Entering Africa: where is a good place to start?
Entering the African market can be quite a daunting task for companies looking to profit from the various opportunities that today’s and tomorrow’s Africa presents, and many have wondered where is a good place to start. With 54 diverse markets offering unique prospects and different challenges, it is a commonly held perception among Africa’s business experts and advisors that it would be foolish to look at Africa as just one market.
KPMG, a professional advisory firm with practices in 33 African countries, launched the Global Africa Project (GAP) at the end of 2011, placing Africa on KPMG’s global high growth market investment programme. According to GAP’s chief operating officer, Anthony Thunstrom, the issue on where to enter the African market is a popular one among their clients.
“It is a question we get asked almost every day and I think the answer is that it depends very much on which sector you are actually dealing with,” Thunstrom told How we made it in Africa in an interview last week. “So different countries are going to have different dynamics that are more attractive to different sectors.”
Having said that, Thunstrom has identified a number of markets that offer companies a good entry point to expand into Africa.
Nigeria: “I think Nigeria for me has to be the standout as the best of the best destination in many ways,” he said.
With a population of roughly 170 million people (depending on who is doing the counting) and a growing middle class, Nigeria is a notable market for those looking to target a large consumer base in Africa. According to Thunstrom, financial sector reforms and “the fact that they are cleaning up and reforming the petroleum regulations” have also made this country an appealing market for multinational companies.
“Certainly, for a lot of sectors, I think Nigeria is extremely attractive but has a reputation as not being the easiest country to do business in, and I think that has put some people off,” he added. “But the people who have persevered there have done really well.”
Thunstrom estimates that around two-thirds of the clients he and his team are communicating with are either currently doing business in Nigeria, or are talking to their firm about how to enter the market. “So Nigeria, hands down, would be a very good starting point.”
East Africa: “If you look at it as a bloc, the East Africa Trade Bloc also has a population that is around about a 130/140 million people and it is seen as a kind of easier place to enter the market,” said Thunstrom.
He added that while it may be more perception than reality, this bloc is often viewed as being more business friendly compared to other regions on the continent, and this is very attractive to those looking to enter the African space.
“[There is] very high standards of education in many cases, great universities, access to good human capital, and excellent IT infrastructure and IT skills,” highlighted Thunstrom. “So again, depending on sector-specific stuff, it is one of the really attractive areas.”
Ghana: “As a specific country, I think Ghana comes in quite close as well,” continued Thunstrom. “The country is doing fantastically well. It’s politically stable at the moment and it gives you entry into that West African market.”
He added that it is also seen as being an easier place to do business in West Africa and allows companies access to the Nigerian market too.
Mozambique: “If you had to ask me where I would be investing nine million in the next five years, to be honest I think in many ways Mozambique would take a lot to beat as well,” said Thunstrom.
“Just the extent of development, the pace… if you actually go to Maputo and take a look at how many companies have set up, how hard it is to find accommodation, the number of multinationals that are literally looking for skilled resources from wherever they can get them.” Thunstom added that this business interest and development has been particularly prevalent in the last 12 months.
Nevertheless, whatever market a client may decide to enter into, Thunstrom stresses that they cannot do it from overseas. He also doesn’t think that the decision should be simply made after a trip to Johannesburg and a couple of meetings with advisors, no matter who they are.
“For me the single biggest piece of advice is that you need to go through those steps to kind of narrow down your focus, but before you even seriously contemplate any particular investment or locking into a strategy you actually have to get on a plane and go and spend some time and immerse yourself in the economies you are looking at,” he stressed. “You will very, very quickly get a sense to whether it’s the place that suits your business, whether you are going to be comfortable doing business there, and it allows you to start meeting the people that you are going to have to be doing business with.”
Linked to that, Thunstrom said that companies entering a new market in Africa should consider finding a local business partner. “In many cases early success has something to do with finding a local business partner; somebody who really understands the local economy, particularly if you have never done business in Africa before… Down the line you might end up setting up your own 100% owned companies but it’s difficult to do that if you are sitting on another continent and you don’t have the oversight of what’s going on in a particular country – typically a lot easier to do it if you have a business partner on the ground who you can trust.”