Seven considerations for businesses operating in or entering Africa

Below is an extract from Deloitte’s African trends going into 2017 – How business needs to plan for the changing continent report. 

The year 2016 arguably marked the bottoming of Africa’s growth downturn. Stabilisation of the global oil price and the uptick in most commodity prices suggests the growth outlook of the continent is improving.

A new set of dynamics is shaping African economies and their business environments. The pressures for structural reform have never been greater. This year is likely to shed more light on which African economies fall into the reformist camp and which are laggards. Key considerations for business operating in or entering the continent include:

1. Structural reforms creating investment openings

As governments liberalise and privatise, the exit of the state from utilities and infrastructure assets will create market openings for private capital. Many African states are now beginning or re-energising long overdue privatisation processes.

2. Industry consolidation

Linked to this, there is an emerging trend of industry consolidation that is likely to take place in key sectors. Over-banked economies are likely to see increased M&A activity as weaker players are removed by market forces – provided states allow these firms to fail.

3. Diversification will facilitate industrial growth

The imperative is to diversify and industrialise. Governments must realise that they have to adopt pro-industry policies and build more efficient infrastructure as foundations for economic diversification. Companies that align their own commercial objectives to the strategic development interests of their host states will benefit.

4. Multi-speed countries and regions

Multinationals often seek to have an Africa strategy. Arguably, a generic continent-wide strategy cannot be formulated nor implemented. The growth dynamics of each region, country and sector are so varied that business needs to adopt a country or region-based approach to strategy when engaging with the multiple economies of Africa.

5. Africa’s urban future

Cities will be at the heart of how business reconfigures when investing in Africa. Rapid urbanisation is reshaping the economic structure of the region – with urban agglomerations the driving force for growth and consumer spending hubs. Capital is likely to differentiate increasingly between countries and urban city hubs.

6. Changing regulatory environment

Business needs to be closer to policymakers. In times of rapid economic change, policies are likely to be more reactive, heightening the risk for invested companies. This would apply to monetary policy, foreign exchange, tax policies and possible protectionist trade policies. Companies must be cognisant of policy flux in order to mitigate risks that arise.

7. From fortitude, to consolidation, to growth strategies

Africa’s overall growth trajectory is upward, with indications that growth bottomed out last year. Assets are repricing, markets are gradually opening while an under-serviced marketplace and latent demand persist. Investing companies are likely to regain confidence and deploy capital in 2017 for the next growth cycle. Of course, the necessary risk mitigation strategies must be put in place.