This interview was first published by the IFC.
By Alec Macfarlane
Deciding where to invest in Africa can be daunting – but can be well worth the effort for those willing to stay the course, according to G. Jayakrishnan, who is responsible for South Asia, the Middle East, and Africa at Enterprise Singapore. Sectors where investment opportunities lie include infrastructure, education, the digital economy, manufacturing, agriculture, and food processing. In this interview with Alec Macfarlane, Jayakrishnan outlines the key challenges that his government agency is helping Singaporean companies investing in Africa to overcome and offers tips to those thinking of entering this market of over one billion consumers.
Can you tell us about Enterprise Singapore and your operations in Africa?
We’re an enterprise development agency for Singapore. We help companies beef up their firm-level capabilities, upgrade their productivity, provide them with government-backed loans, and help them to internationalise and expand their footprint beyond Singapore. We have 36 offices around the world, including three in Africa. We opened in Johannesburg and Accra in 2013, and Nairobi in 2018. So, three centres in the space of five years. I think that signals the intent on our part and reflects the tremendous potential we see in Africa.
Why are connections with Africa important for Singapore?
Africa is a market no company can or should ignore. The demographic dividend, its rich natural endowments, and a very vibrant private sector are attractive factors. Then there are all the development needs: infrastructure, education, and consumption requirements. Singapore has a small domestic market and therefore it is imperative to diversify. This has been underscored with the recent supply-chain shocks and disruptions.
What are the biggest sectors of interest for Enterprise Singapore in Africa?
There are opportunities across sectors in Africa. But if I were just to pick a few, the digital applications space is a massive opportunity. Even pre-Covid-19, digital applications were disrupting businesses and transforming societies across Africa. Digitalisation is unlocking inefficiencies, bringing more people to the consumer space, and enabling so much more commerce. All of this leads to opportunity, in fintech, cybersecurity, and in the delivery of education and health services. Digitalisation opportunities in transport and logistics are also huge given the massive distances in Africa where tracking and inventory management is key. Many Africans also work across borders within Africa, so digital applications that enable remittances to take place quickly and at low cost are also an opportunity.
The other big area is manufacturing, and the big driver for that will be the African Continental Free Trade Area agreement. Today, only 17% of African exports are intracontinental. There’s a lot of potential in this area if we compare this to intracontinental trade in Asia (59%) and Europe (68%). As more discretionary income rises and as supply chains are disrupted, it’s only natural that firms will start investing in manufacturing capacity in Africa to supply the African market, which has over a billion consumers.
Finally, agriculture and food processing. Africa is home to 60% of the world’s arable land and there will be growth opportunities in this space, especially for sustainable agriculture. We would like to be part of it.
What are some of the challenges Singaporean companies face when expanding in Africa?
Deciding where to start is often a problem. It’s a large, diverse region, at different stages of development. It’s easy to spread yourself too thin and it can be overwhelming. The headlines also tend to be negative, and the macro indicators are often not encouraging. It’s so important to get past the headlines and spend some time on the ground. Entrepreneurs can see the opportunities for themselves.
There are also hidden costs around regulatory hurdles, unforeseen changes in rules, depreciation, and logistics, which could be expensive. Firms must factor in these costs from the outset and ensure their margins are large enough to bear them. This is also why it is necessary to do due diligence and understand the market.
What type of financing do you provide for Singaporean companies expanding in Africa?
We work closely with financial institutions in Singapore to enable local enterprises to access financing more readily throughout their various stages of growth and global expansion. Under our Enterprise Financing Scheme, participating financial institutions extend qualified loans to enterprises and we share the loan default risk in the event of enterprise insolvency. The Scheme supports a variety of types of loans, such as for working capital, fixed assets, trade, projects as well as mergers and acquisitions, providing comprehensive financing support to Singapore enterprises expanding overseas, including to Africa.
How do you ensure that your projects in Africa are mutually beneficial?
Our project-engagement process is underpinned by very close demand and supply matching. We work with either an African private sector partner or government to understand and establish the problem statement. Once we understand what it is, we can then quickly identify the firms, the quasi-government entities, the state agencies in Singapore to see what solutions we can offer. It must make sense to everybody. And if we can establish that mutual benefit from the outset, we’re in a good place.
In Ghana, for example, there was a need to set up vaccine and medical supplies manufacturing during the early days of Covid . One of the Ghanaian companies we work with was looking for expertise to help set up a manufacturing facility that produced syringes and administered medications. We found a Singapore firm that was able to commit the resources, and partner with the Ghanaian firm to set up a plant.
How have Covid-19, climate-related events, and the war in Ukraine affected your work?
These crises have only served to remind us how important it is for Singapore companies to diversify their business relationships given the limitations of our domestic market.
What tips would you give Singaporean companies considering expanding in Africa?
Do your research, speak to other firms that have entered the market earlier, take it one market at a time. Visit the market to get past the headlines. Factor in the hidden costs, be ready to course-correct, and commit for the long term.
What message do you have for African companies considering expanding in Asia?
African firms are also seeing opportunity in Asia. They’re setting up in Singapore and using it as a base to execute their wider Asian strategies. It’s fantastic for them, because they’re participating in Asia’s growth story, and it’s fantastic for Singapore because it adds to the richness and the diversity of our business ecosystem. We welcome them and we hope to see more.
Singapore has an extensive network of free trade arrangements and investment treaties. There is also access to a very dense ecosystem of financial institutions, all the necessary professional services companies, and partners within the business community with good networks in Asia that African companies can benefit from.