With a population in excess of a billion and economic growth projected at around 5.5% in 2014, Africa is very quickly an investors dream.
But what does this mean for small businesses who might find the idea intimidating and believe that expanding into the rest of the continent is a risk that only big brands like Shoprite and MTN can take?
We speak to Wilhelm Crous, MD at Knowledge Resources, a B2B publishing and conference company and publisher of the Africa Human Capital and Labour Reports, who explains why local entrepreneurs shouldn’t be afraid of doing business with our northern neighbours and what to consider to ensure your business’ expansion is a success.
What is the start-up scene like in the rest of Africa?
It’s robust but more in the informal sector. In order to move into the formal sector more capital and skill are required which is a problem in most of the African countries.
“Whatever you calculate your capital requirements to be, double it. Halve your profit forecasts and double the time to break even”
What are some of the areas of business, other than telecoms and mobile, that are well received in Africa?
Generally speaking, financial services, retail, agri-businesses, service to the mining industry, security and tourism related services.
What advice do you have for SMEs who want to expand into the rest of Africa?
Patience, Patience, Patience. Then you require a local partner or agent (do your homework well in this regard). You need to have a sound understanding of the local conditions, inter-cultural realities, as well as the requirements in the market. Therefore you require a local partner.
Furthermore, whatever you calculate your capital requirements to be, double it. Halve your profit forecasts and double the time to break even. This way you will manage your expectations and won’t suffer from surprises, which are inevitable. Start small initially, test the market and learn from it.
What are some of the risks of taking your business into Africa?
The risks are a function of the industry you are in, logistics are a major problem (just ask Shoprite and other retailers. In addition, payments are erratic, which poses a risk to cash flow. Corruption is still present in many African countries. Most countries have resources and agricultural-based economies, so if the price of commodities drops the economy falters to. The lack of well-trained skills also poses risks, however, the potential for talent is there.
“You have less competition in African countries and the cost of labour is lower”
What are the benefits?
The benefits stem from the higher returns, once you are established. If you provide a good product with a good back-up service your margins should be higher than in South Africa. You have less competition in these African countries and the cost of labour is lower.
What is the growth rate of businesses in Africa compared to SA?
The average economic growth in most African countries is higher than 5%. South Africa’s growth is around 1%.
How does SA government support firms that want to move into Africa?
The SA government is actively encouraging South African businesses to invest in Africa. So for instance, foreign exchange has been released for companies that would like to invest. The IDC is also investing in joint ventures and the Department of Trade and Industry have various initiatives in place (e.g. financial assistance for subsidy at Trade Fairs and so on).