Author: Bamidele Thomas

Identifying the Key Challenges of Doing Business in Africa

  • 5th October, 2021
  • 6 min reading

Africa is home to some of the fastest-growing economies and consumer markets in the world, and in recent years Africa’s household consumption has grown faster than its gross domestic product (GDP) —and has even outpaced the global average GDP growth rate. Considering the increasing affluence, population growth, urbanisation rates, and rapid spread of access to the Internet and mobile phones on the continent, Africa’s burgeoning economies present exciting opportunities for expansion in a range of sectors. However, the African business landscape can present unique challenges that are not often encountered outside of the continent and can make it challenging doing business in Africa.

Both large and small businesses are critical to Africa’s economic growth as they are key drivers of growth locally, regionally and internationally, and in turn provide a significant portion of the local population’s income. And, given the current rate of globalisation, the growth potential is unimaginable. Despite this, there are risks of doing business in Africa, and a large number of business owners report that they encounter obstacles that are almost entirely unique to Africa, these obstacles range from lack of financing to shortages of skilled labour. The risks of doing business in Africa must be addressed effectively if Africa is to fulfil its full potential. By 2050, Africa, which already has the world’s youngest population, is expected to quadruple; a consequence of this will be an increase in demand for work as well as solid and sustainable income sources.

However, it is not all about challenges and obstacles when it comes to doing business in Africa. For instance, a common misconception is that Africa’s future economic growth is solely dependant on sectors such as oil and gas, but this is not the case. Customer-facing industries such as fast-moving consumer goods (FMCG) are booming, thanks to a burgeoning middle class, youth population and mass urbanisation. Furthermore because of its rapid growth, the population is disproportionately young and low-income, making for a quite shrewd clientele! When you have a few dollars to spend each day, you want to maximise the value you receive for your money.

To successfully access Africa’s significant economic opportunities, businesses must establish creative business models and robust strategies that are specific to their target market. Companies must be aware of the potential challenges and issues so that they can factor them into their business models whilst developing their innovative initiatives. Even though obstacles will vary among the continent’s 54 countries, here are some of the most common issues that we’ve encountered when doing business in Africa.

doing business in Africa

Key Challenges of Doing Business in Africa

A Price-sensitive Market (with little market data)

Although Africa has a growing GDP and the total addressable size of the market is $2.35 Trillion (2020), the reality is that the purchasing power of the average consumer in Africa is still relatively low, with Sub-Sahara Africa’s GDP per capita of $2,461 (2019). This is significantly lower in comparison to the world average GDP per capita of $11,417 (2019).

With a large base of consumers that have become even more price-sensitive, companies tend to allocate more resource to marketing so that they can connect directly with a small base of consumers that have the ability to pay for their products.

This problem is exacerbated by the scarcity of market data, information and technology tools to aid companies in locating and understanding their African clients. To overcome these challenges companies must allocate additional resources to obtain data and market insights they require in order to serve their consumer base.

Finding skilled labour

The bi-annual Africa’s Pulse report released by the World Bank in 2017 showed that firms increasingly rate workforce skills as the most binding constraint to their business in Africa.

The skills gap in Africa’s labour market is still very high. Although there are a large number of young people on the continent (60% of the population is below the age of 25), finding skilled talent is a major challenge for companies looking to scale their operations.

In a lot of African countries there is a misalignment in schooling and training programs, and obvious weaknesses in the higher educational systems that do not align skills with the labour market. Education budgets are not prioritised, and education can be guilty of focusing on theoretical capability over practical ability, which doesn’t transfer well to the world of work. In light of this, Africa has a young, highly educated and eager population that when given the right training and guidance are capable of exceeding at any task or job that they are assigned.

Many companies that have been successful in Africa have recognised that they can gain a competitive advantage by focusing on meeting labour demands and skills requirements of their industry/sectors by offering on-the-job training, and support to their employees.

Some businesses are also actively seeking to adapt and improve their existing internal knowledge base by establishing programs to share skills and experience across generations. For smaller businesses in Africa an approach could be to encourage and support staff in gaining skills that the company sees a demand for in the near future. For example, skill sets like data analytics and programming can be encouraged amongst staff that have the potential and are willing to learn. In a nutshell, businesses both large and small must begin to reconsider their talent acquisition and development strategy.

