The IESE is possibly the most intense non-African Business School and is deeply committed to the continent. Since 1992, when we helped to launch and develop the Lagos Business School in nigeria, we have been institutionally supporting and collaborating with the nile University in cairo, egypt, the Strathmore Business School in Nairobi, Kenya, the Angola School of Management of Luanda, Angola (promoted primarily by the AESE business school Lisbon, also associated with IESE) and the MDe Business School of Abidjan, Ivory coast. We have also developed specific activities in South Africa and Mozambique.
Over the past 20 years we have seen and appreciated a gradual improvement in the business climate in sub-Saharan Africa, which as a whole is still a greatly ignored opportunity and a pending project for Spanish companies. Sub-Saharan Africa accounts for less than 1% of our exports and only 0.5% of total direct investment made by Spain. So far, our companies have been very focused on penetrating the european and Latin American markets. And in the case of Africa, they have limited themselves almost exclusively to north Africa.
However, in recent years a growing interest in sub-Saharan Africa has been detected among Spanish companies, possibly related to or stimulated by some or all of the following factors:
- The crisis in the Spanish domestic market contrasts with the growth of sub- Saharan markets, where, between 2001 and 2010, GDP has grown at an average annual rate of 5.2%.
- The growth of African countries/ markets is doubly stimulated by a powerful population growth, combined with a gradual growth of income per capita, the appearance of an emerging middle class, and a runaway process of urbanisation.
- They are markets relatively close to Spain, almost on the same line of longitude, which means no jet lag to travel there and communication can take place in normal working hours.
- Africa already has, overall, about 1 billion inhabitants, and it is expected to grow to 2 billion by 2050. It is estimated that by 2050 nigeria will have more population than the U.S.
- Since the fall of the Berlin Wall and the end of the cold War, more and more African countries are becoming democratic and improving governance and their citizen accountability systems.
- In many of these countries, major european languages (english, french or Portuguese) are official or are spoken, in addition to Arabic and Spanish in equatorial Guinea.
As regards business opportunities, it may be necessary to distinguish between major economic sectors, and in turn, try to prioritise by countries.
As regards economic sectors the following should be noted:
A. The opportunities in mining and other extractive industries such as oil and gas. There have been recent breakthroughs in both the Gulf of Guinea, and on the coast of Mozambique. These are possibly business opportunities that require large capital and technology investments. There may also be opportunities in the supply of equipment, tools and services to mining companies.
B. Agriculture and agribusiness also offer many possibilities. countries like Kenya are already notable producers of coffee, tea and horticultural products, whether they are live plants, or cut flowers. Again, the distinction should be made between production and sales opportunities in African markets or a focus on exportation, mainly to europe.
C. Today, Africa is relatively under- industrialised. Industry accounts for about 30% of GDP. But in the coming years, the productive structures of the major industries of basic supplies, such as electricity, gas, refining and distribution of oil, etc must be strengthened. In the field of manufacturing, a progressive increase in industrial production may be observed, either by replacing imports (e.g. cars and motorcycles) or through the gradual implementation of export-oriented manufacturing units in Africa. This trend could be driven by both the internal development of African markets, and by the progressive, already detectable, increase of the labour cost in china and other Asian countries.
D. More immediately, increased opportunities will be opened up for the supply of consumer goods, especially in the food and beverage subsector. The two large pioneer Spanish examples in sub- Saharan Africa are Gallina Blanca (with its JUMBO bouillon cubes e.g. similar to Knorr) and equatorial Coca-Cola, a joint venture between Cobega SA and The coca-cola export company, with 16 soft drink bottling plants in 12 countries in north Africa and especially in sub-Saharan Africa. It is probably advisable to penetrate and take a toehold in the sub-Saharan markets based initially on selling cheaper products, and therefore, with an option to become mass products, sold “at the base of the pyramid” of the population. Subsequently, this strategic product, distribution and brand awareness approach can be used to launch higher margin and value added products, as the purchasing power of households’ increases. for example, in the case of Gallina Blanca, the high penetration, brand creation and distribution channels have been made based on Jumbo bouillon cubes. But the possibility of launching products with higher added value, similar to that observed in Spain, is on the horizon, through instant soups, freeze-dried soups or even in the longer term, cans or cartons of soup.
