With a projected 18.2 percent annual change in Real GDP growth, Guinea is indicative of the rising strength of African economies and consequently the high rates of return in investment that can be expected from doing business in Africa. A look at the IMF data mapper shows that a sizeable chunk of African economies are also looking at high annual percentage changes in Real GDP growth.
The Economist which once termed Africa as the hopeless continent is now, a decade or so later, doing a complete about face by calling it the hopeful continent. However it is also true that in some African countries the risk exceeds potential reward, and companies need to adequately prepare before entering the market. The good news for Canadian small and medium size enterprises (SMEs) is that there are excellent resources to help them achieve business objectives in Africa.
We spoke with a couple of Canadian trade commissioners with extensive experience in Sub-Saharan African countries to give us an idea firstly of the opportunities that are available to Canadian businesses in that part of the world.
Opportunities in rising Africa
1) Infrastructure: The infrastructure sector represents both an opportunity as well as a constraint to doing business in Africa.
Deteriorating public infrastructure remains one of Africa’s most pressing challenges. The condition of infrastructure is a limiting factor in realizing greater growth and productivity. Some African countries are tackling the issue on a number of fronts including mobilizing financing and galvanizing political will. Sustainability is a major issue i.e. the consideration of ongoing operating costs and the workforce to manage and maintain the infrastructure.
African infrastructure is being promoted as a promising asset class given the potentially high rates of return.
Though still a nascent market for many Canadian companies, these companies are already involved in infrastructure management, policy and construction. Canadian assistance in Africa often includes working with local workers and managers. Skills and knowledge transfer is thus a big part of Canadian business activity in Africa.
Canadian financing in infrastructure is emerging and represents a growth area in which Canadian SMEs may participate in value chain opportunities.
2) Mining and Oil and Gas (Extractive Opportunities): Africa is perceived as the next frontier, particularly in respect to the extractive sector (mining and oil and gas). Exploration opportunities are widespread and resources have been relatively unexploited to date. When this is combined with a large, rapidly growing and increasingly affluent population, Africa represents a potentially attractive target for Canadian SME’s seeking to identify the next emerging trend.
3) Vocational Training: A skilled workforce is an absolute necessity for sustained economic growth. Challenges in vocational and technical training in Africa include a shortage of qualified staff and obsolete equipment. These are opportunities that Canadian SME’s, with their expertise, are well equipped to leverage. Canada has already taken some steps to engage with Africa, like with vocational training outreach in Nigeria.
Looking beyond stereotypes
Our trade commissioners in Africa then wanted to discuss some of the more common stereotypes and the corresponding realities of doing business in Africa. Many Canadian businesses may be holding on to outdated stereotypes. Getting past these incorrect notions may well be the first step towards enjoying the rewards of doing business with a rising Africa.
1) High risk in all markets.
REALITY: Some countries have lesser degrees of perceived risk and some are quite sophisticated.
An example is Kenya which leads the world in mobile money. The widespread adoption of M-Pesa (M for mobile, pesa is Swahili for money) and a reliable mobile payment platform has been instrumental in the growth of start-ups in Nairobi, the ‘Silicon Savannah’.
Although, of course, the recent Westgate Mall attacks in Kenya remind us that there are always other security threats (given the current global security environment) that could impact any business venture.
2) Incredibly poor and unsophisticated.
REALITY: There is also vast wealth and opportunity in some sectors like information and communication technology; for example countries like South Africa are much ahead in 4G access compared to some western countries. The South African mobile app market is expected to be worth $220 million in 2017, up from $31 million in 2012.
3) Business culture is unruly and akin to the ‘Wild West’.
REALITY: In some countries the business environment is rather sophisticated, though there are some risks that need to be evaluated by investors. As an example Nigeria, Mali and Chad are EITI compliant.
4) Businesses won’t be paid for services rendered; or licenses will be arbitrarily revoked.
REALITY: It is recommended to have insurance, such as EDC’s Political Risk Insurance (PRI), in some markets and for some deals. On the other hand many countries have a reputation for prompt payment and adherence to contractual obligations. However, it is critical for the Canadian business community to do its homework because Africa is not a homogeneous continent. Individual countries, business cultures, etc. can differ significantly.
Currently EDC’s most popular services for the African market are credit insurance, which protects Canadian exporters against losses from defaulting customers and can increase their bank line of credit; and political risk insurance, which covers losses from political events such as insurrection and government expropriation.
In 2012 in Nigeria alone, for example, EDC provided these and other financial services to 17 Canadian companies doing business there, for a total loan and insured-exports value of nearly $27 million.
A regional office in Canada of the Trade Commissioner Service (TCS) would be a good first point of contact for Canadian SMEs. If your business is looking to explore opportunities and succeed in Africa, refer to this list from the Trade Commissioner Service to get started with your prep work.
The Canadian TCS helps Canadian businesses assess market potential, find qualified contacts and resolve business problems. Being part of Canada’s embassies and consulates in Africa give Canadian trade commissioners access to governments, key business leaders and decision makers of the continent.
Looking for more help on doing business in Africa? Learn how the TCS can help you.
Do you have experience with business in Africa? What are some of the challenges you have faced? Have you used the TCS to help with your African ventures?