There are basic factors you consider before you start a business anywhere in the world. However, business in Africa has its own peculiar challenges and opportunities. Here are factors to consider before you decide to start a business in Africa.
Your choice of country, industry, business and product and services should be fundamentally determined by some of the factors listed in this article. It is not an exhaustive list, but they will be a good guide for entrepreneurs looking to start a business in Africa, and for existing businesses looking to expand into Africa.
Businesses can only thrive in a stable political environment – free of politically incited wars and civil unrests. These unfortunate events have destroyed millions of dollars of property, shut down thousands of businesses in Africa and wrecked the lives of many investors.
Investors who are looking to start a business in Africa must among the initial assessments consider the stability of the environment within which they are going to operate.
Exchange rates and interest rates are major economic indicators investors must consider in addition to economic growth rates. Acute depreciation of the local currency can eat away all your profit, leaving you with no profits to repatriate.
You will be lucky to recoup your initial investment when trading in rapidly depreciating currency. Many African countries have recorded year-on-year depreciation of their local currencies for decades.
These days, it is a matter of the extent of depreciation, rather than if the local currency would depreciate at all. To start a business in Africa, these economic indicators are key considerations in the investment decision.
The availability of financial services such as banking and insurance are critical to the success of businesses in Africa, and elsewhere. Every business, whether startups or established brands, access financial products and sometimes rely on them for risk management, growth and expansion.
Africa may not boast of expansive and sophisticated financial products of well-developed markets of Europe, America and some Asian countries, but most countries have the basic and most important products and services a business requires at the initial stages. The cost of these services are also very important to business startups in Africa.
Laws guide almost everything we do. Your country of choice to start a business in Africa must have at the minimum countrywide respect for rule of law. There must be competent and unbiased judicial system and sufficient laws to cover business activities in the country.
The existence of laws alone is not enough. Enforcement of these laws are essential to the overall legal atmosphere and to businesses.
Study the laws which have direct effects on the kind of business you want to operate in Africa, and be prepared to work within those laws because breaking them can spell doom for your business. Laws on business registration, tax laws, labour laws are among the general laws which apply to all businesses.
Some industries such as financial services are heavily regulated than others. Investors must take time to review all applicable regulations which may affect their choice of business in Africa. You must know the laws which are specific to your business and industry.
You can use these laws to your advantage if you study them well. Regulations change, and so you have to stay abreast with these changes and let them form part of the basis of your business decisions. It’s always best to hire the services of an experienced lawyer. The stability of these regulations is equally important as their existence.
Technology and Technology Adoption:
The level of technology across various sectors such as agriculture, telecommunication, manufacturing, retail, etc are very important. Technology cuts across almost every aspect of the business. Equally essential to doing business in Africa is the rate of technology adoption across the African continent.
Mobile technology is growing very rapidly in Africa. It will be wise to leverage this growth, as a business, to reach your customers. M-commerce, for example, is widespread in Kenya, Nigeria, and Ghana. Social media has also gained grounds on the continent in the last decade, especially in the last 5 years. These trends will be very useful to entrepreneurs who want to start a business in Africa.
It is good to always know the income levels of the people whom you expect to buy your products and services. Income levels in Africa are thought to be generally low, and that may just be true. This has kept certain brands away from doing business in Africa.
However, comparatively low-income levels also present wonderful opportunities to another set of businesses and entrepreneurs; those who can produce at low-cost with a mass-market approach to business. Conduct an elaborate survey of the income levels in your host country before you spend your first dollar on the continent. You may also rely on recent research/surveys conducted by trusted brands.
A survey of income levels of consumers in an African country should guide your pricing policy and strategy. Your pricing should not only be determined by the cost of producing your goods but must reflect the purchasing power of your target market.
Income levels are generally low in many parts of Africa, and your products and prices must reflect this fact if you want to stay afloat. You are likely to succeed if you target any tier of consumers, but success may come easier with certain income groups, depending on your product offering. Do your homework well, and find out which products and services would be economically appropriate for each income group.
Culture and Traditions:
These undocumented beliefs and practices affect what we eat, wear, drink, where we go at what times, and ultimately what we spend money on! Africa has tons of culture and traditions, and it’s important, as an entrepreneur to familiarize yourself with them before you start a business in Africa.
