By Isaac Ssempijja
Access to a stable power supply has been a major concern for businesses in Africa. As of June 2018, an average household in Nigeria for instance can only have access to 6 hours uninterrupted power supply out of the 24 hours that exist in a day. This is also through for most African countries and this can increase cost of production for most manufacturing companies since they will depend solely on diesel or gasoline (petrol) in order to keep their operations up and running. Over 621 million Africans lack access to electricity – even in more urban areas, power-outages and load shedding are a frequent occurrence. This power supply issue has posed a threat to foreign investors and led to lack of financial investment.
If you have a business in Africa, you might want to manufacture your products outside the continent. Many big companies do that always in order to keep the cost of production low and maximize profit. I do recommend China for most businesses but if it is health related business, you might want to consider India.
Basically, what I’m saying is that you need to outsource that manufacturing part of your business to other continents. I don’t usually recommend USA because of price and most USA products are made in China. For instance, iPhones and other consumer goods.
Africa represents 10.9% of the total internet users in the entire world with a 35.2% penetration according to Internet World Stats as at 31st of December, 2017 with Nigeria having the highest number of internet users in Africa with over 98.3 million users. Only 30% of the entire population in Africa have access to internet. Thanks to invention of smartphones alongside internet connection. Although, most rural areas in Africa are still struggling with poor or no internet connection. In fact those with connections are meticulous with the way they use their internet connections due to monthly expenses on subscription and these ones are potential customers for your business.
ONLY 30% OF THE ENTIRE POPULATION IN AFRICA HAVE ACCESS TO INTERNET.
- Skilled Labour
Most African countries have abundant labour but finding skilled workers can be a bit difficult. Schools in Africa tend to produce graduate that are good theoretically but like the technical know-how. But that doesn’t mean they are not available but might be difficult to find. There are skill gaps across Africa in a number of areas, notably in tech. Staffing a business can be a bit difficult and expensive game. Training staff adequately cost both time and money, and hiring the best is super expensive.
- Accessing Capital
One of the most difficult tasks in building a business is raising capital for that business no matter how big or small the business might be. Capital which is an amount of money the business has available to spend on various business activities. Except you are one of the rich kids in the block, raising capital has never been an easy task for anyone and it often requires a lot of determination, hard work and patience. Although there are numerous organizations that are devoted in financing startups but there are terms and conditions you will need to comply with.
Lack of financial capital is the single most challenge when it comes to doing business in Africa. In fact, a lot of people use this as an excuse of not starting their business idea and also lack of financial support has led to the demise of many businesses within their first three years.
Like I’ve stated earlier, you can apply for business grants or turn to family and friends, personal savings, or business loans.
- Government Policies
The government plays a key role in the decision of how business gets done in a particular countries. These regulations are meant to keep businesses in-check and ensure that they follow a common rule. African countries rank low on the World Bank’s ‘Doing Business’ ratings. This is due to the difficulty that is involved with setting a business up in most countries in Africa. Some governments are becoming more supportive of local startup but generally African countries need to do more to make new business easier.
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- Corruption & Bribery
While Africa might be a promising place in terms of market but there have been a high rate of corruption and bribery in the continent. There are federal structures of the political system which means there are wide range of regulatory agencies which can lead to demands for bribes from public officials. Nigeria for instance, was ranked 14th most corrupt county in the world according to Transparency International’s corruption perception index.
Logistics infrastructure in a number of Africa countries is extremely poor. Companies like Konga and Jumia in Nigeria developed their own fleets to combat this challenges. Getting products from one country to another within Africa can be as difficult as having a Christian crusade in Mecca. If your business is going to involve movement of products, then be ready to have a solution on ground before embarking on your business.
However,there are benefits as well of doing business in Africa:
. What’s important is that investors now realize there is money to be made for those bold enough to help close the gaps. As that takes place, the promise of greater prosperity for Africans and African businesses will be realized. Why is it a good time to invest?
1. Africa needs ‘connectors’
Missing across much of sub-Saharan Africa are the roads, rails, ports, airports, power grids and IT backbone needed to lift African economies. This lack of infrastructure hinders the growth of imports, exports, and regional business.
