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Africa - The land of opportunity

01 June 2016

Africa continues to show much promise as a land rich with opportunities for investment, despite recent reports that growth in the continent has slowed down. We're all aware that it currently has the world's largest community of young people - 60% of Africa's population is under 25 according to the World Bank, and its population is expected to increase to approximately two billion by the year 2050. It is also home to a burgeoning middle class and has a wealth of raw materials upon which many of the world's most successful businesses depend. These attributes continue to attract forward-looking investors from across the globe, which has helped fuel the 'Africa Rising' phenomenon.

However, in spite of its prospects, and like most emerging markets, the continent still battles with a host of challenges. The most notable and well reported (including comments recently made by the UK's PM, David Cameron) include bribery and corruption, and a lack of adequate hard infrastructure and accessible power. Some reports estimate that an investment of approx. $90bn per year for the next 10 years is required to rectify the current infrastructure gaps and an underdeveloped regulatory framework. So how do businesses hoping to enter into or expand on the continent overcome these roadblocks? Well, there is no simple answer, but businesses will need to consider all factors when adopting a strategy for Africa, and then add to the mix a little bit of an appetite.

If opportunity doesn't knock, build a door

Some market leaders in Africa have created their own, more reliable infrastructure to overcome these deficits. Such structures offer businesses the stability needed to function effectively in spite of local deficiencies, but also help to reasonably assess the cost and value of their investment. Examples include the growing adoption of innovative alternatives in off-grid power, particularly in East Africa. In Nigeria on the other hand, generators have become vertically integrated to stockpile essential raw materials and reduce the problems caused by supply unpredictability. As off-grid renewable (particularly solar) options develop, businesses looking to tap into this as their main source of generation should seek to co-operate with local governments to avoid development occurring in random pockets of states.

This has bred new, innovative companies which have viewed this challenge as a gap in the market and have seen great returns so far. The model used by M-Kopa for example, where a solar-powered system has been developed enabling them to provide energy to customers in Kenya, Tanzania and Uganda, uses a business approach that is not only profitable but also meets a critical demand in many African markets and helps to improve the quality of local lives.

Establish local links

This links nicely on to key considerations around local content. As with all markets, it is paramount that businesses considering entry into or expansion within Africa have local expertise and relationships with key stakeholders to gain a competitive advantage and win influence. Even within Africa, each country/area will require its own unique approach. So what's the best way of making the right impact? The most obvious but also most challenging is finding the right local partner. And if this is too scary or you're not sure where to start, speak to a trusted international advisor with good connections on the ground (like Hogan Lovells for instance).

Positioning for progress

Naturally, companies will need to do their homework to critically assess where to focus their efforts, whilst being mindful of the services and/or products that they offer and the industries in which they operate. Demand for better public services in certain countries such as Ghana (where I'm from) is high but also presents opportunities to those in the healthcare, real estate, construction, sanitation, infrastructure and power industries, just to name a few.

In addition, growth is variable across the continent's markets. Anna Rosenberg, director and analyst for sub-Saharan Africa at the Frontier Strategy Group, suggests that we may soon see a move toward smaller markets "consolidated into clusters to cut costs and resources". In her view, clusters could be formed using commonalities between countries. As examples, she offers the possibility of a francophone West African cluster being managed out of the Ivory Coast and a cluster based on historic ties uniting Zambia, Zimbabwe and Malawi, with management out of South Africa. Indeed, this is not too dissimilar from what we have seen with organisations such as the EAC which, amongst offering other benefits, facilitates the trade between six East African nations.

Don’t believe what you hear…see it for yourself

Of course, greater efforts must be made by countries within Africa to remedy the problems which exist and many are making moves to kick-start this process. It is important to recognise that there is more stability and many countries are moving up the Ease of Doing Business chart. There is also greater investment in nurturing a skilled workforce who can contribute meaningfully to the continent's development and help to harness its potential. Similarly, there is a growing interest in developing technologies to help countries to remain competitive, increase the ability to share knowledge more widely and to develop their own existing natural resources.

The threats posed (both individually and collectively) by the current obstacles cannot be ignored by businesses keen to operate within Africa, but don't believe the hype –they are not insurmountable. Africa is still rising (even if currently experiencing a blip) and the time to refine your strategies and get out there is now.

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