Electricity

A widespread lack of access to electricity in Africa is another major challenge for businesses. This lack of consistent access to electricity limits modern economic activities, provision of public services, and quality of life. Africa’s access to electricity significantly lags compared to the world, and there are significant regional and country variations in access to electricity within the continent. Africa’s current average 43 percent access rate to electricity is half of the global access rate of 87 percent.

The insufficient supply of electricity can significantly increase the operational cost of businesses that sometimes have to develop self-sufficient solutions to stay operational and can significantly increase their overheads.

In the coming years, it will be critical to harness other sources of energy, such as solar and biofuels, to supply businesses with the fundamental infrastructure they require, rather than creating a typical electric grid, particularly in remote areas. Businesses should begin to look at renewable energy alternatives and look at how they can be funded individually or collectively.

Supply chain challenges

Moving around in Africa can be a logistical challenge. The weak infrastructure, and the multiple challenges involved in moving between countries are a major cause of disruption in a business’ supply chain. Not only can it difficult to get goods efficiently to the end customer, but it can also be challenging for people to meet up to facilitate business transactions and deals in a region where face-to-face meetings are prioritised in order to build trust.

Because transportation is one of the major barriers in many African countries, manufacturers have devised creative ways to transport their goods. For instance, Coca-Cola in Africa has a “small army of entrepreneurs” who take over where trucking ends by walking or biking products the last mile to their delivery destination. It is important for businesses to find innovative approaches to distribution challenges that they face, and partner with local service providers.

Tough government policies and difficult regulatory landscape

62.5% of the last quartile of the World Bank’s Ease of Doing Business Index is occupied by African countries due to the ever changing and challenging regulatory landscape on the continent. Across the continent, it can be quite challenging to start a business, enforce contracts, register new property, get regulatory permits, and protect investors. Although African countries have shown significant progress in improving the ease of doing business, more can be done to make Africa even more competitive on the global stage.

With a changing and ever-evolving landscape, along with policies that frequently change, it can be difficult for businesses to build consistent long-term plans. This inherently increases the cost of doing business in Africa. Businesses need to come together and become more strategic and proactive in their dealings with the government by being unified in disseminating their challenges to government, as enables policy makers to create policy’s that consider the needs of the private sector.

The high cost of securing capital and moving it around

The cost of capital to start and run a business in Africa is high relative to other regions. Banks loans often come with high-interest rates due to the perceived risks of doing business in Africa. Repaying these high-interest rates limits a companies ability to reinvest in the business to fuel growth. That is the reason a lot of businesses in Africa cannot reach significant scale to expand globally. Banks keep these rates high because they lack the resources to accurately prove company or individuals creditworthiness.

Fintech in Africa has helped the continent overcome many of these challenges, from aiding financial inclusion to prompting investors to invest in start-ups gradually but steadily in the continent. With the advent of fintech, businesses in Africa are now able to access financing at a more equitable rate, and with less onerous terms and conditions placed on them.

To make progress in this area, these challenges must be overcome if Africa is to achieve its growth goals in the next decade. Businesses that innovate to assist individuals and other businesses in overcoming these challenges will achieve huge success in Africa. What the continent can do for itself to create and capitalise on the commercial prospects it provides is to continue to invest in infrastructure; thus far, investment levels are on pace, despite infrastructure lag.

To create more jobs, many African countries must focus on supporting the formation of more large and medium-sized businesses. To do this, education systems that are currently geared on producing civil employees must be modified. Schooling should incorporate more career and technical education skills, and nurture entrepreneurial ideals.

On a final note, multinational corporations must respond to Africa’s actual reality. Doing business in Africa is unlike doing business anywhere else. You are unlikely to succeed if you approach the situation from a European or American perspective. Opportunities exist if you can adapt and have a patient strategy.

Essential Tips To Overcome Distribution Challenges in Africa

  • 21st September, 2021
  • 4 min reading

Africa presents enormous economic and growth opportunities, which are presented by its leading consumer markets such as Nigeria, Kenya, South Africa and Ghana. Despite this, many multinational corporations struggle and face particular challenges when doing business in Africa, and struggle to conduct successful business in these markets due to issues such as weak infrastructure, difficult trade policies and procedures, and fragmented retail markets. Its true that these challenges have not stopped countless others breaking through the boundaries and acquiring a profitable market share in Africa. But how have those successful businesses been able to overcome distribution challenges in Africa?

