Why should businesses enter or expand in Africa?
Firstly, the continent has often been considered primarily for its natural resources, but I believe that talent is now Africa’s biggest asset. The region has the world’s fastest-growing labour force. Businesses coming here can rely on a resourceful, tech-savvy young workforce full of ideas, particularly in digital and creative areas. In many countries, governments encourage entrepreneurship and educated talent pools allow foreign businesses to recruit locally instead of bringing in expatriates.
The expected demographic boom – by 2050, a quarter of the world’s population will call Africa home – also opens up a plethora of prospects for businesses, and this is my second point. There is untapped potential across sectors as diverse as banking, creative industries, green tech, insurance, retail, private healthcare, private education, sanitation and construction. Even the mineral and oil sectors offer opportunities to those who can upgrade them from extractive to processing industries, while investment in infrastructure soars as the continent needs more – and better quality – roads, railways, airlines, electricity grids. With climate change, green energy and sustainable agriculture projects are also set to take centre stage.
Thirdly, Africa’s overall economic fundamentals keep improving. Reasons for optimism include the focus on increasing intra-Africa trade, for instance via the African Continental Free Trade Area (AfCFTA), and the momentum of reforms making it much easier to do business in many countries. Two African countries rank in the global top 50 of The World Bank Group’s 2020 “Ease of doing business” study – Mauritius (#13) and Rwanda (#38) – while Togo and Nigeria respectively rank #3 and #10 of top global improvers.
What are the risk factors businesses need to consider?
Amongst the main geopolitical concerns, Ifri highlights the region’s persistent need for an efficient peace and security architecture to support States against transnational threats. And if high population growth generates market opportunities, it also presents many countries with infrastructure, services and employment challenges.
Directly impacting companies, the levels of corruption remain high – Sub-Saharan Africa ranks highest in Transparency International’s latest Corruption Perceptions Index. Businesses may also be faced with competitors with a foot in the grey economy. Anyone considering doing business in Africa needs to conduct a thorough preliminary due diligence on their target markets – countries, industry sectors – and local stakeholders.
How much do economic conditions vary across Africa?
Economic conditions vary considerably across Africa’s regions. According to the African Development Bank’s 2020 African Economic Outlook (AEO), East Africa led GDP growth with an estimated 5.0% in 2019, followed by North Africa (4.1%), West Africa (3.7%), Central Africa (3.2%) and Southern Africa (0.7%).
Businesses new to a continent as large and diverse as Africa need to consider which country to enter very carefully. The choice of location will depend on local attractivity – such as incentives, workforce, infrastructure, domestic market size, export hub, which are often specific to the sector the business operates in – as well as on their regional ambitions. For instance, foreign companies can find advantages in countries such as Morocco and South Africa that are very actively positioning themselves as gateways to the rest of Africa.
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