It is this traditional and cultural fabric of the continent which poses challenges to foreigners. Issues such as honesty, brand loyalty, work rate, respect, and honor, are all influenced by the cultural upbringing of the people on the continent.
They are going to be your consumers and/or employees, and you must know what makes them do what they do and what they do not do.
The demand for certain products and services are hugely affected by weather patterns. Similarly, the availability of some raw materials for production may be equally affected by weather patterns.
Weather patterns throw some seasonality in the revenues of businesses which are affected by them. For example, consumption of drinks and beverages is lower during the rainy season.
This same rainy season may increase revenues for pharmacies due to the sicknesses (eg. malaria) and disasters which often accompany them. Entrepreneurs must learn these weather patterns and their impact on consumption of the kinds of products and services they intend to offer the African market. The North, South, West and East of Africa have very different weather patterns.
Doing business in Africa requires you to constantly push the message of the benefits of your products to consumers. For this to be effective, you must determine which advertising channels have the largest audience, greatest impact and at the same time the lowest cost.
Social media has been widely accepted in Africa, but they are generally limited to some age groups. Traditional media is still the widest-reaching medium, but they do not return good value for money as compared to digital media.
The ability to read and write automatically includes or excludes an individual from the market for certain products or services. Literacy rates also define how you communicate with consumers.
Communication infrastructure is essential to the success of modern businesses. To start a business in Africa, it is important you determine the adequacy of the internet coverage and speed in the country, the cost to users, among other factors. These are critical to operational efficiency and costs. There are businesses whose core activities can only be performed with the internet. Banking, digital media
Demographic data cannot be overlooked in almost every venture, be it planning by governments or by a small clothing retailer on a university campus. Entrepreneurs wanting to start a business in Africa cannot overemphasize the importance of demographic data.
Demographic data helps you plan better. It gives you insight into the characteristics of the market you are going to play in. To succeed in Africa, data collection must precede your investment as you often find very scanty information online about many things on the continent especially business.
Ultimately, every business wants to sell its products and services, no matter where in the world they operate from. For a business in Africa to succeed, knowing the factors and people whose words and actions act as valuable endorsements for your products and services will go a long way to grow your revenue. Influencers are not limited to the marketing world alone.
In the world of business, you may need to have contacts who are able to help you land a deal or two. For entrepreneurs who will be investing millions into Africa for the first time, you may want to consider getting to know a few influencers and lobbyists in government, business associations, consumer groups and very powerful law firms with significant ‘influence’.
They will go a long way to help your business maneuver its course in the first few years, and also at very important stages in its development in Africa.
Businesses that want to import goods into an Africa country for onward sale, must familiarize itself with the port processes and the applicable tariffs. These are important as some ports on the continent have faster processes than others. And others too have far lower charges. The speed of port processes and the charges may have a huge effect on an import business.
Importers often try to push all these charges unto consumers in higher prices, but the truth is that your competitors (importers of similar products) may be able to bring their shipments into the same country at lower costs: either because they used another port which charges lower tariffs or because they know the local port processes and practices so well that they are able to escape unnecessary delays and tariffs.
What this means is that they will be able to bring in their products at a cheaper cost and sell at lower prices to capture the market.
Some African countries still do not have a stable power supply. Erratic power supply will disrupt business. In acute cases, businesses have been forced to shut down.
In some African countries, it is not a problem of availability of electricity nor the stability in power supply that pose a problem to businesses; it is the cost of electricity. Very high electricity costs can lead a business into losses if consumers are not ready to bear it at high prices. Always familiarize yourself with the utility tariffs in the country and the rate at which these tariffs are adjusted.
Also, determine whether the factors that lead to tariff adjustments are volatile or stable variables. Manufacturing businesses which rely heavily on electricity must take this point very seriously because electricity availability all-year and the cost can make or break the business. Hotels are also affected by power availability. Most hotels in sub-Saharan Africa have had to acquire standby power generators. The cost of fueling these generators is also another challenge. Water supply must also be considered.
Workers who have good living conditions are likely to give their best at work. To get the best out of your employees, they must have access to basic social amenities.