Distribution challenges in Africa

Overcoming distribution challenges in Africa

Product adaptation for the local market

To begin with, the successful enterprises that have made a mark in Africa share one essential trait: they have recognised and embraced the need of adapting their products and services to the needs of the local market. Coca-Cola and Unilever are two prominent companies that have successfully accomplished this, according to Deloitte’s Africa: Tapping into Growth study.

Coca-Cola, which has a presence in 54 African countries, caters to underprivileged communities by selling beverages in returnable bottles. Customers can, in fact, pay solely for the contents of the bottle if they drink it at a store. Unilever, which employs around 40 000 people across the continent in over 40 locations, on the other hand, has adjusted some of its goods to better meet the needs of the African consumer. One such product is margarine, which has been changed such that it does not need to be refrigerated.

Secondly, these businesses make investments in their communities and local governments. According to Deloitte, Unilever was one of the first large tea businesses in Kenya to commit to sustainable sourcing of tea when it launched its “field schools” in 2007, which have now trained over 250,000 farmers in the region on sustainable tea production. These organisations ensure that they have skilled individuals to execute their objectives by investing in local talent and looking after their staff. This ensures that their employees are not headhunted by other companies. Utilising local skills, knowledge and experience are key to substantial and sustained growth in African markets.

Build the infrastructure that is required

Companies that are successful in doing business in Africa have a good understanding of the business landscape. According to the PWC analysis, Prospects in the retail and consumer goods industry in 10 Sub-Saharan African nations, this is why many “home-grown” enterprises are able to expand into other regions and gain ground against foreign competition. Shoprite Holdings, a South African supermarket chain, is one such example, having opened over 300 stores in 14 African countries since its entry into Zambia in 1995. Whereas more than 90% of sales on the continent are still done through informal means, this company has been cooperating with property developers to build shopping malls or just building their own retail centres.

The understanding of the “home-grown” edge has resulted to many of these companies becoming takeover candidates or being sought out to collaborate with through mergers, joint ventures, or supply arrangements. The PWC research cites WalMart’s acquisition of South African retail business Massmart as an example, and RCL Foods, a significant South African poultry supplier, taking investments in local product manufacturers that will benefit from its cold-chain distribution capability as another.

Establish credibility, and collaborate with local stakeholders

In Africa it is essential for non-African businesses to collaborate with local business networks to deal with the unique business environment, which is often hindered by bureaucracy, corruption, ever-changing regulations, as well as multiple currencies and protectionist measures.

To earn the right to influence local agendas and effect change, businesses in Africa should become more inclusive in their approach by appointing local business leaders to their board of directors, get listed on the local stock exchange and invest in community development.

For instance, NIIT, India’s IT training pioneer, works with a local government in Nigeria, South Africa and Ghana to help students develop vocational training skills and also finds them internships in India.

Invest in local talent recruitment, development, and retention

The lack of qualified professionals in Africa is mostly attributable to the population’s low education level and a significant brain drain of highly educated workers.

Leading companies make a substantial commitment to create a rich talent pipeline. They leverage their corporate reputation, brand strength and presence. Some companies also launch graduate recruiting and training programs and provide clear career development paths. They ensure that salaries are correctly benchmarked not just against local competitors, but also against companies in other fast-growing sectors that could raid their talent.

Explore new and novel distribution alternatives

Because transportation can present significant distribution challenges in Africa, many manufacturers have devised novel ways to transport their goods. Also, the vast majority of consumers in Africa still buy from small stores, hawkers, and “spaza shops” (run out of homes in South Africa). While modern retail is growing, it’s still a fraction of the informal retail landscape.

To accelerate market coverage, many companies establish a network of trusted third-party distributors and wholesalers, teaming their own salesforce with distributors to ensure a measure of control.

Some companies collaborate with traditional outlets directly to increase sales and improve distribution, and in the process, professionalise the way shopkeepers work. According to the Deloitte assessment, Coca-Cola has a “small army of entrepreneurs” who take over where trucking ends by walking or biking products and successfully fulfilling last-mile deliveries.

Marico launched a program in Egypt aimed at developing its relationship with suppliers and distributors and improving their communication skills, as well as in sales and management techniques. Such programs enabled it to maximize its outreach to consumers through its trained associates.

In some categories, companies bolster sales by encouraging unauthorised sellers to formalise their businesses. Brewer SABMiller helped illegal taverns in South Africa convert into licensed outlets, transforming off-the-books sellers into a thriving new retail segment.

