site might change your mind. Before making a final decision of a market entry, based (only) on market investigations or expert interviews, a physical visit on site can reveal factors that have not been considered before during the desktop research. In this context business and delegation trips are extremely useful for companies, gathering further insights of a potential target market and its individual characteristics.

Insights from a recent delegation trip

• The recently organized delegation trip was organized for the Ministry of Rhineland-Palatinate to Rwanda.
• The German federal state and the African country maintain 45 years + (business) relationship.
• Various companies of Rhineland-Palatinate are currently engaged in Rwanda, for instance for the search of skilled labor or support of local farmers with artificial intelligence to improve the yield of the harvest in the fields.

Of course, in the political context Africa assumes an important role, keywords foreign aid, raw materials, and skilled workers. That’s why political institutions or organizations, such as GIZ (German Agency for International Cooperation), GTAI (Germany Trade and Invest) or the German Chambers of Commerce (Abroad) support/ strengthen the trade relations with Africa.

Cooperation with political institutions and organizations

• All the mentioned organizations or institutions play a vital role as being ambassadors for the African region and therefore bringing Africa on the map for German companies.
• Still, these organizations and institutions have their own agenda with their own projects, strategies, and views on Africa. which might sometimes result into confusion for German companies due to the variation of offerings.
• Hence it would be helpful to speak with one common voice towards the African region, by coordinating and bundling the different strategies and objectives of the organizations and institutions.

Conclusion

Despite high volatility in the region, Africa is getting more and more attractive as investment destination, not only for German companies, but also for worldwide businesses how the rising trade relations with China illustrate. This can be explained on the one hand by a young, aspiring society with an increasingly skilled workforce and on the other hand by a rising consumer class and access to vast raw materials. However, it is not sufficient to consider the region purely as a supplier of raw materials: Instead, much more direct investments are needed in the form of building local production capacities, investments in the training of the local population and the expansion of existing infrastructure.

Ready to explore the possibilities of international growth? Sign up now to receive your free whitepaper and gain access to expert advice tailored to your needs.

Your information is safe with us. We respect your privacy and will never share your details with third parties.

Still Have Questions? Contact us at info – a – 1ib.net to learn more about how we can help you achieve your international business development goals.