We have often reiterated the wealth of opportunities that exists on our continent and we believe that the time is right for these opportunities to be realised and capitalised on from within our own boarders. Small and micro enterprises in Africa are mostly family-run, and play an important role in employment creation and economic development. This is a growing trend not only in Africa, but in other developing economies around the world.
Craig Steven-Jennings, KPMG partner, noted the complexity of balancing family dynamics with that of business objectives. It is important to note that many family-owned businesses in Africa face the same challenges as those in other parts of the world when it comes to formalising business structures, managing finances and dealing with family conflicts. In addition to these however, they face the additional Africa-specific obstacles to success.
We investigate the challenges endemic to our continent, and suggest a way forward for family-owned businesses navigating the sometimes rocky terrain of business in Africa, as it is our belief that Africa-based business owners need to be aware of the challenges facing their businesses in order to enjoy future success.
Challenges of doing business in Africa
In Africa, family-run businesses tend to be less formal or institutionalised than their counterparts in the developed economies. They sometimes lack the history, expertise and government support found in other parts of the world and as a result, these businesses have a tendency to be short lived and rarely pass to a second generation of owners.
Africa-specific obstacles can be external (related to governance of a country, corruption and the economic environment) or internal (such as family relationships and dynamics). The economic environment can play a major role in the success or failure of a family business. Succession continues to be a major concern for the survival of family businesses. Businesses want to be able to plan ahead and government policy needs to be executed in a stable environment in which there are clearly defined fiscal and monetary policies for the foreseeable future. When this doesn’t happen, succession planning is made all the more challenging.
Succession concerns can also be a result of internal issues. Startup family businesses tend to be myopic when it comes to corporate governance. The owners have started the business and intend to stay at the helm or eventually pass control to their children. This is not always the best solution for the continued success of the business as second generation owners may lack the skill, ability or interest to take on their parents’ projects. In addition, family tensions can affect the smooth operation of a business on a daily basis.
What needs to be done?
To ensure a family business has the best chances of survival, business owners need to evaluate the true state of their environment, the position of their business and their plan for the future. When planning for success, family businesses in Africa should consider:
- Implementing formal governance and reporting structures so that the business functions as a legal, compliant enterprise.
- A formalised talent management process that ensures that each department is properly staffed and that individuals are qualified to achieve the short and long-term goals of the business.
- Developing a succession plan that takes into consideration family members and employees, their individual career objectives and the long-term goals of the business
Given the important role that family-run businesses in Africa play in employment creation and economic development, it is essential that more structure and formal processes are put into place. The facilitation of proper succession and growth in these businesses will ensure that the doors of opportunity in Africa are opened not only to foreign investors, but to the continent’s population as well.
Craig Steven-Jennings is a KPMG partner and has worked with family businesses in various industries for 12 years.