Gain a competitive advantage by collecting your own data

Data on Africa’s diversified consumers and retail environment is scarce and often not accurate or reliable. Instead of relying on less-than-reliable data from public research firms, leading consumer packaged goods manufacturers use innovative technology to gather their own data.

A good example of this approach is Olam, who are a global leader in agricultural products with a packaged foods company in Africa. Olam is investing substantially in analysing the dramatic disparities across West African consumers, allowing it to tailor products to local demands and uncover potential new growth areas.

So, in a nutshell, by adopting a number of these approaches that we have highlighted above it will ensure that your organisation can face up squarely to the many distribution challenges in Africa. It is important to state that when developing a strategy or intervention plan it is necessary that businesses gather as much information about the environment in which it wants to operate and compete in. Africa is not a one size fits all approach and companies that have realised this are the ones that are making significant progress in Africa.

Technology in Africa is Accelerating Trade and investment Opportunities

  • 31st August, 2021
  • 4 min reading

Advancing trade, investment, and technology in Africa offers enormous economic growth and increased prosperity, and has positioned Africa at the centre of the global economy, and technology has played a key role in this development. The establishment of IT ecosystems is bolstering regional trends in business, investment, and modernisation. More and more global tech firms and investors are realising the sheer potential of the African market with its massive population of 1.3 billion people.

This has created an opportunity like none before for the African continent to leapfrog into the digital economy, coupled with the establishment and implementation of trade and economic initiatives such as the African Continental Free Trade Area (AfCFTA) or The African Growth and Opportunity Act (AGOA). The main objectives of these trade and economic initiatives are to bolster trade and investment opportunities, and the use of technology is essential in achieving this. For example, the use of payment platforms to speed up the exchange of money across borders. Digital technologies have also affected the composition of trade by increasing the services component, fostering trade in certain goods such as time-sensitive products, changing patterns of comparative advantage and affecting the complexity and length of supply chains in Africa which will ultimately lead to increased trade within Africa as digitalisation increases the scale, scope and speed of trade.

While the covid pandemic has had a devastating impact on Africa, it has also provided an opportunity as it has thrust Africa forward to embrace the use of technology at an earlier and quicker pace. In the form of adoption of digital technology of businesses across Africa, there was a moment of epiphany across the continent of the importance of technology to restructure and revise the way they use technology to stay competitive. From small-time traders to large firms, fuelled by a vibrant young population and entrepreneurs, the results have shown that those who quickly adopted change have managed to survive the negative impact of the pandemic while those who were slow to adapt to change have struggled. One of the effects of the pandemic is that it created the perfect storm by necessitating the demand for all conceivable communications, especially businesses to be done virtually within a very short period. The result of this approach was that it allowed businesses to seize the opportunity to leapfrog into the digital future sooner than they would otherwise have done.

What does all this change mean for Africa?

In the last 10 years, mobile phone ownership and usage in Africa has grown exponentially. According to a Gallup poll in Sub-Saharan Africa, about two-thirds of the homes have at least one mobile phone. The Pew Research Centre reports, “In a few short years, the proliferation of mobile phone networks has transformed communications in sub-Saharan Africa. It has also allowed Africans to skip the landline stage of development and jump right to the digital age.” In simple words, Africa essentially skipped the PC era and is now directly finding itself in the midst of the mobile revolution.

The rise of technology has allowed Africa to leapfrog from PC to the mobile revolution and empowered young Africans to become innovative in their use of technology, which has led to the creation of a booming tech market within Africa. Africa is now at the epicentre of tech. Although there has been a recent drop in foreign direct investment (FDI) in Africa, Africa’s rising tech sector has bucked this investment slump as we continue to see a rise in tech financing and investment.

Technology in Africa

Technology in Africa is seeing huge investment

Africa is experiencing a trend that has the potential to turn around the fortunes of the continent and place Africa in a unique position where not only will its economy expand, but also fuel the growth of the global economy itself. In Africa, technology is evolving beyond social ventures or a limited business opportunity. The continent’s technological revolution is beginning to pervade all aspects of life. Sub-Saharan Africa’s technological transformation is being witnessed in commerce, health, education, finance, governance, and creative culture… This evolving tech ecosystem will continue to empower Africa’s markets, people, and potential in meaningful ways, playing a pivotal role in taking this continent from the world’s economic margins into the digitized mainstream.”

