Continental divide

Waking Up to Africa's Potential

Africa factory-Bloomberg-CHANGED
Africa wants German consumer goods, machinery and cars.
  • Why it matters

    Why it matters

    A survey by the Handelsblatt Research Institute finds the continent ripe for investment, but many German firms are blighted by a patronizing, short0sighted attitude, that is blinding them to the business opportunities on the continent.

  • Facts

    Facts

    • Africa’s economy is rapidly shifting away from a focus on raw materials and infrastructure projects, towards consumerism as the middle class reaches an estimated 300 million.
    • Two-thirds of German firms doing business in Africa describe their efforts as “successful” with returns increasing the longer they do business there.
    • Patience and long-term commitment is important as in many parts of Africa administrative systems and infrastructure remain sub-par.
  • Audio

    Audio

  • Pdf

The patronizing attitude of the German business community towards their African peers was all too apparent at a recent conference in Stuttgart. African experts made presentations on economic opportunities south of the Sahara, and African business representatives touted for partnerships with German companies. The Germans responded by listing for the assembled ministers, ambassadors and executives, all the deficiencies of their continent. In tones that were part-lecturing, part-compassionate, they offered well-meaning proposals for aid programs.

It wasn’t aid the Africans wanted, but business relationships with equals.

Economic growth in Africa has been consistently higher than the global average for many years. A new generation of leaders has established itself in government and business. This generation has often been educated at European and American universities and supports democracy, transparency and open markets. They are the product of the new and fast-growing African middle class, now estimated at more than 300 million people. They’re not in total control, by any means, but change is on the way.

The most successful business strategies have involved creating local branches and partnerships with local companies.

Africa’s economy is no longer driven solely by raw materials, infrastructure projects and development aid. The continent seeks everything German industry has to offer from automobiles to machinery to consumer goods, but not all companies are taking advantage. Thousands of German companies are active in Africa, but while it contains 15 percent of the world’s population and four percent of global trade, only two percent of German exports are sent there. The trade volume of German companies on the entire continent is less than with Spain alone.

Research based on a detailed survey and interviews with authorities on the subject conducted by the Handelsblatt Research Institute, in collaboration with U.S. financial services firm KPMG, reveals overwhelmingly positive experiences from companies doing business in Africa. Two of three firms surveyed describe their involvement as successful, and in fact, the longer and more actively involved the company has been in Africa, the stronger the business grew.

Companies establishing a presence in an African country often generate high profits due to the scarcity of competition. The most successful business strategies have involved creating local branches and partnerships with local companies. In general, private sector companies are better partners than state-owned companies or governments, which can be vulnerable to corruption. Patience is required. Firms unwilling to commit to a long-term strategy won’t get far.

For many years the entry point to Africa for European firms has been South Africa. But more companies are discovering the wide diversity of the continent with its 54 separate nations. New centers of growth are emerging, especially in Nigeria, but also in Angola, Ethiopia, Ghana, Kenya and Mozambique.

Companies establishing a presence in an African country often generate high profits due to the scarcity of competition.

Six of the ten fastest-growing nations of the world are in Africa. According to estimates by the International Monetary Fund, Sub-Saharan Africa will grow by 6.5 percent annually in the next few years. Admittedly, it is emerging from a low baseline, but conditions are good for it to reach a sustainable path of growth. Government leadership in many countries has improved, modest prosperity is spreading in many cities, and millions of people are gaining access to electric power, clean water and mobile telephones for the first time.

Still, companies should temper their enthusiasm for Africa with a healthy dose of reality. The Ebola epidemic has underscored the weak public infrastructure and shaky administrative systems in much of the continent. German investors in Africa are familiar with other problems, too, such as corruption, legal uncertainties and lacking of professional training. They don’t expect Africa to follow the same path to success in the next two decades as China and Southeast Asia. But they do analyze each individual country for solid business prospects and invest when opportunities arise.

Whoever sees only risks will not conquer markets, as was the case in China. It would be fatal if German industry were to ignore the continent likely to be the fastest growing in coming decades and cede it to China or the U.S.

 

Expansion in Africa-01

 

To contact the author: heilmann@handelsblatt.com

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