Current Challenges to Doing Business in Sub Sahara Africa (SSA) – By Chidi AnyaecheAfrica, Articles, Chidi Anyaeche, Columnists, NNP Columnists Thursday, March 22nd, 2012
By Chidi Anyaeche | London, UK | March 22, 2012 – This article is a summation of responses to a question posed by this author on Harvard Business Review section of the website Linkedin.com. The question was “What are the biggest challenges in doing business in Sub Sahara Africa? Those that responded came from all walks of life from CEO’s of private enterprises to government officials, business men and academics. And from all continents with the majority based outside SSA but obviously has had experience of business dealings in SSA.
The Author chose SSA as against the whole continent for there are fundamental, structural, political, social and cultural differences between SSA and non SSA, which is North Africa. North Africa is to a greater extent closer to the Middle Eastern countries in terms of business challenges than to SSA. The SSA countries to a larger extent share similar challenges.
The lists of the challenges highlighted by the respondents were quite numerous but those that featured mostly but in no particular order of importance are highlighted below. They are:
· Political instability
· Receiving payments for services rendered or goods supplied
· Sparse Information
· Dysfunctional institutions
· Corrupt government officials
· Poor infrastructure especially energy
· Cloudy regulatory systems
· Cultural attitudes
· Inappropriate fiscal and monetary policies
· Adverse exchange rates
· Low purchasing power of the locals
On Fraud, most respondents were of the view that this is a common obstacle to doing business in SSA and a big issue any organisation that want to thrive there has to address.
Political instability makes the business climate very risky according to the respondents. Contracts that have been signed by one government can very readily be voided by the next government and with no just excuse. In the words of one respondent, “There is no greater nightmare for a business than to wake up and find out that the multi-million dollar contract signed yesterday has been voided unsubstantiated.”
Contractual obligation to payments for services rendered or goods supplied are not always respected leading to long delays in receiving payments and hence cash flow difficulties especially for smaller companies or those with limited funds.
Sparse information especially with regards to government tenders and general operating climate was equally an issue. Word of mouth and official data seems to jostle for space. Knowing the correct information then becomes an issue.
Institutions like judiciary, police, customs and civil service are weak and dysfunctional. This leads to their manipulation by politicians, top government officials and ‘locals’. And according to one respondent, makes the business climate frustrating for those that do not know how to play the ‘game’.
Corruption at the highest level of government in SSA has always being an issue and will always remain an issue. So the fact that this issue was highlighted by the respondents was not surprising. It is a fact that businesses have to factor in according to another respondent.
Poor infrastructure, relates mainly to energy. Every single country in SSA, even the ‘golden child’ South Africa, experiences some form of load shedding. Although much still needs doing in transport, communications and water supplies.
In the words of another respondent, “Regulatory systems try even the most patient; you are sometimes required to have twenty (20) different license signatures located in twenty different places and weeks of waiting to get a business registered”.
Cultural attitudes especially lack of sense of urgency substantially inhibit business efficiency in the region – the concept of African time in all endeavours of life and business. This, some of the respondents flagged as very frustrating. For time is money in business.
Inappropriate fiscal and monetary policies in most of these countries, adverse and wildly fluctuating exchange rates are a further challenge as regards return on investments (RoI) and remittances back to foreign-based investors.
Government bureaucracy was equally mentioned by the respondents as an impediment to business. Getting simple things like the right level of custom or excise duty due or forms signed is not that simple.
All the factors listed above contribute to making cost of doing business in SSA prohibitive and this has to be passed on to the locals but their low purchasing power is a barrier to a decent return on investment in that climate said another respondent.
One very interesting discourse was flagged by another respondent, which is that there are also socio-political differences within SSA countries and businesses that want to operate in that region has to factor-in these differences as explained below:
SSA should first be divided into regions or groups:
1. Northern and Eastern Commonwealth countries such as Ghana, Nigeria, Tanzania, Kenya, etc: These countries have a strong business culture and things seem to get done despite the issues raised above. At least you know where you are setting your feet. The mobile telephone giant, MTN appears to be doing well in Nigeria.
2. French and Belgian former colonies: There are a lot of political interferences in the way business is done in this group plus a high level of political instability compared to the rest of SSA. But once set, it’s more than worth it.
3. Lusophone countries: Angola and Mozambique despite years of civil wars seem to be doing really good especially Angola. There seems to be more business certainty in these countries.
4. Southern Commonwealth countries (Except Zimbabwe): such as South-Africa, Namibia, Botswana and Lesotho: There’s not too much difference with the west, business seems to be done normally despite some little issues. These countries have strong corporate governance e.g. South-Africa has given the world one of the best corporate reports known as the King Report. A world class firm quoted in FTSE-100, SAB-Miller emerged from South Africa.
So the biggest challenge will first be to define in which region you want to do business as this will set the ground for the rest.
Nevertheless, all the respondents still see SSA as an area with growth opportunities but not for the faint hearted. And according to a respondent:
“They say Africa is not for sissies! Africa is a jungle so if you want to do business in Africa you first go and find the right people to run your business. People who know the markets, who understand the route to market, who know the role players, have an established network of contacts and most importantly understand how to communicate with the end user.”
In the words of another respondent:
“The ‘uneducated’ street vendor peddling fruit at the pot holed intersection can teach the Harvard MBA graduate and Fortune 500 CEO a thing or two about fruit and vegetable distribution channels in Africa. That is the beauty of this so called emerging market. The continent is littered with numerous opportunities with tremendous upside potential. The pragmatic investor – one looking at Africa through an African lens – will seize the day.”
These, to the author sums up what businesses need to know and do, to operate successfully in SSA: a breakthrough of business innovation at the SSA level.
Chidi Anyaeche (Mr.)
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