The growth in funding seen across the continent’s tech ecosystems in 2020 is extremely strong, and all the more impressive given the circumstances of the year when you take into account COVID-19 and its many implications. Technology Investment in Africa surpassed the $700 million mark for the first time, and by all accounts, the appetite to invest in Africa is yet to diminish.

According to the sixth edition of the annual African Tech Startups Funding Report, in 2020 funding records were set as “397 startups raised an impressive US$701.5 million in total funding. Both these figures are up substantially on the previous year, with the number of funded startups increasing 27.7 percent in 2019, and the funding total growing by 42.7 percent.”

Africa is now experiencing a phenomenal amount of investment taking place in its tech ecosystem, this trend is accentuating the belief that Africa’s market is the new frontier for growth, this is due to a combination of factors, which include a young entrepreneurial population, pro-government reform policies and the emergence of the middle class with disposable income.

The lessons learned so far are that Africa is on the cusp of a great opportunity to revive its economies, and to also substantially contribute to global growth. Initiatives such as AfCFTA and AGOA can assist Africa in increasing and enhancing trade and investment and lifting the continent out of poverty, and technology is critical to this equation. With the assistance of technology, Africa has managed to leapfrog its way into the digital age, and not only that, but Africa has also become a viable first option for those who want to invest in tech. With a young vibrant and educated population Africa has become the place of innovation, which was highlighted during the covid pandemic period as Africans embraced technology to sustain trade and investment activities.

Now that we have entered the post-pandemic era, it is critical that from a technological perspective Africa takes a more resolute stance on building its domestic broadband and digital infrastructure while deepening its domestic capacities to analyse its comparative advantage in regional and global value chains.

For those with robust trade, investment, and value chain development skills, along with the governance systems to build on them, the Covid-19 pandemic offers real opportunities to reposition themselves on the global stage. Those unable or unwilling to make the infrastructure investments, and without the skills and commitment to grasp the opportunities, will no doubt face additional threats to their future trade and FDI growth prospects.

How Has the African Continental Free Trade Area Impacted Africa So Far?

  • 23rd August, 2021
  • 4 min reading

There has been so much written about the benefits and opportunities that the African Continental Free Trade Area (AfCFTA) agreement will present. A key and immediate effect of this agreement is that it has turned Africa into a single market with 1.3 billion consumers, as of January 1st, 2021.

The agreement has the potential to increase employment opportunities and incomes, helping to increase opportunities for all Africans.

The AfCFTA is expected to bring 30 million people out of extreme poverty, and raise the incomes of 68 million others who live on less than $5.50 a day, and make African countries more competitive by boosting intra-African trade by 52.3% once import duties and non-tariff barriers are eliminated.

Successful implementation of the agreement is key, including careful monitoring of impacts on all workers—women and men, skilled and unskilled—across all countries and sectors, ensuring that a wide spectrum of society experience the full benefits of the agreement.

Amongst the pertinent questions being asked right now is whether Africa is ready and fully equipped for such a herculean task, especially in terms of the implementation of the agreement, taking into consideration the intricacies and complexity of bringing together 36 countries to agree on a common position.

A reoccurring concern that emerges is the ‘implementation’ of the pact, what does this mean exactly? Well, it means that all African countries must work together as a united front on the continent to raise standards and build new industries.

The second key element that is critical in this mix is the ability of African nations to pull their resources together to strategize, plan and implement the agreement by empowering and enabling businesses to comply and take advantage of the AfCFTA opportunities.

Africa is now seven months into the agreement. It is pertinent to note that systemic changes will take a while to implement, and it will not be achieved overnight. So, are there any early signs that show that AfCFTA is having a positive impact on Africa?

African Continental Free Trade Area

How Has the African Continental Free Trade Area Impacted Africa So Far?