Companies that can connect Africans and markets can prosper. Sub-Saharan Africa is plagued by power outages – almost 700 hours a year on average – sapping productivity, adding cost and leaving businesses captive to back-up and alternative power options. Massive investment is leading to major upgrades and expansion at African ports and airports, but much of Africa’s growth potential depends on in-country and intra-African road, rail and air connections.
Roads and rail lines are sparse, decrepit and over-burdened. A lack of aviation agreements has limited intra-African air connections. Africa’s lack of efficient storage and distribution infrastructure hinders businesses, entrepreneurs and farmers. Up to 50% of African fruit and vegetables spoil before reaching markets.
There’s a soft infrastructure deficit, as well. Outside of South Africa, the data and information critical to decision-making by businesses is missing or hard to obtain – credit and risk information, market data, consumption patterns, you name it. Lessons from Dubai and Singapore tell us that once an infrastructure race is on in a rapidly expanding market, being the first-mover is a significant advantage for investors.
2. African trade barriers are falling and intra-African trade holds enormous potential
With the 54-nation Continental Free Trade Area – Africa’s own mega-trade deal – even the smallest African economies could see a lift. If duties are lowered and incentives introduced, manufacturers could see benefit from setting up production and assembly operations in multiple African countries. That could lead to development in electronics, machinery, chemicals, textile production and processed foods.
As a first step, free trade between and within the African economic blocs would make a huge difference. Africa’s share of global trade – a meager 3% – can only increase if the continent’s commodity and consumption-led economies begin to produce a broad array of goods for home markets and export.
And an increase in local beneficiation in the commodities sector could be a driver of growth – processing local commodities (such as minerals, coffee, cotton) in country rather than exporting them in raw form. That said, it will continue to be a challenge for regions with poor power and infrastructure to compete as global manufacturers.
3. Customers are changing
With the growth of Africa’s middle class, we’re seeing development of new expectations. Educated, urban professionals are young, brand-aware and sophisticated in terms of their consumption. Retailers and consumer brands want to anticipate and drive buying preferences in fashion, home and lifestyle products, but they know they need international standard supply chains if they are to meet demand. The largest economic forces in Africa are small to medium enterprises, working to meet this new demand and competing with global brands.
4. Digital transformation
Africa leads the world in mobile adoption, which continues to offer the biggest cross-sectoral economic opportunities. Mobile payment networks, pioneered in East Africa, opened the wired, global economy to poor, unbanked city and rural dwellers. Companies such as Novartis are using mobile communications to manage their supply chain; Olam has used mobile to reach out to new African suppliers and farmers. These mobile initiatives have achieved huge successes.
To illustrate: In 2014, Ethiopia set up a telephone hotline allowing small farmers immediate access to advice from agronomists, with over 3 million calls done in the first six months of the pilot programme. Mobile is the area where Africa has pushed beyond the boundaries in the developed world, and African tech incubators are pushing to innovate. So what’s next?
5. Africa is diversifying
African economies are finally beginning to diversify beyond commodities, though this is still in the early stages. Africa is seeing a returning diaspora that recognizes the potential and opportunities in their own countries. This population supports local economic growth with their skills and talent, by acting as “first movers”, investing back in their communities.
At the same time, African countries are beginning to place bets on non-commodity areas where they can be competitive. And they are packaging themselves to appeal to a broader set of investors. Recognizing they can no longer count on growing investment from China, every country now has what are called “Investment Promotion Agencies”, which act as one-stop shops for investors, assisting with registration, taxes, and other steps to establish companies locally.
6. Africa can lead in sustainable development
In energy, technology, supply chain design and other areas, Africa has the ability to look at what works elsewhere then fashion its own answers. It can openly embrace new technology and ideas, with no historical imprint from which to break free. It can develop flexible fuel grids that generate power with a mix of abundant wind, solar, hydro and bio energy, alongside conventional fuels such as oil and gas, which are also abundant. Nowhere on Earth is there as much unused or poorly used arable land, so look for big agricultural breakthroughs and productivity gains in food production in Africa.
Business leaders are hungry for vibrant new markets and consumers know the reality: globalization means there are too few remaining frontiers. As the developed world matures, and becomes increasingly difficult to trade in as a result of factors from legislation to terrorism, opportunities for corporate growth are limited. There are too few places where entrepreneurs and businesses with ideas and an appetite for risk can bring value and find long-term growth if they are persistent, creative and determined. But there’s something else they know: Africa is still such a place.