Specifically, transportation by road, rail, water, and air are very essential to businesses. These are very important for both movements of goods and people. The quality of roads and the extent of the road network are critical to businesses which would be moving products from one point to another.
Poor roads will increase your overhead costs in the form of vehicle maintenance and repairs, high fuel expenses resulting from long hours of transportation due to bad roads and high vehicular traffic on narrow roads.
Look out for alternative means of transportation such as rail, air and water transport. If these are well developed, then you are likely to enjoy improved transportation and its accompanying effects on business. To start a business in Africa, you must assess the transportation network of the country in which you want to begin.
Manpower is needed by every business, even the most automated modern businesses. Different businesses and jobs require varying skill sets and different levels of skills and experience to execute the core tasks of the business.
The skills you require for your business in Africa could be in abundance or almost completely unavailable in certain parts of the continent. To start a business in Africa, you must consider the availability of skills needed to carry out both the core and support functions of the business.
The other dimension to skill availability is the cost of skill (labor cost). Be sure to find out exactly how much it will cost you to hire labor locally. Job-seekers will likely settle for any job as long as it pays them, however, they will walk out of the door as soon as the next opportunity beckons if you don’t pay them right.
I have seen brilliant ideas kick start their journeys to become a global business, only to be halted and sometimes dragged into insolvency by poor employee attitudes.
You cannot run your business alone all the time and grow it to the desired size you envisioned. You are going to need people to work with you. Hiring employees with the right mindset for business growth can be very difficult.
You may be able to get those with good experience and great skill, but getting it right with the mindset does not come easy. Be sure to do a little investigation to determine how employees generally view their working relationship with the business owners. Is it one that views their work as “doing the employer a favor”, or one that views it as “a privilege granted me by the employer to earn a living”.
The thinking may lead an employee to clandestinely embezzle funds or milk your business in some other way.
It may seem remote, but our religious beliefs determine what we eat, wear, drink, where we go to and when what we plan to do in the future and the list goes on and on. Answers to these questions basically define components of our consumption basket. Be sure to know that people believe in and how those beliefs affect them.
Your product, which may be successful elsewhere can fail totally in some parts of the continent if you rush to introduce it without learning about the religious beliefs of the majority of the people in the region you are going to be selling to. For entrepreneurs who intend to sell food, clothes, drinks, sex products, and even content providers such as media houses, getting to know the religious beliefs of your consumers may help a great deal.
Fears & Obsessions:
For every group of people, you are going to find out fears which run through their thinking and actions. You will also find out what they are usually obsessed with. Fears and obsessions do not just end with an individual’s ‘personal life’. They dictate how they live, and by extension what they spend money on, what jobs they’re likely to train for and pursue for a long period, and how generally they conduct business.
It is also important for an entrepreneur who intends to start a business in Africa to look within for a moment. The people, beliefs, and practices may pose all-new challenges to investors who are new on the continent.
You need to resolve within you to succeed in the land. Many have succeeded, and so can you. A lot will depend on you alone as an entrepreneur willing to take up new challenges.
Even entrepreneurs who were born and raised in Africa are bound to face challenges in new business. But it all comes down to you.
How determined are you to grow your business no matter the obstacles you face, because you’ll surely face quite a number of them in Africa? How thick is your skin?
Success Stories and Failures:
Finally, it is very important to listen to stories of entrepreneurs who have succeeded or failed at doing business in Africa.
These stories will arm you with tools, practices, strategies, and methods other entrepreneurs adopted to succeed. At the same time, it will also enlighten you on what caused many businesses to fail in Africa.
It’s wiser to spend some time reading these stories and learning from them, rather than jumping into it blindly and burning your fingers.
You can read stories online, watch documentaries or enquire from some of the present or past managers in these businesses (if they tell you). There are tons of lessons to learn from these failures and success stories.
These 25 factors should guide you to decide whether you start a business in Africa or not. And when you do (which I hope you do), these factors would also help you to determine what kind of business you start in Africa, what products to sell and where to locate your business. It may not be difficult to start a business in Africa after all.
This article does not teach how to start a business. It highlights the key pointers to consider in making a decision to start a business anywhere in Africa. Investments anywhere in the world must be carefully analyzed for good returns and other non-monetary considerations before the money is spent. These 25 considerations for starting a business in Africa helps you to make such analysis.