How to Invest in Africa Successfully, Sustainably and Impact-fullyThe rise of Africa has brought together two powerful forces – how to succeed in doing business in Africa, and how to positively impact the communities around which businesses are being set up. How companies are combining their need for very high business returns in these frontier markets with the need to positively impact the local communities is differentiating and setting apart who the real winners are in corporate Africa. This is especially true for sub-Saharan Africa which is rapidly emerging from decades of under-development and blatant run-down by both poor public and corporate governance and the absence of proper corporate social responsibility.

The recent ‘Africa Rising Seminar – Invest, Trade and Expand’ held in mid-April 2015 and jointly organized by AFFRONTA and DMCC helped to raise the level of engagement and understanding between the many stakeholders within Middle East in the rising Africa story. The speeches delivered and the conversations had dwelt mainly on the economic growth and advancements in Africa as well as the impact in attracting foreign direct investments (FDI) into Africa. The Africa rising seminar attempted to answer practical questions like: Where shall Africa be 20 -50 years from now? Where will growth come from - which cities, sectors? What’s the opportunity, incentives, payback and risks? What are the major projects shaping Africa? How to leverage Dubai as a commercial hub? Setting up in Africa – what are the available solutions & services? Compliance & Corporate Social Responsibility in Africa?

What may have been lost is the implication and the impact of foreign direct investments on the lives of the local communities. The ultimate success of any business organization is to be profitable and to improve the quality of life for everyone connected to the business, including the customers, the employees and the local community. This is especially true of Africa where the impact of a dollar has exceedingly higher correlation to the welfare of the community relative to most other regions of the world. This is understandable given that majority of the people in these country-markets live below the international benchmark of the poverty line of $2 daily consumption (World Bank, 2011).

To begin to understand the connectedness of success, sustainability and impact in advancing business, it is important to highlight the many macro-economic variables in the Africa rising story. If you are thinking of investing in, trading with or expanding your business into Africa, here is what you need to know to appreciate the careful tapestry of successful business and good corporate social responsibility.

Key drivers of growth in AfricaPopulation and Demographics: The key driver behind most of the growth being talked about is population growth as most African countries are growing by more than 2% p.a. In fact the population of most countries is expected to have doubled by 2050 according a recent forecast by The Economist Intelligence Unit. This population growth will continue to drive the demand for most basic goods and services and continue to put pressure on existing infrastructure and social services including health and education. Government funding hasn’t been enough and thus public-private partnerships will continue to be an important source of finance for growth capital needed and to bridge the huge deficit in national budgets.

Urbanization: The demography of the current population is that half of Africa’s population is under 20 years and most are rapidly leaving the rural areas and villages for the cities in search of employment. This is driving a huge and very active labour force to be clustered around cities and urban centres. The result is that there is pressure on existing housing and urban city infrastructure and therefore a demand for affordable housing in and around major cities. In Kenya alone, there is a shortage of approximately 150,000 housing units per year with most of this demand skewed towards the cities and urban centres.Development: After decades of lagging behind in general development, many African countries are now striving to catch up with the rest of the world in making basic social amenities and services available to its citizenry. This includes investment in basic healthcare and community health programmes, provision of universal basic primary education and social services for weak and marginalized sections of the society. The challenge is always finding the right partners to help close the huge deficit in national budgets with most of the national budgets being heavily skewed toward consumption expenditure as opposed to development expenditure. Foreign aid and grants have been the traditional sources of alternative finance though they impose a huge future burden on repayment and other conditionalities. Governments are now seeking alternative financing through raising debt in international markets with a good case example being Kenya which recently raised $2 billion worth of sovereign bond. Other countries have since followed suit in an attempt to access cheaper loans.Investment in infrastructure: Many African countries are now investing heavily in building roads, railway networks, pipelines and ports. There is also increased focus to have transport linkages from East to West, and South to North across the continent. This is in a bid to boost the intra-African trade which is set to grow and take advantage of expanded markets through regional preferential trade agreements and custom unions. Many of these major and flagship projects are more obvious in the Eastern and Sothern Africa regions connecting from Daresaalam, Tanzania and the neighbouring countries to Zambia, and connecting the coast of Kenya and the neighbouring countries to Rwanda and the DRC Congo.

