Tag: Doing business in Africa

  • 15th December, 2021
  • 7 min reading

Overview of tech investment opportunities in Africa

Technology is an important part of any country’s modernisation strategy; technology developments in health, communication, and economy benefit all nations. The most powerful countries in the world are also associated with technological breakthroughs, which emphasises the importance and influence that can be generated by developing a technologically integrated society.

As a result, there is a widespread misconception that Africa lags behind the rest of the world in technological breakthroughs; nevertheless, recent achievements are gradually dispelling this myth and significantly repositioning the continent in this regard.

Over the last decade, digital connectivity has rapidly spread across Africa. More than 300 million Africans acquired Internet connectivity between 2010 and 2019, with approximately 500 million more smartphone connections. According to the International Finance Corporation, the number of Internet users in Africa is predicted to increase by 11% over the next decade, accounting for 16% of the global total.

The number of mobile phone users has grown at an exponential rate, from 330,000 in 2001 to 30 million in 2013. It could be argued that the Internet is the first piece of technology to have had a substantial impact on Africa’s technological advancement.

In Africa, a 10% increase in mobile Internet coverage raises GDP per capita by 2.5 percent, against only 2% globally. Furthermore, a 10% rise in digitisation, or the conversion of information to a digital medium, increases GDP per capita in Africa by 1.9%, compared to 1% in non-OECD nations. More broadly, reaching 75% of the population with Internet access could result in the creation of 44 million jobs. It’s safe to claim that the mobile technology industry is a significant economic driver and has resulted in increased trade and investment opportunities in Africa.

In Sub-Saharan Africa, mobile technology and services accounted for 8.6% of total GDP in 2018, a contribution that amounted to over $144 billion of economic value added. In addition, the mobile sector supported approximately 3.5 million jobs, generating an extra $15.6 billion in taxes. As a result of increasing connectivity, businesses and communities have been able to leapfrog societal challenges and weak infrastructure through the use of new technology, which has paved the way for economic progress.

by the end of 2019, Sub-Saharan Africa had approximately 144 mobile money providers, servicing over 469 million registered accounts with $1.25 billion in daily transactions, compared to 298 million registered accounts for traditional bank accounts in 2017. Mobile devices are now the accepted medium to connecting to the Internet, and to carry out financial transactions in Africa.

investment opportunities in Africa

Internet’s contribution to GDP in Africa

Fintech, healthtech, media and entertainment, e-mobility and food delivery, and B2B e-Logistics are just a few of the emerging verticals in Africa that are fuelling innovation. Over the last decade, Africa’s Internet gross domestic product (iGDP) – defined as the Internet’s contribution to GDP — has rapidly increased. In 2012, less than a decade ago, the Internet economy in Africa was estimated to be around 1.1% of GDP, or $30 billion. According to Accenture, iGDP might add $115 billion to Africa’s 2.554 trillion GDP (4.5%) in 2020, up from $99.7 billion in 2019, with the potential to rise as economies develop. By comparison, the Internet sector contributed 9% of GDP in industrialised economies like the United States in 2018.

The Internet economy has the potential to add $180 billion to Africa’s GDP by 2025, rising to $712 billion by 2050. Over the next five years, COVID-19 is expected to limit economic growth in Africa and the rest of the world. Despite the pandemic, Africa’s growth will be driven by the Internet economy’s resilience, private consumption, developer skill, public and private investment, digital infrastructure investments, and new government laws and regulations.

Investments did pick up, and from July, VC funding on the continent had a bullish run until December. Despite the fact that 2020 did not see the same level of megadeals as 2019, and did not surpass the $2 billion barrier, it proved to be a successful year for acquisitions. High-profile instances include WorldRemit’s $500 million purchase of Sendwave, Network International’s $288 million purchase of DPO Group, and Stripe’s more than $200 million purchase of Paystack.

Sector analysis of Africa’s Internet economy Sector

Fintech has evolved into a major driving force in the African Internet economy, directly contributing to GDP growth while also enabling a variety of other industries. Fintech startups continue to be Africa’s most funded sector, with a significant year-on-year increase. The vertical received $836 million in investment across 65 deals in 2019, up from $379 million in 2018 across 42 deals, resulting in a 120% increase in funding and a 55% increase in deal volume year over year (YoY).

Fintech startups have remained the most popular destination for tech investment opportunities in Africa, growing at a CAGR of 24% over the last decade and accounting for 54% of all Africa startup funding in 2019. The fintech sector in Africa is expanding in part to serve the unbanked and financially excluded population. However, the rise of these solutions and increased access to mobile technologies is driving demand and growth in this sector. The opportunities arising from vertical expansion beyond traditional banking services are also a contributing factor.

Surprisingly, despite the Covid pandemic, Africa’s venture capital ecosystem has been steadily growing in recent years, with an influx of funding from local and international investors reaching previously unheard-of levels. According to Africa-focused firm Partech Africa, African entrepreneurs raised a modest $400 million in 2015, compared to the $2 billion invested in the continent in 2019.

