GLOBAL EXPANSION: Why Africa? Why Now?

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GLOBAL EXPANSION: Why Africa? Why Now?

GLOBAL EXPANSION: Why Africa? Why Now?

By Attorney N. Jude Menes, FCIArb
Menes Konsult Limited and Europlaw Limited

meneskonsult meneskonsult

 

WHY GLOBAL EXPANSION?

As almost every business savvy person now knows, opportunities to expand and grow a company within the same country are not limitless. Of course, every conglomerate usually begins its expansion process by looking within its geographical area. In the past, aggressive marketing and business development efforts enabled many American companies to acquire more customers and market-share within the U.S. Such efforts enabled companies to expand into multiple states through establishing of new stores or acquisition of competitors. But eventually, the company would max out expansion capacity within the country.

Having maxed out expansion capacity within the U.S., the company finds that additional efforts to grow within its borders will no longer yield desired results. No matter how good a country’s economy may be, certain factors like population will eventually put a “ceiling” on expansion capacity. Unfortunately, giant companies like Toys R Us experienced the unpleasantness of this “ceiling.” Therefore, any company that desires long-term and continued expansion must look beyond its borders. Rather than wait for “expansion ceiling,” a savvy businessperson should have a global growth outlook from the onset. And of course, this brings us to the question of “Why Africa?” If best growth practices mandate that a company must look beyond its borders for sustained growth, why should Africa come into play?

 

WHY AFRICA?

In the beginning

Until recently, international companies had been hesitant to venture into Africa. Historically, such hesitance began in the days of colonial Africa. The colonizing powers protected their territories for all intents and purposes – trade and commerce were no exception. Thus, mainly British companies ventured into the African countries colonized by Britain, while French companies ventured into the countries colonized by France. Some German and Spanish companies went into the handful of African countries that were colonized by Germany and Spanish, respectively. And since America and Asia did not partake in colonization, their citizens and companies were largely left out of trade and commerce in colonial Africa. This colonial-era mentality eventually gave way to bad press, which made everyone, including American and Asian companies, reluctant to seriously consider doing business in Africa.

 

Still a virgin continent

According to the UN Conference on Trade and Development (UNCTAD), Africa has an enormous potential to be highly profitable for foreign companies. Perhaps, apart from the fact that the continent essentially depends on others for most finished goods, one of the other reasons why Africa is so highly profitable is that there are still very few foreign players and ample opportunities to get in on the ground floor. As the UN’s former Secretary-General, Kofi Annan, observed, “Africa’s profitability is one of the best kept secrets in today’s world economy.” In fact, a UNCTAD study found that US companies in Africa consistently enjoyed a more than 10% rate of return between 1983 and 1997. Similarly, the same study found that British companies in Africa enjoyed a 60% increase in their net income between 1989 and 1995. And for Japanese companies, it was found that the after-tax profits for their affiliates in Africa were more than what they earned in Asia.

So why are there still so few foreign businesses in Africa? As the UNCTAD explained, most foreigners are scared away from Africa partly as a result of the negative portrayal of the continent in the Western media. Unfortunately, and as Kofi Annan remarked, “most chief executives of multinational companies never look in detail at the prospect of any African country. They know Africa only from a few headlines or the odd minute of television news, which
show a continent disfigured by conflict.” According to the UNCTAD, largely as a result of bad press, many foreigners are still unaware of the past record and current opportunities in Africa. Hence, there are still few foreign players in the continent.

 

It’s a matter of numbers

The number of people in Africa is another reason to consider the continent. A common denominator driving a company’s growth is market-demand. Mostly, with everything being equal, a company with growing demand for its products or brand will continue to grow and expand. And the market-area’s population will eventually halt the company’s growth and expansion, regardless of how desirable its products and brands are. Thus, if for example a company operates in a country with few thousand people, this will be reflected in the demand structure and eventually lead to a “ceiling.” If, however, the company operates in a region with several millions of a growing population, it will have a better chance of experiencing sustained and long-term growth, all other things being equal. Simply put, it’s a numbers game. More people + More demand = Better business fortunes.

 

And still growing

In 2016, Africa had an estimated population of 1.216 billion people. Comparatively, India’s population in 2016 was 1.324 billion, while China’s was 1.379 billion. Thus the 2016 population of Africa was not far behind those of India and China. In other words, even by 2016 population count, Africa was comparable to India and China in terms of the number of people to whom marketing and selling useful products and services should be targeted. But the story gets even better with Africa, because it has something that neither India nor China has – a skyrocketing growth rate. Only about 28% percent of India’s population is between the ages of 0 and 14 years. And for China, the figure is about 16%. Conversely, the population of Africa is growing at a projected rate that is faster and higher than any other part of the world. For instance, the population of Central Africa is projected to increase from less than 100 million in 2000 to more than 750 million in the year 2100 – a whopping 680% growth rate. The Democratic Republic of Congo alone is projected to have a population of 379 million by 2100 – up from its 2000 population of 47 million. And the United Nations projects that West Africa’s regional giant, Nigeria, (currently the seventh largest country in the world) will overtake the United States by 2050 to become the third largest populated country in the world.

In fact, the United Nations estimates that if Africa continues at the current growth rate, the population of the continent will be more than 2 billion by the year 2038 – just the next twenty years! And by the year 2050, the UN believes that Africa will have up to 2.5 billion people, while that number will grow to nearly 4.5 billion by 2100. With these growth patterns, the real question should be: Why not Africa?

