Is it profitable to do business in Africa?
As part of the „Gospodarna Wielkopolska” project, implemented by the Marshal’s Office of the Wielkopolska Region (link), I had the opportunity, along with a few dozen-person delegation, to take part in a PowerGen Africa international fair, which took place in Cape Town.
PowerGen Africa, is one of the world’s largest specialist fair, which attracted over 10,000 participants and 350 exhibitors from over 85 countries. This place is not only a platform for creating trade, but above all it is an opportunity to meet leading practitioners and specialists in the energy industry, as well as the representatives of scientific and technical concept.
Most people associate Africa with humanitarian aid, difficult living conditions and diseases. There is a lot of truth in it. This is a place where people often live on less than $ 2 a day. 50% of Africans barely survive each day for less than $ 1.25 (and in Zambia almost 75% of the population live that way). In South Africa, the unemployment rate is almost 27%!
On the other hand, e.g. in Cape Town you can find the richest people in the world. There are car showrooms of Maybach, Ferrari or Porsche. And it often happens that a homeless person sleeps near them on the street.
Sometimes I had the impression that we could envy South Africa roads, and kilometre-long traffic jams show that people can also afford cars to drive on them. And on the other hand, next to the street we met a man who was selling … ordinary plastic pens.
How deep is the pocket of Africans and can you create a business there? How is it possible that there are 400 companies in Africa worth over one billion dollars? What do African startups do?
I described here my own experiences from a visit to Rwanda and South Africa, the conclusions from conversations with people who live there and to the large extent I also used two books: „Africa’s Business revolution” (authors: Acha Leke, Mutsa Chironga, Georges Desvaux) and „How to succeed in the African market” (written by Winfred Oppong-Amoako).
How is it with this business in Africa?
When I first saw information on TechCrunch about competition for startups in Africa, I wondered – what interesting can arise there? I think it’s time we verify our ideas about Africa.
When thinking about business in Africa, the association with corruption, conflicts ,restrictive laws, high inflation and low qualifications of the employees come to your mind. This is often true, but this is not usually the case for all African countries, and in others it is slowly changing. The huge brands that settled there saw the potential of Africa and their businesses have flourished. Ghana, which had economic difficulties in 2014-2016, in 2018 was the fastest growing economy in the world.
The middle class in Africa is becoming more numerous and richer. The average middle class income is just over $12 a day. Technology is changing Africa very quickly. More and more people have access to mobile phones – it is estimated that in 2019 it will be 930 million people. Mobile apps make electronic transactions easier and cheaper.
Well-known brands in Africa
In Africa, you can find large, well-known brands that successfully sell their products there. Toyota has become the main car dealer in many African countries and has built a strong brand there. Haier, a manufacturer of home appliances, offers special refrigerators, that cope with frequent power failures. Dangote Cement is a company founded in Nigeria in 1981 producing cement. In 2017 it had revenues of over USD 2 billion. SABMiller, founded in South Africa, is an international beer selling company today, which sales in Africa (but outside of South Africa) increased between 2007 and 2016 from 280 million dollars to 1 billion and which operates in 40 countries in Africa. Mark Bowman, who once managed the company, claimed that at that time in Africa they had little competition, because other world beer companies considered this continent not very attractive in terms of business.
Startups in Africa
Over the years, investors have focused on traditional types of revenues in Africa – oil, gold, diamonds, coal, cacao, coffee or tea. Now with the new generation of Africans and the growing middle class it is changing. Now no one is surprised by investors putting money in African startups. Here you can see how the startup community in Cape Town is developing: Startup Grind Here you will find a list of interesting startup accelerators: Silicon Cape.
In Africa, there are also call centre companies developing , which operate in the field of agricultural processing, education, tourism, mobile games, public transport, logistics, renewable energy, real estate, fashion and entertainment. Africa is a place where a small number of sectors is already saturated. There is still plenty of land to grow, a lot of urban areas to build on, there are schools to build, food and clothing to produce, roads to build, cars to produce and innovative technologies to develop for the population eager for innovations.
Earlier, I mentioned companies with decades of experience, but there is also place for startup companies. Uber (if you can still call it a startup) took advantage of the chance and successfully settled in Africa. I also saw the ads of Uber Eats on the billboards. GhanaPostGPS (www.ghanapostgps.com) is an application created by IT company from Ghana (Vokacom), which divided the whole Ghana into 5m x 5m areas and assigns them a unique digital address. Thanks to this every piece of land has its formal , permanent address. Bear in mind that we are in Africa, – not every house has its own address out there. This digital address can be later used in the bank to open an account or take a loan or simply used to order a product form an online shop to your house. This app has over million users.
Jumia (www.jumia.com.ng) is an African startup that is an equivalent of Polish Allegro and was founded only in 2012 (Allegro – in 1999). Today, it is estimated that online sales in Africa represent about 0.5% of total retail sales . In India it is 4%, in the USA 14%, and in China – 17%. President of Jumia estimates , that in 10 years the online sales in Africa will be 15% of total retail sales. In 2017 Jumia had over 2 million active customers in 13 African countries. Sales reached almost USD 600 million.
If you are looking for an idea for a startup in agricultural processing then listen to another problem of Ghana. Due to the poorly developed food processing technologies a lot of agricultural products are thrown away after harvest. For example, Nigeria and Ghana lose more tomatoes after harvest than they are able to process. This waste represents up to 75% of all annual harvests. If Nigeria was able to process this waste into tomato paste, it could save up to $ 1 billion a year, which is now being spent on importing tomato paste from China.
In 2016 alone, African startups collected over $129 million in investments. Mark Zuckerberg himself and his wife Priscillą Chan invested $24 million through the Chan Zuckerberg Initiative foundation in the African startup Andela (andela.com), which trains engineers and programmers and outsources them to global companies in the USA and Europe.
How to do business in Africa?
I do not want to say that Africa is a business Eldorado. Doing business there is difficult and requires a lot of perseverance.
There is also not one good method of doing business in Africa. Each country has its own characteristics, its history and its own policy. It is not an easy place to build a business, but it is certainly very prospective:
- Africa has over 1.2 billion population and it is in the middle of economic acceleration
- Hundreds of large companies (both founded in Africa and outside of it) have successfully built their businesses in Africa and there is room form much more
- Africa has a huge undeveloped demand for many products and services
Many African countries in spite of their turbulent history are undergoing huge transformations. Genocide in Rwanda in 2004 is known all over the world. Due to the riots between the two groups of the population – Tutsi and Hutus – over one million people died in just 100 days and over two million fled to neighbouring countries. The country is very safe (although from time to time on the streets you can meet armed soldiers supervising the order – maybe that’s why it is safe), the level of corruption is very low, it is fairly easy to deal with official matters, e.g. getting an ID card. Many foreign companies invest huge amounts of money in business here – including Poles. Visiting the industrial zone we came across a newly opened Volkswagen factory.
Unfortunately, you usually have to be physically present to run a business there. It cannot be done remotely, and the beginning of the business cooperation itself requires even several visits to Africa…
The participation as part of the non-competitive „Gospodarna Wielkopolska” project, co-financed from the resources from the Wielkopolska Regional Operation Programme for the years 2014-2020, Measure 1.4: Internationalization of the regional economy, Sub-measure 1.4.2: Economic promotion of the region.