These figures were expected to rise in 2020, but with the pandemic sparking an economic downturn, businesses were forced to downsize as investors re-strategized, which slowed down activities during the first few months of the year.

However, in an unexpected turn of events, investments began to increase, and VC funding on the continent began a bullish trend that lasted until December 2020. Despite the fact that 2020 did not witness the same flurry of megadeals as 2019, and did not break the $2 billion barrier, it was a good year for acquisitions. The $500 million purchase of Sendwave by WorldRemit, the $288 million purchase of DPO Group by Network International, and the more than $200 million purchase of Paystack by Stripe were all high-profile acquisitions.

tech investment opportunities in Africa

Four key factors that are having a positive impact on technological investments in Africa:

  • A rapidly rising urban and mobile population is driving digital consumption growth

The African economy benefits greatly from a growing urban and mobile population. Internet penetration is currently at 40%, and a 10% increase in mobile Internet penetration can boost GDP per capita in Africa by 2.5 percent, compared to 2% globally. Increasing Internet penetration to 75% could result in the creation of 44 million new jobs.

  • The tech sector is driven by a thriving developer and startup scene

Africa’s tech talent is at an all-time high, and it will only get better. There are approximately 690,000 professional developers in Africa, with more than half concentrated in just five countries: Egypt, Kenya, Morocco, Nigeria, and South Africa. Despite the challenges that the African startup ecosystem faces, the future appears bright as venture capital continues to pour into the continent.

  • Internet infrastructure investments are further boosting connectivity

More people will be able to enjoy cheaper and faster Internet access as infrastructure continues to improve. Subsea and terrestrial fibre-optic infrastructure investments have fueled the rapid expansion of global Internet capacity. For example, Equiano, Google’s own undersea cable, is set to be finished in 2022.

  • Pro-innovator regulation can benefit the African Internet economy

Inconsistencies in regulatory requirements make it difficult for businesses to gain market access and raise capital. Initiatives such as startup acts and regional harmonisation are examples of progressive initiatives that are promoting mutually beneficial growth. Entrepreneurs, investors, and policymakers must continue to communicate in order to foster enabling environments conducive to the growth of digital firms.

Development opportunities

Africa can take advantage of the Internet economy to help informal businesses and workers overcome challenges. For example, businesses in Africa’s informal sector have limited access to finance and quite often do not make use of modern business practises, particularly in bookkeeping and accounting. As a result, they often incur higher costs when interacting with suppliers or clients due to insufficient logistics, a plethora of middlemen, and the prevalence of cash transactions. Furthermore, access to electricity is less certain in the informal sector, particularly in rural areas, creating an overall unpredictable economic environment.

Despite this, the vast majority of workers in the informal sector own a mobile phone, often used for both private and business purposes. Mobile phone ownership in the informal sector is broadly correlated with access to digital connectivity at the national level.

COVID-19 pandemic highlighted how digital platforms that service the informal sector can support societal resilience. Because of their ability to quickly reengineer their platforms, digital platforms were critical in supporting government responses to the outbreak in several markets, particularly in reaching the underserved. This further emphasises the importance of technology in supporting Africa’s economic growth and stability.

The most significant development opportunity lies within Africa’s significant population growth and demographic transition, which is driving, increased consumption. As they mature into household decision-makers, young African consumers are becoming more rich and globalised. The proportion of the population that is of working age will continue to rise; by 2050, Africa will have the lowest dependency ratio in the world.

As a result, the continent’s competitiveness in both skilled and unskilled labour will improve, resulting in greater consumer purchasing power. By 2030, Africa is expected to have more than 1.7 billion consumers, with the ability to spend a whopping $2.5 trillion.

tech investment opportunities in Africa

What does the future hold?

Year after year, African technology startups continue to raise record-breaking sums of money. While actual investment numbers vary, estimations show that investment opportunities in Africa’s digital sector have increased year after year for the past five years. The attraction and reputation of Africa as a venture capital investment destination is growing, attracting investors ready to take some early risks based on the continents attractive opportunities and long-term economic potential.

This expansion is being largely driven by the increased ease of doing business, improved business environments, and the world’s youngest and fastest-growing labour force. Improved government policies that encourage greater cooperation across the continent and across various sectors of the economy have given investors even more reason to be optimistic.

Not to mention the implementation of the African Continental Free Trade Area (AfCFTA), which will bring together a market of 1.3 billion people with a combined GDP of $2.6 trillion. AfCFTA aims to reduce tariffs on 90% of all goods and promote free movement of goods, services, capital, and people throughout Africa. It will make Africa’s regional economic communities more integrated and accessible, making it easier to do business across the continent.

Despite this progress, investment in Africa remains in its early stages when compared to other emerging global trading blocs such as Southeast Asia. This indicates that there are still untapped technology investment opportunities in Africa, but this will require governments to become more investor-friendly to achieve continued and consistent investment growth.

In conclusion, despite the pandemic and other challenges facing the African continent, trade and investment opportunities in Africa continue to thrive, and the future of Africa looks bright with continued investment in technology and progressive policy initiatives such as the AfCFTA.

  • 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.

  • 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.