Busting the myths about doing business in Africa

Africa needs to deal with the misconceptions around the continent’s size, risks and opportunities by branding and marketing itself better. Despite the continent’s burgeoning middle class, improving economic environment and governance reforms, perceptions about war, high cost of doing business, corruption, dictatorships and illiteracy persist, scaring off potential investors.

Jay Ireland, CEO of General Electric Africa, said investors should not treat Africa has a single country.

Jay Ireland, CEO of General Electric Africa, said investors should not treat Africa has a single country.

Speaking at last week’s World Economic Forum (WEF) on Africa, held in Cape Town, Jay Ireland, chief executive of General Electric in Africa, said investors should not generalise the risks they hear about the continent.

“Africa is not one country, it’s 54 [countries]. All of the things that you hear, whether it is difficulty in doing business, corruption, poor infrastructure and so on is all here in Africa, but not in every country. You have to pick where you are going to invest,” said Ireland.

Ireland reckoned that investing in Africa is quite similar to investing in the US and investors have to decide which market in Africa fits them.

“You have to pick where you are going to invest. It is no different than if you invest in the US. If you were in the real estate business in 2008 and invested in California, you were in big trouble; if you were investing in the Midwest, you were okay,” he said.

Carlos Lopes, executive secretary of the United Nations Economic Commission for Africa (UNECA), argued that the misconceptions about Africa could partly be blamed on the fact that the continent has 54 countries.

“We have twice the per capita GDP than India, more cell phones and internet penetration than India, less poor people and less people affected by conflict than India, and I can go on with the list. This is a demonstration that something is wrong about the way Africa is perceived and this is partly because Africa has 54 countries,” he said.

Uganda’s Prime Minister Amama Mbabazi, lamented that the East African nation is suffering from the perception about Africa being one country.

Uganda is an example of a victim of that notion. When there is trouble in Congo, tourists stop coming to Uganda as if Uganda is a province of Congo,” said Mbabazi. “[Negative] perceptions of Africa are based on the history… but the truth is, we have moved on.”

Participants also raised concerns about people doing business in Africa and enjoying premium returns, while promoting myths about the continent to ward off competition.

“Some of us who are already doing business in Africa are contributing to these myths. We enjoy the competitive advantage and we raise the barriers to entry by telling everybody else there is corruption, high cost of doing business and poor infrastructure; stay out, let me sell to you,” said Josphat Mwaura, chief executive officer and senior partner of KPMG in East Africa.

Elizabeth Littlefield, president of the Overseas Private Investment Corporation (OPIC), the US government’s development finance institution, reckoned that American investors who are less connected with Africa are less aware of the benefits of investing in the continent. Most people, she said, are unaware of the improvement of the business environment in the last ten years.

“I hear people talking literally, about the country of Africa in the US. I think it is a lack of education and a historical misunderstanding of the continent. It is not very well known, particularly in the US,” said Littlefield.

Littlefield outlined Africa’s untapped opportunities in sectors such as energy and agriculture. She also noted that African countries have been showing the biggest improvements in the World Bank’s survey on the ease of doing business.

“One of the least known facts about Africa among investors is the reversal of the brain drain. Many Africans coming back and investing in their own countries is an incredibly powerful sign to investors,” Littlefield added.

Lopes expressed optimism about the future of Africa, pointing at the growing middle class and expected growth in the continent’s workforce.

“The mega trends are in favour of Africa. By the year 2020, Africa will have the largest workforce in the world,” said Lopes. “It is clear that the trend is in favour of the middle class of Africa growing and the disposable income growing as well. If you compare Lagos (Nigeria) and Mumbai (India), which have the same demographic size, Lagos has a much bigger purchasing power than Mumbai, according to Ernst & Young.”

Futhi Mtoba, chairman of the Deloitte Africa Board, noted that while there is an element of truth in the argument that there is a huge skills deficit in Africa, the continent has also been on the cutting edge of innovation.

“The issue of lack of skills does not take away the fact that Africa does innovate. We have been on the cutting edge of a lot of innovations. Innovation that come from Africa and go global lose strength; people forget where they originated from. That is an issue of Africa branding and marketing itself,” said Mtoba.

Ireland urged investors to come to Africa and do business from here.

“You have to be here to understand the market and not try to make decisions from afar,” said Ireland.