Written on the occasion of Africa Day to be celebrated later this month, this article examines the reasons why Africa is playing a key role in the strategies of most forward thinking international companies.

 

Africa is paradoxically daunting and yet alluring; across its diverse territories, great potential exists for a wide range of businesses and it is, in many ways, an entrepreneur's dream. According to World Bank figures, Africa currently offers the 'highest returns on investment of any region in the world.'  Boosting Africa's SME sector will also be key to the long-term sustainability of the private sector on the continent.  Generally, in high income countries, the SME sector has been estimated to contribute more than 50 per cent to gross GDP. In low income countries, the contribution of the SME sector to gross GDP has been estimated at 16 per cent - and in most Africa countries, the SME contribution has been estimated at less than 10 per cent. This untapped potential makes it attractive for Indian SMEs to plan a vital role in the economic transformation agenda in Africa - not just in terms of GDP, but also the potential for job creation, innovation, capacity building and so on.

 

Recent developments have raised hopes that Africa has entered a period of strong and sustained growth that will help to raise the continent from wide-spread poverty rates. The aggregate growth rate for all of Africa exceeded 5% in 2007 compared to only 1.3% in the early nineties. This marked improvement was widespread across most countries with only a few recording negative growth rates.

 

Some sectors that offer strong growth potential are telecommunications, information technology, software, agribusiness, power generation, health care, financial services, environmental technologies and general infrastructure.  

 

 

1. Regional Approach:  A key strategy for Africa would be to take regional approach.  Companies should try to focus on a group of neighboring nations because only a relatively small percentage of the various populations are located in cash economies.  It is important for Indian SMEs to recognize that Africa's diversity is probably more than that of India and each individual country has its own distinct culture, language, customs and business practice.

2. Enter niche markets:  SMEs most likely to succeed are ones that concentrate on niche markets.  You need to enter the market with a sharp focus on a specific product or group of related products with low market penetration.  

3. Take advantage of reforms:  Africa had a record year for regulatory reforms that make it easier to do business, with 28 countries completing 58 reforms, according to Doing Business 2009 report published by IFC and the World Bank. Three of the world's top 10 reformers of business regulations are in Africa this year are Senegal, Burkina Faso, and Botswana.  Indian exporters will do well to focus on countries that have shown consistent improvement in the World Bank Doing Business rankings (www.doingbusiness.org)

4. Previous international experience:  Despite the cornucopia of opportunities, Africa isn't a region entrepreneurs should pick for their first attempts at going global.   Indian exporters will do well to obtain experience in other international markets before attempting to enter Africa.  

5. Initial Research: You must research the region prior to doing business there and weigh the pros and cons for your company as Africa can be a very rewarding place to do business even with fluctuating economic stability risk factors. Like in India, often, who you know could be more important that what you know.  Personal relationships are important.  

6. Avoid stereotypes:  A common error made by many Indian exporters is to underestimate the purchasing power of the African market.  There is a tendency to view all African countries as poor and unreliable to work with.  While it is true that the per capital incomes in most African countries is low, they are not unsophisticated or averse to the introduction of technology-powered services.

Optimistic Outlook

Page 12