Amongst the recent positive results and impacts being recorded so far are the following:

  • According to the latest United Nations report, it was only four days later after the trade agreement kicked in January that two Ghanaian companies achieved a major milestone with the first-ever shipment. Using the AfCFTA, the firms became forerunners in product exportation.
  • An expected milestone is the Pan-African Payment and Settlement System (PAPSS) project with Afreximbank giving $500 million for clearing and settlement in the West African Monetary Zone (WAMZ). The system is expected to be ready at the end of 2021 and is the first major step taken in addressing some challenges related to the cost of currency convertibility under AfCFTA implementation. The bank aims to inject up to $3 billion to aid in the Africa-wide PAPSS project.
  • Wamkele Mene the Secretary-General of the AfCFTA Secretariat. Inked an agreement with the UN Development Programme’s Regional Bureau for Africa in March 2021 to assist in digitizing intra-African trade, improving export preparedness of SMEs led by women and youth, and strengthening national customs authorities. So far, the 37 countries that have deposited their instruments of ratification by 7th July 2021 have adopted the AfCFTA Agreement.
  • South Africa is already benefiting from AfCFTA with regard to future growth and further trade expansion, due to its existing strong connections across the continent and its already well-established manufacturing base. Smaller economies, such as those of Ghana and Côte d’Ivoire, are also benefitting, due to existing favourable conditions, such as having open economies, good infrastructure and supportive business environments.
  • As of February 41 State Parties had submitted their schedules of tariff concessions, including customs unions members from the Central African Economic and Monetary Community, the Southern Africa Customs Union, the EAC and the Economic Community of West African States. However, not all customs processes are fully in place. Only a few countries, such as Cameroon, Egypt, Ghana and South Africa, have in place the needed customs procedures as required by the relevant AfCFTA provisions.
  • So far, 11 of the 41 countries and Regional Economic Communities (RECs) have validated AfCFTA implementation strategies. The strategies aim at complementing the broader development framework of each country or region, especially in relation to trade and industrialisation policies. Some are already implementing their AfCFTA strategies and have a National Committee in place to ensure proper coordination of implementation, policy coherence and effective domestication of the agreement.

These indeed are very promising developments of the early stages of the implementation of the AfCFTA agreement and is already revealing a glimpse of the promises it holds for the continent if it is properly executed.

Like all global economies Africa has had to navigate the challenges of the COVID Pandemic.

Many countries have seized the opportunities within the crisis to move faster on key reforms and investments that will be crucial for long-term development. Despite this, the road to recovery will be long and vary significantly across economies and sub-regions.

In this context, a successful implementation of AfCFTA is crucial. In the short term, the agreement would help cushion the negative effects of COVID-19 on economic growth by supporting regional trade and value chains through the reduction of trade costs. In the longer term, AfCFTA would allow countries to anchor expectations by providing a path for integration and growth-enhancing reforms.

Of course, it should be recognized that the full implementation of such an agreement will take years and will require the full buy-in and support of businesses and governments across Africa, but there should be an expectation of short-term benefits and gains for participating countries.

It is hoped that in a relatively short period of time, growth in trade, skills, learning, and efficiencies should materialize. Yes, this is going to be one of Africa’s greatest endeavours, but we should never forget that the African Continental Free Trade Area agreement has the potential to be an economic catalyst for the continent, transforming it into the global economic powerhouse we all know it can be, but only through a shared vision, honest and transparent leadership, and effective collaboration.

How to Unlock Africa’s ESG Potential

  • 2nd August, 2021
  • 3 min reading

The easing of the pandemic, aided by global vaccine rollout, means that African markets are shifting their focus to post-pandemic recovery. After 16 months of uncertainty, which has resulted in the economic stagnation of African economies, where trade and investment activities have ground to a halt.

With the gradual resumption of trade and investment in Africa, there has been a renewed focus on environmental, social, and governance (ESG) factors, which is now taking stage in the trade and investment domain. The increased insistence in the inclusion of ESG factors has been driven by investors in Africa, aided by continued government stimulus, and supported by Development Financial Institutions (DFIs) and multi-national development banks.

While the pandemic has not affected all African economies as severely as predicted the pandemic has still had a severe impact on some of the most vulnerable economies such as Angola and Zambia, which lack the macroeconomic opportunities of countries such as South Africa, Nigeria, and Egypt. The recovery from the pandemic is a key focus for Africa, and provides an opportunity for ESG factors to become a key requirement when deciding where, when and how to direct funds back into Africa, and to ensure Africa’s recovery is sustainable particularly from a trade and investment perspective.

Although ESG initiatives have been fully embraced in other parts of the world it seems that Africa has some catching up to do, and has fallen short when it comes to its implementation and ability to unlock the benefits that linked to ESG factors. Despite Africa’s diverse natural resources, renewable energy potential, human capital and significant development opportunities, connecting investors (many situated offshore) with investees on the continent is not always straightforward.

