Benefits and challenges of doing business in Africa

By Isaac Ssempijja

  1. Electricity/Power

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.

  • Connectivity

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

make money onlineOne 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.

  • Mobility

https://www.adesanmivictor.com/wp-content/uploads/2017/09/trade4.jpgLogistics 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:

 Opportunities

. 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.

Tips for starting a business and making it succeed.

By Isaac Ssempijja

  1. Know yourself, your true motivational level, the amount of money you can risk, and what you’re willing to do to be successful. Sure, we all want to make millions of dollars. But what are you willing to give up to reach that goal? How many hours a week will you work on an ongoing basis? How far out of your comfort zone are you willing to stretch? How far will your family stretch with you? To be successful, keep your business plans in line with your personal and family goals and resources.
  2. Choose the right business for you. The old formula – find a need and fill it – still works. It will always work. The key to success is finding needs that you can fill, that you want to fill, and that will produce enough income to build a profitable business.
  3. Be sure there really is a market for what you want to sell. One of the biggest mistakes startups make is to assume a lot of people will want to buy a particular product or service, because the business owner likes the ideas or knows one or two people who want the product or service. To minimize your risk for loss, never assume there is a market. Research the idea. Talk to real potential prospects (who aren’t family and friends) to find out if what you want to sell is something they’d be interested in buying, and if so, what they’d pay for the product or service.
  4. Research your competitors. No matter what type of business you are starting or running, you will have competitors. Even if there is no other business offering exactly what you plan to sell, there is very likely to be other products or services your target customers are using to satisfy their need.  To be successful, you need to research the competition and find out as much as possible about what they sell and how they sell it. Competitive research is something you should plan on doing on an ongoing basis, too.
  5. Plan to succeed. If you’re not seeking investors or putting a huge sum of money into your business, you may not need an elaborate business plan, but you still do need a plan – one that specifies your goal – your destination – and then lays out at least a skeletal roadmap for how you’ll get to where you want to go. The plan will change as you progress and learn more about your customers and competition, but it will still help you stay focused and headed in the right directions. Use our business planning worksheet to help develop that basic plan.
  6. Know the Operational Needs. Most people who are thinking about starting a business focus on what they’ll sell and who they’ll sell it too.  What they often don’t consider is how the business will actually operate. For instance, if you’re selling items, how will they be delivered? How much customer support will be needed – either to answer questions about the product, or to respond to people whose shipments haven’t arrived? Will you need to accept credit cards? Will you invoice customers? Who will follow up to be sure you’re paid? Who will build and maintain your website and social media presence?  Will you be able to use a virtual assistant for such tasks, or will you have to hire employees? Even if you’re starting a small personal service business, these are issues you should consider and plan for.
  7. Don’t procrastinate. I’ve heard some people advise would-be business owners to not move ahead with their business until they have investigated every last detail of the business they want to start, and are absolutely sure it’s all going to work and be profitable. The problem with that approach is that it leads to procrastination. No one ever really has all the pieces in place – even after they’ve started their business. Yes, you need to research the market, have a rudimentary plan in place and do things like get a tax id if needed, register with local officials, if required, etc. But if you try to make everything perfect before you launch, you may never get around to starting the business at all. 

SWOT ANALYSIS OF YOUR BUSINESS IS A PRELIQUISITE BUT IT BEGINS WITH YOU….

By Isaac Ssempijja

One Saturday afternoon our lecturer Charles (now PHD student is South Africa)  assigned us to   do a  SWOT analysis of a Multinational of our choice. A few students asked for guidance and to make it clearer and in context, he asked a few volunteers to do a SWOT analysis of themselves  which ended up being harder than thought.

The lecturer was not impressed because many of the volunteers did not have a clear understanding of themselves in terms of Strength,Weakness,Opportunity and Threats.

Doing a SWOT analysis of oneself involves having a clear understanding of each one’s Strength ,Weakness, Opportunities and Threats.

An individual’s strength is all about the competences he/she has. These include talent, skills, competitivecapabilities, and achievements. Skills like Team work, sense of responsibility, decision making, leadership and result orientation all give one a competitive edge over others.One’s level of education, career experience, the people he/she knows and personality all contribute to his/her strength. One should therefore identify his/her strength and capitalize on them to his/her advantage.

Weaknesses are things that we lack and put us at a disadvantage. The funny bit of it is that most of us do not want to discuss them or hear someone discuss them. Weakness  hold us back even when they are few. Weaknesses include the weak competitive abilities, poor attitude, personality traits, and failure to work with teams. One can work on his/her weaknesses and convert them to strength. Both weaknesses and Strength are internal and we have much control over them.

Threats are fears that prevent us from reaching our goals and they are external. Threats include people who prevent one from reaching the goals, lack of fund/money, lack of enough time to sit and think, change in technology, Economic hardships leading to high cost of living, social and cultural environment amongst others. Threats can be a puzzle but one can try hard to adapt to them and turn them into an opportunity, for instance, despite the fact that we cannot do much about change in technology; we can use it to our advantage to communicate and do business.

Opportunities are things created to enable us achieve our goals .Opportunities are available in our environment and only available to those who are ready. Opportunities include markets, new technology,usefulpeople,newjobs,sponsorships,new projects amongst others. Its desirable if opportunities match the Strength.

Look at your strength again and capitalize on them, they are the reason you stand out,rank the weaknesses and find a way to combat them, the threats are external but can be turned into opportunities if one changes attitude . Try a SWOT analysis of yourself  and discover the magic.

If you can do this comfortably, then start your business SWOT right away…………………..