Africa’s impressive growth over the past decade is bringing new wealth and investment opportunities to the continent as global firms scramble for a share of the market by entering or expanding their local operations. But despite the opportunities, investment and business risks in the continent are becoming more diverse and complex, making it necessary for businesses to carefully plan and implement their activities in order to overcome the challenges of the continent’s tough business terrain.
As global companies seek to take the opportunities in Africa’s growing markets, a detailed study of the social and political environment of target countries is required to measure and anticipate political risks ahead of time. Often times, businesses need to build continuous relationships with leaders in order to safeguard their investment and such relationships are easily broken when there is an unplanned power transfer between successive governments with different economic agenda. As with FirstRand’s acquisition of the Finance Bank of Zambia which was overturned by President Michael Sata after he took over government in 2011, anticipating political risks help organizations decide whether to enter markets via an acquisition, partnership, joint venture or as a stand-alone. Appropriate timing is also very critical to carrying out business activities in such markets and therefore companies should enter markets with high prospect of political stability before those with volatile political climate.
Corruption is a major concern for African countries, with 9 of the top 20 corrupt countries in the world from Africa. Therefore when entering into transactions, particularly with government institutions, contract terms and agreements should be clear and precise, protecting the interest of the company, and working to avoid compromising organizational brand and core values. In 2004, Vodacom chose to protect their brand and values rather than complete their takeover of Econet Wireless in Nigeria as a result of allegations of corruption arising from shareholders dispute and allegations of illegal brokerage payments to certain state governments.
A peculiar problem facing African companies includes challenges with procurement and logistics due to infrastructure deficiencies. Inefficiencies at ports, poor roads and complex regulations exist in most countries and leaves companies with spiraling costs, therefore, organizations should seek partnerships with local firms with expertise in handling logistics and procurement needs to develop a cost-effective supply chain that will add value to the organization and its customers.
Also, products and services in Africa should take into account the culture and special nature of the market. With low income levels being common, product prices are an important consideration for most African consumers. Therefore products and services should be affordable to the desired target market. Furthermore, in embracing African cultures, marketing efforts ought to reflect strong elements of Africa’s culture and value, while corporate social responsibility programs can be used to engage local communities and create brand awareness to ensure a win-win situation for new entrants into the African market.
Babatunde Jemi-Alade is a second year student at the Lagos Business School, and can be reached at