Unfortunately, this scenario has resulted in missed opportunities and limited the ability of ESG components, such as monitoring how companies manage energy or pollution issues, to penetrate investment flows into African projects that would otherwise enable the promotion of ESG investment goals within the continent. For now, Africa’s most visible contribution is through initiatives that are associated with ESG-related criteria that assist the UN accomplish its sustainable development goals, in other words, social impact projects.

Africa’s ESG Potential

How Can African Economies Unlock Their ESG Potential?

A key factor for unlocking this potential is for investors in Africa to become more aware and comfortable with the risks associated with investing in developing markets, as well as for them to find “sustainable assets” that can provide acceptable returns. Companies that recognize the potential of ESG must be able to clearly demonstrate how effectively they manage their operation, which includes how they interact with stakeholders, understanding their environmental impact, and how they detect and manage risk.

A strategy that can assist Africa in unlocking its ESG potential is through the collaboration of funding or co-funding initiatives with Development Finance Institutions (DFIs).

In this case, DFIs come in handy as DFIs have a long history of being sources of finance in Africa, often providing riskier, longer-term investment capital with an emphasis on sustainability, and enticing commercial lenders to engage using ESG-like metrics. As investment vehicles, DFIs can plug funding gaps on projects that banks might turn down due to concerns over the risk or length of an investment, as most banks tend to be more focused on shorter investment loans and less risky projects.

DFIs have traditionally worked two-fold. On one hand, banks have facilitated their investments on the continent – which is known as wholesale lending. DFIs lend money to an African or an international bank with on the ground connections, who then lend money to the agreed upon framework using embedded infrastructure. As these loans are funded by the DFI, they are traditionally sustainable in nature, adhere closely to the ESG requirements of the lender, and require reporting and validation.

The combination of DFI capital, which can be used to make riskier investments, with a national or international bank’s capital, reaches more businesses and opportunities for trade and investment activities while alleviating some of the bank’s reporting and validation obligations.

The potential benefits of this approach is that smaller businesses can also benefit from this arrangement. SMEs are critical to Africa’s development, especially from a trade and investment perspective and it is only by fostering the growth of entrepreneurs and SMEs that Africa will be able to eradicate poverty and progress to the next level. Hybrid lending arrangements that handle risk that banks are unwilling to take on, along with investments in ESG and sustainable development initiatives, can, and will pave the way for Africa’s future growth and development.

Trade and Investment in Africa Post Pandemic – Do’s and Dont’s

  • 14th July, 2021
  • 3 min reading

Businesses within a trade and investment environment have spent most of the last fifteen months attempting to adjust to unusual conditions. While the struggle against the pandemic is far from over, there is now a glimmer of hope and optimism in the air. The reality of things now is that companies or individuals that want to trade and invest in Africa must adjust their approach in order to survive.

Various reports suggest that economic recovery from the pandemic could take 2 years, or more. The Africa’s Pulse report which was recently released by the World Bank, suggests that economic growth in sub-Saharan Africa will decline from 2.4% in 2019 to between -2.1% and -5.1% in 2020 and beyond, depending on the success of measures taken to mitigate the pandemic’s effects.

The pandemic has presented a challenge for businesses to reinvent themselves in order to survive and take advantage of prevailing economic opportunities; the main way of achieving this is by restructuring themselves and their business operations. Adaptability is the key to solving this conundrum, and any entity that is not able to adapt and be agile within a short period of time is unlikely to survive in the long-term. The inability to adapt quickly or become agile and take advantage of economic opportunities in the post pandemic environment is one of the key challenge’s businesses are facing in Africa. So how do businesses that wish to take advantage of trade and investment opportunities in Africa navigate the new post pandemic world, and what are the economic opportunities?

TRADE AND INVESTMENT IN AFRICA - DO’s AND DONT’s

The Do’s and Dont’s of Trade and Investment in Africa Post Pandemic

The Do’s

Technology is now a game changer for businesses – The rapid adoption of technology, digitisation, and new ways of working will continue to accelerate. Most of the businesses that did not embrace technology at the onset of the pandemic are nowhere to be found today.

The name of the game is surviving rather than economic efficiency – To secure survival in the post-pandemic environment, contingency planning should be integrated into every link of the value chain. Businesses will have to be much more strategic in deciding which alliances are vital and which are transactional, rather than building relationships based on leverage and getting the better end of the bargain wherever feasible.