A growing interest in sub-Saharan africa has been detected among Spanish companies
With regard to consumer goods, Mango has just signed an agreement with the South African group edgars, headquartered in Johannesburg, to open 42 stores in South African Shopping centres. Mango already has six establishments in the country.
E. Another of the major fields of opportunity lies in services, both business services (transport, auditing, legal, engineering, architecture, construction, etc.) and consumer services. A fantastic example of rapid development has been observed in the field of telecommunications, where the African continent as a whole, in a few years has gone from a very low fixed-line infrastructure, by copper wire, to almost universal mobile coverage. for example, in Kenya, around 10 years ago there were about 300,000 landlines. Today there are an estimated 18 to 20 million mobile phones, most of them with pre-paid cards. Interestingly enough, the majority of these users, perhaps some 14 million, are registered in global pioneering systems, such as M-Pesa by Safaricom, which allows users to make payments and send money via their mobiles.
In the area of engineering and energy, Iberdrola has just signed a contract valued at 5 billion Kenyan shillings (some 45.5 million euros) to supply electricity to the city of nairobi, while Abengoa has announced the construction of two solar thermal power plants in South Africa. Another catalyst to note is the increasing connectivity of Africa through undersea cables carrying telephone and electronic (Internet) signals. The latter highlights the growing importance of banking and other financial and insurance services. The economist Intelligence Unit forecast that towards the end of this decade, the total assets of banks in sub-Saharan Africa will reach 1.37 trillion dollars, largely thanks to the progressive usage of banks by the population, which today is largely lacking banking services. even in the field of services, opportunities in transport services by land, sea and airtransport and tourism stand out. Some Spanish companies such as Riu Hotels in Cape Verde are already established in sub- Saharan Africa. As activities of Spanish companies in sub-Saharan Africa increase, direct air links between Spain and sub-Saharan Africa should also improve. Today, these connections, with some exceptions, often force us to stopover in London, Paris, Amsterdam or Brussels. And finally, it is also important to mention that there is still a limited establishment of retail chains and supermarkets. With respect to this area, lessons could be learned by paying attention to traditional African distribution channels, such as large urban markets and small scale stalls.
F.There is a large market for used vehicles, both cars and trucks. The Japanese combine the original reliability of their vehicles, with a vehicle inspection in origin, similar to a MOT, which allows the African citizen to see on screen, for example from nairobi, a particular second-hand Japanese car with a certificate of origin. The car can be bought with a high level of trust and be picked up in Kenya, in a few weeks. Obviously, the Japanese avoid countless ecological problems as a result of scrapping and recycling of their used cars.
G. Finally there may be opportunities in the broad field of financial investment by venture capital (private equity). A good example is Mediterrània capital, a public-private venture capital fund partnership, managed from Barcelona by Grupo Riva y García. This fund of 60 million euros has enabled several successful investments to be made in existing or newly developed companies in countries in north Africa. Today, its articles of association prevent it from considering investments in sub-Saharan Africa. But I personally will not lose the hope of seeing them broaden their scope in the near future.
It is highly desirable to establish business and investment links with local partners
Priorities by countries
First, the importance of South Africa should be stressed. This country is often chosen by Spanish and european companies as an operating base, taking into account both its own domestic market and markets that are neighbouring or relatively close to the southern African cone.
Something similar happens in Nigeria, with a powerful and growing domestic market.
Another important country per se may be Ethiopia.
In the case of Angola, where peace was not reached until 2002, “everything still needs to be done”, and 85% of GDP depends on oil and diamonds. Given its former colonial ties and language and cultural barriers, many businesses and Portuguese citizens are rediscovering Angola and Mozambique, in a “two-way” relationship, since Angolan companies are also investing in Portugal. Some analysts note that the third vertex of this interesting geopolitical triangle could be Brazil, clearly Lusophone and with cultural and even family ties with Portugal and both Angola and Mozambique.
Some countries that are small but well- placed or categorised in the “ranking” should be pointed out owing to the ease of trading with them: Botswana, Mauritius and Seychelles. They all have important tourist attractions.
Here, the possibilities of countries generally regarded as the head of a particular political-economic zone are worth noting. Such may be the case in Kenya, or Tanzania, with economic, trade and logistics influences over the surrounding countries such as South Sudan, Uganda, Rwanda, Burundi and Malawi. Ghana, the Ivory coast and Senegal also stand out for their prominence in West Africa.
