Africa’s rich diversity is a challenge to business
Africa is a big place. With a population of more than 1 billion people, 60 percent of whom are under the age of 30 and rapidly migrating to cities across the continent, Africa’s new-found appeal and long-term potential has shifted from natural resources to new consumer markets and a burgeoning labour force that will be the world’s largest by 2035.
Not only does Africa have the fastest-growing population on the planet, but this year Africa will be the world’s fastest-growing region, outstripping Asia. Averaging growth of 6 percent a year, Africa’s economy is expected to double to more than $4 trillion (R42.6 trillion) by 2025.
The question for multinationals regarding Africa is no longer “Why do business in Africa?” This is self-evident given the high returns on investment. The question is now, “How do we do business in Africa?”
Africa might be the next frontier of growth, filled with commercial excitement, but it is riddled with complexity. Investment challenges will test business acumen well beyond established models.
The infrastructure and skills deficit is an impediment to growth. Firms need to address and overcome such obstacles individually, since the universal improvement of these across the continent is unlikely to meet the pace of commercial expansion.
Despite the euphoric growth story over the past decade, Africa remains the world’s most underdeveloped region, with about 60 percent of the population still living on less than $4 a day. Social and political institutions are weak or absent.
But it is Africa’s rich diversity of 54 countries, with more than 1 000 spoken dialects, a tapestry of cultural and tribal groupings and the ever-changing arena of social, political and economic rules and systems that pose the greatest challenge.
This demands a nuanced approach, focused on local dynamics. In Africa one size does not fit all and a single Africa strategy will prove ineffective.
Take east African regional leader Kenya, and west African powerhouse Nigeria, as examples. Both are Anglophone countries with increasingly progressive and familiar institutions, but their market dynamics are vastly different.
Nigerian consumers tend to favour imported brands, while Kenyans prefer to “buy local”. Even though UK-based Diageo owns the controlling share of East African Breweries, it still markets its primary beer brand, Tusker, as proudly Kenyan.
Another contrast is scale. Kenya is much smaller than Nigeria and relatively insignificant in the global context. Such realities pushed Kenya to improve its connectedness, driving the east African regional agenda and positioning itself as a hub between east Asia and Africa. This is of less concern to Nigeria, which has the size and numbers, and far grander pan-African or even global ambitions.
Such dynamics have shaped individuals and companies from Kenya and Nigeria, shaping their distinctive outlooks and approach to business and management.
These differences illustrate that investment decisions cannot be based on data from a spreadsheet. It is crucial for investors to match statistics with geography, socio-political and cultural insights, and on-the-ground experience. Data must be generated from on-the-spot experience or through experts immersed in understanding individual African markets.
Second, while identifying key markets based on macro-economic attributes is a good starting point, single-factor theories are not that useful in understanding African markets. Countries may have similar growth trajectories and even share a common language or historical past, but in reality they are vastly different.
The cases of Kenya, Tanzania, Nigeria and Ghana are just some examples where despite their Anglophone association and impressive growth records, the cultures of business, consumer behaviour and general systems and practices are vastly different.
Deciphering the African business terrain is far more complicated than it seems.
Opportunities abound in Africa. But entry strategies and on-the-ground approaches must be carefully considered. There is no single template or way of doing business across Africa.
One size certainly does not fit all.
* Dr Lyal White and Christine Barrow are at the Gordon Institute of Business Science, where they lead the Business of Africa executive programme, running in South Africa, Kenya and Nigeria.