Trade and investment initiatives need to look inwards; hence the strengthening of intra-regional and Intra-Africa trade is critical. Regional partnerships are critical for businesses. There needs to be concerted efforts to harmonize trade-related regulations, customs controls, and reduce both tariff and non-tariff barriers. The implementation of the African Continental Free Trade Area (AfCFTA) provides opportunity for this to become a reality.

The Don’ts

Don’t be stuck in your old ways – Companies that hurry back to old ways of trading in Africa may very well stumble and stagger in the decade to come. The pandemic has given companies that want to trade and invest in Africa the opportunity to transform and prepare for a more turbulent world. First, they must be able to fully reimagine the boundaries of their company from an African trade and investment perspective.

What do you want inside vs. outside? In other words, post pandemic environment (the outside) dictates that companies that revert to business as usual (the inside) will not survive for long, the way businesses must now function are dependent on the adoption of a set of different rules and skills. These emerging post pandemic rules and skill sets are going to be based on two key principles, namely the ability to be agile and quickly adopt change, and secondly, the mindset to understand the importance and necessity for change.

Don’t assume anything – Don’t take your existing clients for granted, post pandemic you should throw away old assumptions: The raw customer needs that will define your industry may be drastically different. What are your customer’s needs? Be resilient and adapt as you progress, responding to your customers’ evolving needs. And beware of new entrants that could leapfrog you to meet those needs faster, cheaper and better.

In conclusion, your Africa trade and investment strategy post pandemic will be less about beating your economic opponents and more about how businesses can help to battle a bigger, common adversary, such as climate change, pandemics, or maybe socio-political ills such as inequality.

Nigeria’s Twitter Ban and the Unintended Consequences

  • 10th June, 2021
  • 2 min reading

Nigeria’s Twitter Ban was announced on Friday, June 4, 2021, by Nigeria’s Minister of Information and Culture, Lai Mohammed, who confirmed the indefinite suspension of Twitter in the country.  He also disclosed the government’s directive to the National Broadcasting Commission (NBC) to start licensing all over-the-top (OTT) and social media operations. Nigerians are naturally outraged by the action, which they regard as another government infringement on freedom of expression. While this has come as a shock to most people in and outside of Nigeria, we seem to forget that this is becoming a growing trend amongst African countries over the last eight years; for example, between 2007 and 2015, Uganda, Cameroon, Ethiopia, Guinea, Algeria, Burundi, Chad, Mali, Sudan, Togo, Tanzania, and Zimbabwe all implemented full or partial shutdowns. However, with these actions free speech is not the only thing that is being harmed.

The unintended consequences of the Twitter ban – effects on trade

The ramifications of Nigeria’s Twitter ban have already spread beyond politics; for example, the gagging order has begun to wreak havoc on Nigeria’s beleaguered economy, resulting in a loss of N10 billion in the last four days. According to NetBlocks, a watchdog organisation that monitors cyber-security and governance of the Internet, each hour of the social media gagging costs Nigeria about $250,000 (N102.5 million), bringing the daily loss to N2.5 billion.

The digital platform has always been the haven of Nigeria’s youth, who are renowned for their resourcefulness and have been able to utilize the platform in such a way that it has provided a channel for them to conduct business, find employment, and start their careers. Young people in Nigeria have benefited from Twitter’s ability to bypass the country’s extremely restricted and fragmented physical infrastructure.

Furthermore, twitter has been a vital connection in the operations of millions of small and medium-sized businesses; it enables for the type of commercial rivalry that provides consumers with choices, resulting in innovation and improved products and services.

Gbenga Sesan, executive director of the Paradigm Initiative, a pan-African social enterprise working on digital inclusion and rights, stated that the suspension of Twitter sends the wrong signal to foreign investors, adding those small businesses using Twitter as a source of livelihood in Nigeria will be affected.

The way forward?

For the sake of Nigerian domestic and international trade, which is crucial for post-pandemic recovery, it is critical that both parties find a solution to this issue. If the Nigerian government wishes to ‘regulate’ platforms, the core basis for that would need to be clearly defined – freedom of expression and national security are on very different ends of the spectrum, where one is a fundamental human right and the other is a core responsibility of government. From an economic perspective, lost productivity and commerce is at stake, as well as long-term reputational damage to the country’s ability to attract investment to its digital economy. In other words, the actions of the government need to reflect that the country is truly, open for business.