For U.S. and European multinational corporations looking for opportunities to expand, the current economic climate has narrowed the options. Major markets are in turmoil, and fast-growing countries like China and India have higher barriers to entry. Africa offers high growth rates and relatively low barriers to foreign firms, but how can they manage its unique challenges and risks?
Business expansion in Africa is complicated by the diversity of the economies, cultures and regulatory environments in Africa’s 54 countries. Multinationals must also overcome political and economic uncertainty to take advantage of Africa’s rapid economic growth, which averaged 5.7% over the past decade and is predicted to reach 6% in 2012.
Business-to-business partnerships provide a viable solution. African-based multinationals have used partnerships to expand across the continent with great success, and foreign firms eager to enter the market can take advantage as well.
For our companies, Main One and SEACOM, partnership has been central to the expansion of the submarine fibre optic cable networks that we run from bases in Nigeria and Mauritius, respectively. This year we entered into an agreement to encircle Africa by interconnecting our undersea cables, thus providing a unified platform for the delivery of broadband services to the entire continent. By sharing our infrastructure, we avoid duplicating efforts to extend the reach of our respective networks and keep prices low for consumers. In addition to being a boon for our business, the cable project will boost living standards by extending the internet to regions where no other infrastructure is present, primarily via mobile networks. High-speed voice and data connections are already allowing millions of Africans to access new life-enhancing technologies such as Safaricom and Equity Bank’s mobile banking services or SurgiLink’s surgical guidance via mobile phones.
Partnerships with foreign firms have also been crucial to our growth and have provided opportunities for these firms to grow their businesses in African markets. In 2008, Main One set the goal of becoming the first private company to offer open wholesale broadband capacity in West Africa and started looking for partners to connect its system to the global network. Some potential partners questioned whether a new, unfunded, African-based company could achieve this bold vision, and whether value could be realised. Ultimately, Main One found a match in Tata Communications. Tata had the infrastructure and coverage to extend Main One’s system into Europe, and they were interested in expanding their services in West Africa. Both companies invested several months to define the terms of the agreement, perform due diligence and negotiate a long-term contract for a shared infrastructure model. Almost immediately after the commissioning of the cable, the relationship grew beyond its initial scope, as Tata and Main One jointly launched new internet based services in the West African market.
Creating fruitful partnerships takes time and effort. In our region, research and due diligence can be especially difficult because timely, publicly available data on companies is scarce. In building partnerships with local companies, Main One has found that identifying African firms with high growth potential is difficult because of a lack of performance and credit information. We have overcome this deficit by building relationships with unbiased and trusted advisors and aggregating multiple sources of locally derived data.
Moreover, different sectors in Africa often have unique characteristics not found in other emerging markets. The African telecommunications sector has been undergoing a paradigm shift over the last five years. Homegrown and global companies are moving away from proprietary infrastructure, which led to redundancy and over-reliance on traditional suppliers, and are now building broad portfolios of partners to respond to the rapid evolution of technologies and increased demand for mobile and data services. With the rise of cloud computing and the development of more cross-border connectivity, which our network provides, we expect to see further openness to collaboration and the development of a more pan-African dynamic to service delivery.
Companies like ours can help foreign firms address the challenges of doing business in Africa. Our local expertise, presence on the ground and connections can be valuable resources for overseas partners. Finding the right partner can be challenging, but networks such as Frontier 100, which brings together CEOs from Africa, South Asia, Europe and the United States, facilitate valuable relationships that lead to investment.
Our message to leaders of global companies is simple: your partners are waiting in Africa. Working together, we can unlock enormous gains from trade while raising living standards on a continent that is ripe for growth.
Brian Herlihy is executive director and former chief executive of SEACOM. Funke Opeke is chief executive of Main One. Both are members of Frontier 100, a programme of the Initiative for Global Development supported by knowledge partner Dalberg Global Development Advisors.