Africa is a continent of a billion souls, so it’s not far behind India and China. It is a lot larger than either though, and while those are single political entities, Africa contains 54 states all at very different stages of development. It’s a common mistake to treat ‘Africa’ as if it were homogenous. It presents to investors a huge and undeveloped market sitting on greater mineral resources than anywhere else in the world.
It isn’t helpful to pay much attention to recent history when approaching African markets. While it is true that colonial influences are still strong in terms of language and governmental structures, the development resources that have come in from America and China leave little more than sentiment working on the side of the European powers that until recently enjoyed exclusive trading rights.
MISSING THE POINT
Peter Walker, Chairman of the Nigeria British Chamber of Commerce UK Network knows just how competitive things have become in West Africa, but he thinks western investors are missing the point. “Over the next five years I would expect more focus on African generated activity and investment, based on the development of those internal markets.” That activity will come from regional initiatives that are pulling neighboring countries into formidable trading blocs, he believes: “The Kenyan Deputy Prime Minister pointed out to me recently that we need to think of Nairobi as the commercial center for 60 million East Africans.”
Inter-governmental free trade areas, like the 15-nation ECOWAS in the west, the East African Community and COMESA in the east, and SADC also representing 15 countries in the south, are taking steps to bring about free trade and promote economic integration across industry, transport, telecommunications, energy, agriculture, natural resources, commerce, monetary and finance. These regional groupings are going to have enormous influence in changing the direction of investment flows, says Walker.
South Africa’s labor costs may no longer be low enough for Caterpillar, but it continues to attract investment because of its vast reserves of minerals. Global companies like BHP Billiton (which employs 12,000 people in South Africa) continue to commit billions of dollars annually to exploration projects. However, investing in Africa is not without risk says John Notman-Watt, MD of Stewart Group, which provides analytical services to majors like Billiton: “Uncertain judicial climates enhance the potential that assets may be nationalized. Sometimes strong feelings about natural resources belonging to the country’s citizens influence political direction.”
Less certain is South Africa’s future as a destination for business process outsourcing (BPO) operations. According to Jim Kleyn, outsourcing vice president at Capgemini, “the value proposition especially for North American and European companies has been diluted thanks to the strength of the Rand and rising wages”. He sees the less complex call center work shifting back to India, with South Africa taking the more complex stuff like SAP and cloud computing, as well as niche services to support the ever-buoyant mining sector.
LEVELING THE FIELD
By contrast, the arrival of Seacom’s fiber optic cable in Mombasa last July boosted Kenya’s bandwidth supply by 700, Mozambique’s by 850 and Tanzania’s by 1,000 percent. The Kenyan Government has invested heavily in attracting and developing ICT and technology enabled businesses. The sector has increased up to 20-fold since 2000, and the bandwidth capacity allows East Africa to compete with India for offshoring.
Kleyn sees Egypt as a potential location for growth in BPO offshoring in the near future. One should remember that Egypt and its Maghreb neighbors also think of themselves as African not Arabian, says Walker. The Mediterranean countries of Africa have the added advantage of their proximity to Europe.
Walker goes on to point out that the present governor of Nigeria’s Kano State Malam Ibrahim Shekarau is keen to establish Kano as the ICT hub for Nigeria. “He has a clear intention to attract technology-based industries to fill the under-used facilities he has available and is providing reliable energy resources to underpin that.” In Nigeria, dynamic state governors with power to raise capital through bond issues are finally making the economy buzz.
Technology and telecoms will undoubtedly grow fast across all African markets, and attract venture capital. The global mining and energy companies will continue to develop projects, and tourism will move into the more stable areas across the continent. But the clearest message from everyone we spoke to was to approach African markets, region by region, from the inside, and above all understand and respect the way your partners want to do business.