Big opportunities for exporters in Africa
There is no doubt that the continent of Africa is a land rich in opportunities for international businesses. With an abundance of natural resources, some of the world’s fastest growing economies, and booming demand for technological growth, it’s not hard to see why.
Yet it’s also plain why so many companies are hesitant to bring their business there. Africa is well-known for being as risky as it can be rewarding.
Corruption continues to be a rampant issue, on top of the risks associated with poverty and political instability. Yet, when New York Times Dealbook author Danny Hakim states that Africa is “a continent that foreign investors have long been wary of,” he then adds that “now that narrative is changing.”
What are the risks of doing business in Africa?
Anita Esslinger and Cara Dowling discuss the risks associated with doing business in Africa in their blog for Bryan Cave Attorneys as representative of markets “where corruption can be systemic and entrenched,” in part due to “dealing with governments or state owned or controlled entities, having regular contact with government officials, and depending on third parties.”
Exporters often come across a multitude of red flags spanning industries and African governments. But is that cause to abandon business development in Africa as impossible due to corporate ethics and anti-bribery regulation?
For companies of any size who are contemplating business investment in order to make major sales and earnings outside of traditional markets, Africa can look like an untapped treasure trove.
But business in Africa contains both tremendous upside and substantial risk.
Africa is very much a work in progress. We see signs, as demonstrated by the recent election in Nigeria, and calls for greater transparency throughout the continent. It’s clear that the citizenry is demanding more from its leaders, including greater access to education, goods and services, as well as work skills better suited to the demands of the growing global economy.
Western companies bring not only goods and services, they bring opportunity for local development. Thus, leaders are now left to choose between companies that want to “pay to play” which bring sub-standard product, versus those which bring long term opportunity but are not willing to “buy their way into the market.”
It looks like the awareness of those options among the local populous is causing a shift, even if we are not totally there yet.
Set the stage for business in Africa with thorough research
Sometimes the choice to invest needs to be carefully analyzed before committing resources, personnel or otherwise, to a country. Africa is in no way a homogeneous continent, and there are still some countries where corruption risk and opportunity are in plentiful supply.
I have seen this all too often, as business leaders who sit in their home-offices don’t understand the cultural and business nuances that distinguish one country from the next, not only in Africa, but on most continents.
Pay a visit to Africa, and one will quickly realize that Cairo, Lagos and Johannesburg might as well be on different continents. The cultural and societal differences could not be more pronounced. Treat them as “one continent, one market” and you are doomed to fail from the start.
Strengthen your business against corruption risks
Not every multinational has the financial resources to commit to the long term development needed to resist short term corrupt demands, as cash flows may dictate a faster return on investment.
Thus, when considering business strategy, organizations need to account for time lines, and realize the demands for bribes, especially small bribes, in the context of local procurement process, might abound.
To resist them, a long-term strategic plan, with incentives for front-line teams to match, need to be considered. If shorter return on investment is required, some parts of Africa should be avoided, so as not to be put in a position of greater risk once resources have been committed.
All too often multinationals commit resources in a country, and then start to see a proliferation of corrupt demands once a project is underway.
That has been my experience in many of these regions, and when that occurs, bribery becomes indexed to “not losing an existing gain” as opposed to winning a new opportunity.
How can you avoid this risk-reward scenario?
Get to know the market, through public reports and due diligence before putting your teams in harms way in such regions. The data is out there and quite accessible, so think about your appetite for long term return as opposed to short term gain, before committing and inserting a business team into such a country.
Be up front with local partners right from the start
So, with all of the risks especially third party exposure, is success possible? How can businesses remain compliant and successful when the requests for bribes are so ubiquitous?
Making the effort to engage with local companies as part of an effort to merge core values with local needs brings the opportunity for business development to each region. It gives businesses an opportunity to be up front about ethical business and messages, so there is no confusion once a project begins that bribery will not be a part of the process.
When local partners know that up front, there is less opportunity for risk later in the sales process.
Ok, so how?
Corruption thrives in an environment where there is a lack of manpower, skills, working systems and other serious governance challenges.
Indeed, in my experience, where I saw corruption (for the most part), I observed poorly trained procurement personnel who were tasked with executing procurement regulations that were deliberately confusing, include the requests for bribes into the procurement process.
Start by showing your commitment
Jonathan Berman, author of Success in Africa, points to companies like GE as examples who enjoyed success without compromising on their values. Jay Ireland, President and CEO, GE Africa, remarks,
“if you can be seen as a company engaged in the country’s long-term development, and explain the benefits you and your team bring to support that development, it shows real commitment. Most importantly, it shows that you’re here to stay.”
Sounds nice, but what does that mean in terms of business practice?
GE takes that process of engagement one step further by focusing their messaging not only on product benefits but on employment, economic development and building skills. And that goes beyond just its own workforce to benefit the national economy as a whole.
The takeaway is that participating in corruption just perpetuates it, but there is another way.
GE has found success in Africa by staying persistently and resiliently engaged in a way that, in the end, helps to create a better customer.
In Africa, partnerships mean collaboration
Perhaps Emerging Capital Partners (ECP) founder Tom Gibian best summarizes the potential of Africa,
You look at the numbers, you run through your analysis, and you simply conclude that Africa over time rewards honesty and punishes corruption.
And, as he adds, “maybe not in every single transaction, but over time.” Or, as Jeff Immelt, CEO of GE states: “If you want to be a good global company you have to know how to make money in a country for a country. If you don’t understand that, you’re never going to win.”
And your company doesn’t need to be as large as GE to play by the same rules.
Maybe we should look at his model of success and reflection that “Being in Africa doesn’t make us better in Africa. It makes us better everywhere.”
I think that statement is really worth elevating as it demonstrates that organizations can achieve business success in regions which have integrity issues by taking a long-term view of resource commitment, investment and return. When this occurs, not only is success well rewarded, it results in local development, power of example, and most importantly, sustainability.
Everyone in the organization, even those who are not part of the overseas team, can look with pride upon how strategy trumped corruption by a long-term business model and steady execution.
I have been in organizations where those pictures of front-line personnel shaking hands with local partners, in some of the least developed parts of the world, as frontier markets, hang proudly on the walls in the C-Suite.
Why not give it a try?
Would you consider doing business in Africa? If you have, what was the recipe for your success?