Some people view Africa as an underdeveloped region that offers no benefits apart from the natural resources. This view is outdated, however.
The main resource of Africa is its people. More than 1.2 billion people live on the continent, which is 16% of the world population. By 2050, the figure is going to grow to 25%. Africans’ consumer spending is 2.1 trillion US dollars today and it may reach 2.5 trillion by 2030.
Foreign investors have to realize that Africa is highly heterogeneous. Many national borders have been created by European colonists and they often do not coincide with ethnical borders. Imagine a country where Finns and Greeks would live together. Besides, every African country has an opinion of Europeans and it depends on the colonial past of the country.
The same concerns the African business mentality. Entrepreneurship is in the blood of Africans (maybe with the exception of the Northern part of the continent). The African mentality is affected by such factors as traditional family values, the habit to live for today, and the desire to stand out in the community. These worldviews make Africans do their best to earn some money.
Speaking about money, the banking system has been developing at an amazingly fast pace in Africa. We invite you to book a consultation with Offshore Pro Group experts to find out about the emerging banking opportunities in Africa.
Advantages of underdevelopment
The so-called ‘frog jump’ works well in African business. This means that you can skip at least one technological level when introducing a new product. Take mobile communication for example. Many African villages have never had telephone lines and it would not make any sense to build the lines now. Instead, you could erect cell phone towers.
The same situation is found in the banking sector. There are few bank offices and ATMs in many African countries due to their low profit margin and refilling the ATMs can also be a problem. However, mobile payments are highly popular in Africa: this opportunity became available on the continent even before it became available in Europe. The owner of the cheapest cell phone in the poorest African country can make a mobile money transfer.
Urbanization stimulates economic development. Africa experiences a deficit in many groups of products even though its main difficulties are related to transportation and service sectors. This is something a foreign investor should be aware of.
You also have to realize that small and medium-sized businesses close down more often in Africa than they do in most other parts of the world. Thus, if you are talking with an entrepreneur who’s been running a business company for 10 years, you are talking to an extremely smart businessperson. Africans don’t like to be ‘educated’. If an African person has proven able to create a company that interests a foreign investor, then he/ she does not need any lessons from you.
Business etiquette in Africa
Making a business contract takes a long time in Africa and you should be prepared for that. The only exception is South Africa where the British influence is still evident. Normally, your African partner will want to make sure that you are ready for long-term business contacts, including personal face-to-face communication. This attitude is attributable to a high level of fraud on the continent and taking a long time to think is a sign of trustworthiness. Be prepared to dine out with your prospective partner 5 or 10 times and do your best to demonstrate your assuredness and patience. Only fraudsters rush to make a business deal in Africa.
There are African countries where the level of formality is very high. For example, if you do not wear a dark civil suit and a tie at a business meeting in Madagascar, you won’t be taken seriously. In Nigeria, the situation can be just the opposite, however. If you turn up at a business meeting in a good suit, you will be demonstrating your superiority by wearing the image of a European colonizer.
The banking sector is an exception: the dress code is strict there. Not to fall on your face in Africa, you should do your homework. You can check out your prospective business partner’s posts on Instagram, for example, and make notes on what he/ she is wearing in different social environments and on different occasions.
In Nigeria, you can run into a person who has created an international IT company and who seriously believes in evil spirits. This is part of their culture but you should not be afraid that your African counterpart is going to make business decisions on the basis of pagan beliefs.
In Western Africa, there are many small countries that look very similar but they are not. For instance, if you would like to do business in Sierra Leone, the Congo or Liberia, you have to remember about the civil wars that have recently taken place in these countries. Show awareness of historic facts, do not disrespect the local history or you may lose trust of your prospective business partners in Africa.
More than 60% of the African population are below 30. Young entrepreneurs are highly innovative and ready to experiment in new business spheres. You have to have a good command of English or French to be able to communicate with Africans. It is not less important to have authorized personnel at business negotiations. A statement such as ‘I will pass the information on to my boss and then return with an answer’ will be taken negatively. Africans expect that a person authorized to make decisions will take part in negotiations. Moreover, they might feel insulted otherwise because the participation of a low-rank company worker in the negotiations means that these are low-rank negotiations. English and French companies understand this fact.
Between Europe and China
You should not believe the myth that African markets are divided between Europe and China. Many African countries have already understood that the conditions that the Chinese put forward can be very hard. Chinese creditors offer short-term loans at high interest rates. Banks in other countries offer better conditions. For instance, the former President of Tanzania John Magufuli threatened to cancel a 10-billion-dollar project with Chinese investors started by his predecessor. According to him, ‘only an alcoholic’ could have agreed on such terms. In addition, Chinese companies mostly use the labor of Chinese workers, which does not contribute to lowering the unemployment level in Africa.
On the other hand, European solutions are also often not optimal. Take the streetcar line built in Rabat, the capital of Morocco, with a loan from the IMF. The line comes up to the high European standards and this is exactly why it has turned out so costly.
These facts show that there is a lot of business potential in Africa. It is quite possible to compete both with the Chinese and European companies because none of them are perfect.