Improved Public Governance & Transformative Leadership: Not all sub-Saharan African countries fit this description but many have improved from the reputation of years gone by when it would have been acceptable to label in blanket that all African leaders are corrupt or abuse power and their public offices. Many leaders are now democratically elected into public offices and most countries have revised their constitutions to guard against the abuse of public offices and the plunder of public resources. Many of the countries are improving their government services by employing e-government technology and central government services offices to bring predictability into government processes and to root out corruption. A good success case country is Rwanda which has been voted among the highest in the world’s ease of doing business rankings. The rise of technology & Financial inclusion: Most sub-Saharan countries, have leapfrogged where technology is concerned considering the current level of consumption of smart phone mobile devices, computers and general use of internet and data services compared to 20 years ago when the penetration of landline telephone lines alone was less than 1% and internet use was almost non-existent. The Mpesa mobile money platform that originated in Kenya is now being exported to the developed countries as a convenient way of sending and receiving money. This technology has brought financial inclusion to the vast majority of populations that were prior to considered too risky (or not good enough) by the traditional conventional banking industry. The line between mobile companies and banking institutions has become very thin and blurred to the point that companies in two different industries have been turned into direct competitors. A good case in point is Equity bank of Kenya which has forward integrated to start providing mobile services through Equitel raising competition for the mobile money transfer segment with Safaricom’s Mpesa.

African Diaspora Remittances & Middle Class Growth: The role of Africa’s diaspora is now more than ever being seen as very crucial to the growth of economies as this group is driving a huge portion of the local consumer behaviour. In fact in most countries, diaspora remittances as a proportion of national GDP has surpassed traditional export sectors like tea, coffee and tourism. Most African’s in the diaspora send money home every month to mostly support their families’ consumption expenditure. Part of this money is also directed at the housing and real estate sectors as most seek to secure a home for when they decide to visit or return home or to simply have a ‘status’ in their home country. This combined with the local growth of the middle class is fueling the consumerism behaviour that is being talked about as a major factor driving the growth of the consumer goods and services sectors in most African countries. For business, there is good scope to invest in the fast moving consumer goods sector and the franchising of global fashion and food chains is quickly catching up as a trend.

Key Growth Sectors in summary: Basic Consumer Goods and Services, Infrastructure, Energy and Power sectors, Oil & Gas and Mining sectors, Housing and Real Estate

sectors, Manufacturing and agro-processing sectors, Information and Financial Services sectors.

Areas of Corporate Social ResponsibilityCommunity Sustainability: As a business investing in Africa, it is advisable to aim at building sustainable communities through strategic community investments. Become an important part of the communities you operate in by involving yourself in initiatives that raise awareness, tackle social issues and make a difference. Initiatives and programmes around education, health and community development are likely to get you into the good books of the local communities. If you can’t give money, volunteer in social activities.

Skills Development for Talent Sustainability: As a business investing in Africa, it is advisable to recruit from the local community as a faster way of integrating your business into the local market. This may not always be practical when you are starting up as there is shortage of very highly qualified people but you should consider expat employment as an interim solution and as a way of knowledge and skill transfer after which you should fill the positions with local staff. This will in the long run save your company money as well as help your company integrate quickly into the local community. Aim at promoting joint partnerships with local universities and training institutions as a way of attracting good skill and top talent to your company.

Avoid Corruption for Market Sustainability: As a company doing business in Africa, integrity, professionalism and compliance should extend through the services that you offer, the clients with whom you engage, the professional standards you uphold, the employees you hire and promote, and the communities where you live and work. You should aim to act with integrity by complying with all applicable laws and regulations and the upholding of the highest professional standards. Your core values should illustrate your commitment to the highest principles of personal and professional conduct guiding how you relate with your employees, customers, vendors and the general marketplace. Avoid corruption as the only way to get ahead of competition. There is a corrupt side to Africa, and there is not. Using corruption in your business dealings is not sustainable and is likely to land in trouble (or jail) sooner than later. As a general rule when tempted to use corruption, consider that it is quickly becoming unacceptable to bribe public officers and the general public. Avoid corruption and the word will get around which will most likely land you into the good books of many including your customers and authorities. This can only be good for your business.

Environmental Sustainability: As a business investing in Africa, it is advisable to aim at reducing the impact on the environment through conservation, innovation, new technologies and behavioural change. Make environmental conservation part and parcel of your activities. Promote the conservation of natural habitats by championing activities such as tree planting, conservation of natural habitats and wild animals, working with local conservationists to preserve and protect the environment, and creating and engraining environmental consciousness and best practices into your company’s core business processes.

AFFRONTA – Local knowledge at global standards AFFRONTA is a leading go-to consultancy for trade and capital flows between Africa and Middle East. We provide cutting edge advisory services and solutions to businesses directed at making the work of decision makers easy and quick to help take advantage of opportunities while minimizing risks and costs. 

By James Mwangi, MBA (Murdoch), CPA, BA (Economics) – Managing Director, AFFRONTA DMCC Email: james@affronta.com; Tel.: +971505499406; Website: www.affronta.com