Written by Dr Harnet Bokrezion, co-author of the book 101 Ways to Make Money in Africa
Working closely with aspiring African entrepreneurs, I regularly observe a common obstacle on their path to success: many still make ad hoc emotional choices instead of decisions which are both strategic and informed.
A friend recently decided to start a business in ice cream production. His location of choice: Khartoum, Sudan. The cargo was ready to be shipped from Europe when we met for a spontaneous lunch. Asking him about his start-up choices, he explained his family had experience in ice cream production and he had a Sudanese friend with government connections in Khartoum, beneficial in obtaining a licence. Besides, Sudan was not far from his own home country, Eritrea.
The personal approach he took to start his business in Africa can be widely witnessed.
Look at your market and your options
For me it was a clear case: his success and growth potential would be hindered right from the start. Sudan was overall not only a less dynamic consumer growth market, but also one of the most difficult to do business on the continent. It would mean a lot of his hard-earned capital would be exhausted, before he’d even be able to start selling. Sudan’s inflation rate is generally very high and it has suffered regularly from foreign currency drying up. There were no positive developments in the production of the dairy industry and sourcing this key ingredient for ice cream production could slow down business operations and growth.
He asked for an alternative. I suggested Rwanda. It was top in the ease of doing business in Africa, and perfect for him getting started on the continent with limited resources. It also meant he could start fast. Further, Rwanda has recently focused on the development of its dairy sector. So much so that it has begun exporting milk and yoghurt into other East African markets. In fact, total income from dairy exceeded that of the traditional exports for coffee in 2014. This was crucial. Even in Kenya ice cream makers are reported to be struggling because of the constant supply shortage of milk. Further, the city of Kigali offered great investment incentives and special economic zones with their own infrastructure for manufacturing if he wanted to industrialise his ice production for export.
My friend listened. He re-scheduled his entire itinerary to Kigali within a week. It would be his very first visit to Rwanda. Upon arrival he researched the market, looking at his competition and the supply chain. And you may find it hard to believe: he applied for his licence a week later and received that within two days. Less than three weeks into his visit he was rearranging the interior of his new ice cream shop together with a local team. In fact, it is happening right now as I write this.
Below are five of Africa’s largest drivers. Stepping into them will undoubtedly increase your success:
1. Home can be good – but only if it is a dynamic growth market
Africa is an emerging market, but not all 54 countries offer equally conducive business environments. Stay away from slow-growing or conflict-stricken markets if you can. Yet even among Africa’s fast growing economies you will find countries where doing business is straight-forward and relatively easy – Rwanda, Botswana, and Mauritius, for example – and markets where operating will be much more difficult – Angola, DRC, and Nigeria, to name a few. These markets have enormous potential, but it is important you are aware some have a high-opportunity high-risk ratio, and starting your business in these markets may cause considerable delays. This awareness will allow you to plan ahead accordingly.
2. Don’t just open a business – target the most dynamic sectors
Don’t start with a random business idea and then wonder how you could implement it and start raising capital. Instead, list the most dynamic sectors and then figure out how you could fill a gap or meet a need in a particular growth industry of your interest. Choosing a somewhat rare niche in this regard can boost your potential further. Nothing will be more enabling than tapping into a dynamic, fast-emerging sector in a certain country and carving out a niche others may have overlooked.
3. Value addition and branding are among your best bets
Africa has suffered hugely because it exported raw products and then imported the manufactured version back at quadruple the cost. It is still happening today – be it in agriculture, textiles, fast-moving consumer products, or mining. Several governments have now become painstakingly aware of this impediment, and you will find that a policy focus towards local manufacturing and value addition is being vividly pursued. Couple that with an exploding demand for food and other fast-moving consumer products by Africa’s growing middle class, and you’ll tap right into a win-win situation at all levels. And be aware that poor packaging and branding remains a big problem for effective market competition both locally and globally: another gap you can fill.
4. Africa says ‘yes’ to exports – do you?
A lot of Africans, both on the continent or in the diaspora think about going into import-export, but what they largely focus on is import. This may have worked wonders a decade or two ago, but things are changing and it is important to position yourself differently. African governments are keen to minimise the trade deficit. Local policies and development agendas are all geared up towards growing exports. Know the trends, position yourself, and be aware that trading, storing, packaging, branding, transportation and logistics, marketing, match-making, and the opening of new markets through various online and offline platforms, will all allow you to tap into this particular market driver.
5. Benefit from Africa’s desperation for a skilled labour force
The lack of skilled and experienced human resources is a huge concern in Africa’s quest for growth. Many companies operating on the continent agree this remains their biggest challenge. Africa has the fastest growing young labour force globally, which means this problem is expected to persist for years to come. Step into that! Offer high-level recruitment, managerial or industry-specific training, or brainstorm new solutions to increase a company’s human resource productivity.
Knowing your market is important to make strategic and informed decisions right from the start. Make use of the ‘power of context’ to increase your success potential with your start-up.
Dr Harnet Bokrezion is the co-author of the book 101 Ways to Make Money in Africa. She coaches individuals and consults existing companies assisting them to make smart and strategic business decisions in Africa’s new emerging markets. Follow her blog on africajumpstart.com