 

THERE’S NO BETTER TIME THAN RIGHT NOW

 

It’s a new Africa

As the era of free and better flow of information began to change the world in general, Africa also began to change, and attitudes towards the continent began to change for better too. With advent of the world-wide-web, the entire world is able to discover Africa and explore great business opportunities available in the continent. Businesses and individuals all over the world are no longer required to rely on traditional media, often controlled by former colonialists, to obtain news and information regarding potential business opportunities in Africa. Entrance of foreign companies and businesses into Africa no longer depends on which colonial country was in charge of the particular African country. Thus, both Asian and American companies, often armed with better and up-to-date information and technology, are now successfully venturing into the continent. And new entrants are emboldened and empowered by the knowledge that Africa is now an open ground to anyone. Consequently, Jumia is now the biggest e-commerce player in Africa, and Uber is in several countries, while Airbnb is planning to double its customer base in the continent. So, there’s no better time than right now because it’s a new Africa!

 

And Africans are changing

The internet revolution has also helped Africans acquire real-time information and a better understanding of governance and global business. As a result, Africans and their governments became more aware of the great benefits of democracy and the free enterprise. Consequently, almost every African country now has some form of democracy. Gone are the days when a military dictator unilaterally and arbitrarily decreed the regulations and policies that affected trade, investment, and business. Most regulations and policies affecting the relationships between African and foreign countries are now crafted with better understanding and input from all stakeholders. Africans now have better understanding and appreciation of business practices of foreigners, what it takes to successfully do business with foreigners, and the benefits of such relationships.

With the changes that occurred (and are still occurring) in Africa, the overall results and benefits to foreign businesses are stable and predictable business and political environments, pro-active investment promotion schemes and policies, higher GDP growth rates, better institutional and infrastructural support, and more efforts to provide trainings that make the workforce attractive to, and employable by, foreign companies. So, with these changes and expected results, now is time to do business with Africa.

 

And the story gets better with CAFTA!

Like other regions, Africans have also realized that the world is a global village, especially for business purposes. And like Asia, the Americas, and Europe, African countries have now agreed to open up every country by removing barriers to movement, trade, and eventually currencies. This culminated in the Continental Free Trade Area (CFTA). With the CFTA, people and goods/services can move freely and visa and tariff-free from one African country to another. Thus, a company operating in Ghana, West Africa, (whether foreign or indigenous company) can have its personnel and products transported to Rwanda in East Africa visa-free and tariff-free. This is great news, because apart from benefits of free movement, citizens of Rwanda will find the products cheaper and more affordable since they would not have to absorb the tariffs that would have been paid by the company. Thus, foreign companies can take full advantage of potentially selling their products to every person in Africa – 1.216 billion people and still growing!

So far, 44 African countries have signed the CFTA and the remaining 10 are expected to get on board soon. With the CFTA now in place, a foreign company only needs to have operations in one African country in order to take advantage of demand and market-share in all the other African countries. So yes, the time is now!

 

Rescue from the diaspora

So, with all the great benefits of doing business in Africa, why aren’t foreign companies trooping to the continent in the droves? The major reasons that often scare foreign companies away from Africa, despite the potential benefits, are what our firm refers to as the “Local Headaches” (or “LH” for short). In summary, LH represents a number of “issues” that often make it very challenging for foreign companies to successfully operate in Africa. These include local cultures and customs, language differences, unnecessary government bureaucracy, fraud and fraudulent people, lack of understanding of international business practices, corruption, and security problems. But the good news is that these challenges are surmountable and are now being resolved daily for foreign companies in Africa by African professionals in the diaspora. Eager to change Africa through business relations, these professionals are now relocating home or operating from the diaspora to partner or represent foreign companies who wish to operate in Africa.

In many cases, African professionals have established firms in their native countries or in multiple African countries to assist foreign companies. Since these professionals are already successful in their careers in the diaspora, they are able to transfer knowledge, skills, and work ethic and other qualities towards training and working with local Africans to assist foreign companies. Also, because these professionals are Africans in the first place – with knowledge of
African language, cultures, religions, and ways of life – they are in a better position to easily resolve the Local Headaches. It’s a win-win proposal because “we know our people and know your people too!”

What foreign companies get from these “Diaspora Rescuers” is a comprehensive full-service assistance towards successful investments and operations in Africa. Diaspora professionals carefully recruit and train local African professionals and technicians to work with them in serving foreign companies in Africa. They perform a wide range of tasks from the mundane (e.g. in-country chauffeur services) to the sophisticated and professional (legal, accounting, financial services) needed to set up presence and successfully operate in Africa. They also provide resources like co-work office spaces, temporary residential housing, and credible and reliable information regarding who to deal with, what areas to avoid, and other information and services that allow a foreign company to “look before leaping” into Africa.

 

 

Our firms, Menes Konsult Limited and Europlaw Limited, were established by African lawyers in the diaspora to serve foreign companies in Africa. We serve foreign companies that are operating in Africa or thinking of expanding to the continent. We are also interested in African companies and organizations that seek foreign partners or are interested in strategically partnering with us to serve foreign companies. You may contact us at info@meneskonsult.com. This is not an academic paper but rather it’s based on our views and for purposes of showcasing and promoting investment in Africa

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