Today, as Paul Collier notes in his book The Bottom Billion, countries with the worst prospects for economic and social development are possibly the poor sub- Saharan countries, without direct access to the sea, which are, in turn, surrounded by other poor countries with very poor communications infrastructures. This list would include countries like Mali, Niger, Chad, Burkina Faso and the central African Republic.
Finally, countries with unstable governments or current or very recent armed conflicts, such as Congo, Somalia and Zimbabwe should also be mentioned.
Now or later? And how?
If we take a look at Spanish proverbs there are two with contradictory sayings: “el que da primero, da dos veces”, (an english equivalent would be “Strike first, strike hardest”), but also “A los pioneros se los comen los indios” (translating literally as ‘the pioneers are eaten by the Indians, conveying the idea that those who go in first are eaten alive).
Surely it is evident that large multinational companies, such as Nestle, Unilever, Gallina Blanca, Coca-Cola, etc., have decided to enter and conquer positions constituting a strategic base from which they can start building more ambitious strategies for future development, in line with the actual development of the African countries.
Some of these companies are applying the concept of “frugal product development”, i.e. products especially designed for developing countries, seeking maximum functionality at the lowest price, and where appropriate, robust products, i.e. with minimum after-sales service requirements.
A recent article (“Lighting the Way”, The economist Technology Quarterly, 1 Sept 2012, pp 12 -13) noted the developments taking place in “decentralised” or independent electric lighting systems, by combining solar panels, small batteries, and new LED-type lamps. This “wireless electricity” could be the next big innovation and the next big commercial “boom” in sub-Saharan Africa, after “wireless telecommunications”, which is already widely implemented.
A european observer, accustomed to the single market without tariff barriers, almost without borders and a single currency, will probably find that African countries have a long way to go in terms of their economic integration process, which has already begun. And the majority of African companies still seem excessively focused on their own domestic market. This may be partly due to the lack of communication and transportation between countries. A few years ago it was said that US companies “better understand” the idea of a united europe than the europeans themselves. Something like this may be happening in Africa.
Obviously, and not only in sub-Saharan Africa, it is often highly desirable to establish business and investment links with local partners who have deep knowledge of the country, customs and possibly of its multiple languages. These local partners should also facilitate high-level social and political contacts, as the laws and regulations on what can or cannot be done are precarious, confusing, or simply nonexistent.
Another interesting concept is that the “scope of business performance.” In general, a european company tends to focus on carrying out internally its essential or core activities, those which add the most value and create competitive differentiation, and then outsources the remaining activities. To give an example, for europeans it is clear that their need for drinking water or electricity is acquired from an external company, a provider of such supplies. They may even think that the nation’s education system will provide a sufficient number of potential employees, properly educated and trained and maybe even working in the different fields required.
In Africa little or none of this should not be taken for granted. As an example, Riu Hotels in cape Verde had to install wind turbines to generate electricity, pump sea water, and make it drinkable for use in its own hotels. Then, once used, it is treated, before re-using it to irrigate the gardens, or to deliver a part of it to the community for agricultural rrigation. And of course, they had to train the local staff necessary for the smooth running of the hotels.
In short, frequently, a company in Africa often will have a broader “scope of activity” than in europe. In the cases of some mining companies in remote areas in the interior of the country, they have to provide educational or health services to the entire surrounding population, whether or not the recipients are employees of the company.
Any review of the socio-economic climate in sub-Saharan Africa should not fail to mention the growing importance of china as a supplier of consumer goods at affordable prices, such as a constructor of buildings and civil engineering works, as a buyer of farmland, or concessionaire in the mining and energy sectors.
Often it is generally recommended that companies should develop CSR activities, thus acting as good citizens in the community or country in which they are established. clearly, Spanish and european companies should act in Africa with ethical, ecological sustainable criteria, actively cooperating to fight against corruption, demanding that all authorities act with accountability criteria and seeking the common good of the whole community implementing criteria for social inclusion.
Professor of Marketing and Director of The Africa Initiative, IESE Business School, Universidad de Navarra
181 thoughts on “Economic and business opportunities in sub-Saharan Africa”