Five critical success factors for investment into Africa
“There is no template for doing business in Africa. One can also clearly not base one’s investment decisions on data from a spreadsheet.”
So says professional services firm Ernst & Young in a new report, entitled ‘Africa by numbers: Assessing market attractiveness in Africa’.
The report, however, highlights five critical success factors for companies in the early stages of their African growth journey.
1. Choose your perspective on Africa – glass half full or half empty?
In the Western world, Africa is often associated with political turmoil, war and economic mismanagement.
The report notes that this cannot be the frame of reference for those investing in the continent. “It will infect every decision that has to be made. There has to be a strong belief in the African growth story; that Africa is good for business and investment; and that business and investment is good for Africa.”
2. Build up a portfolio of investments
While investors need to be upbeat about the continent’s growth potential, they should also be realistic about the relative immaturity of many African markets as well as the relative lack of scale. E&Y says that a portfolio of investments in a number of African countries has the following advantages:
- It will spread the political risk of instability in any one country materially impacting overall earnings, as well as currency risk;
- Early mover advantage in many markets that are still at an early stage of development; and
- Sufficient critical mass to make the overall African portfolio material enough to matter.
3. Invest to get the best quality human resources
Finding and retaining skilled workers is a major challenge for companies operating in Africa. “Securing a supply of the best local people, recruiting in the diaspora, transferring skills from other parts of your company and working hard to retain key staff will be an essential element of success,” notes E&Y.
4. Expand from strategic economic hubs and think about non-conventional market groupings
Some African countries are much more developed than others when it comes to infrastructure, financial services and the availability of skilled labour. Investors should consider setting up their base in these countries for expansion into the rest of the continent.
“Expansion plans should also look at non-conventional regional market groupings such as urban corridors, cultural affinities and regional economic communities in order to build critical mass and drive higher returns more quickly,” says the report.
5. Make your broader socio-economic impact a cornerstone of your Africa growth strategy
African governments and civil society increasingly demand that businesses contribute to socio-economic development. “This is fundamentally about doing ‘good business’ – creating jobs, paying taxes, developing people, making a positive social impact and operating ethically. This implies a long-term commitment to the continent and individual countries, and working with African governments to align as closely as possible with their socio-economic growth and development objectives,” explains the report.
E&Y notes that effective strategic stakeholder management can also hold longer-term competitive advantages.