EY advises multinationals to foster good relations with government and civil society by, for instance, aligning their organisations with the host country’s longer term growth and developmental objectives.
Examples of companies doing it right include South African-headquartered financial services firm Sanlam which enters new markets via local partnerships, as well as beverage manufacturer Coca-Cola Sabco which has local shareholders in every African country in which it operates who play an active role in the business.
Other African operators have listed their in-country operations on local stock exchanges. For example, British American Tobacco (BAT) has a secondary listing on the Johannesburg Stock Exchange, as well as local listings in Kenya, Uganda, Zimbabwe and Zambia.
One the other hand, pan-African conglomerate Mara Group has successfully positioned itself as a local African partner for several multinational investors in the continent and has attracted foreign investment partners across multiple sectors, including IT, real estate, business process outsourcing and manufacturing.
While doing business in Africa comes with a myriad of challenges, EY states that it is no more difficult than in other parts of the world. Rather than looking for “problem-free African markets” and dismissing markets on the basis of current indices, EY suggests that organisations should seek out markets where certain problems are generally receding.
“It takes a positive mindset to succeed in Africa – a commitment to seeing the glass as half full. This is not to encourage recklessness; effective risk management is critical to doing business effectively in Africa. However, it is only one factor in successfully operating in Africa – there is no doubt that, if you set out expecting difficulty and risk, you will find it easily enough, and this will probably put a brake on any growth plans. Those who have been successful in Africa have tended to first look for the opportunities, and only then to factor in risks.”
Do not expect quick returns in Africa. Successful multinationals operating in Africa have been doing business in the continent for decades. For instance, Tullow Oil first entered Africa in 1986, DHL in the 1970s, IBM in 1933, Nestlé in 1916, and the African roots of organisations such as BAT and EY are well over a century old.
“Over time, companies such as these have gained skills, experience and understanding, and they have developed relationships and markets, established competitive positions, evolved operating processes and systems and built up meaningful African portfolios.”
The report cites EY’s own experience when it comes to patience. EY made a greenfield entry into South Sudan shortly after its independence in 2012.
“The reality, though, is that it is likely to take up to five years before this business becomes profitable – perhaps even longer, if the recent instability in South Sudan continues. However, we remain convinced that, strategically (in the context of how the East African region is likely to develop) and in the long term, this is an important market to be in, and that our early mover advantage will pay off as the country’s economy and the broader region grow and develop.”