African markets are growing and international companies are more likely to go there and try their luck. In our last article, Lionel Zinsou, economist and former Prime Minister of Benin, already explained what economic potentials are still untapped in Africa. However, what precautions should be taken in the conduct of business there? Here is our follow – up with his 7 tips to better conquer African markets.
This article is a direct translation from an interview, courtesy of La Fabrique de l’Exportation, a French Think Tank dedicated to promoting French Exports.
Lionel Zinsou’s analysis can be summarized in three sentences: “Today, a desire for Africa is legitimate because growth is profitable. The fear of Africa is still excessive. Nevertheless, there are certain risks that need to be managed”.
Don’t go alone: Seek for advice and support
Given its heterogeneity, its complexity and the various risks to be managed, Africa is a continent more reserved for multinationals and their suppliers. Large companies are endowed with internal risk management services and can pool risks across several countries. Thus, SMEs that tackle these markets must not go alone. They must be adviced and supported to manage such risks and complexity.
Protect yourself against monetary instability
The risk of financial and monetary stability varies greatly from country to country. African countries can be divided into three categories. The first and least risky category is “Euro Africa”, that includes the Maghreb and the Franc CFA zone (14 countries). Second is the “Rand countries”, a currency which is more fluctuating in relation to the dollar and the euro. Third is “Dollarized Africa”, covering countries of potentially weakening national currencies and important countries (Nigeria, Kenya, Ghana) with great monetary volatility. Thus, there exists risk premiums, which translate into high interest rates and other an increased need for support.
Integrate information and transaction costs
Codes, standards, and practices vary from country to country. Regarding legal issues, for example, sometimes both civil and common law have to be applied, especially for contracts signed with ECOWAS countries (Economic Community of West African States) whose law finds its origins from the traditions of either France or England. Therefore, in such areas, information and transaction costs are not negligible and must be taken into account.
Take precautions on counterparts
Public counterparts are risky in Africa as countries face structural financial problems. It’s vital to be careful, check who is the final payer, and favor programs financed by international funds over those relying on a national budget. Patience and determination are required to have the State as client and public contracts are mostly reserved for big companies. On the other hand, there are many strong counterparts from the domestic or international private sector that SMEs should focus on.
Managing political and security risks
Political risks exist but can be managed more easily than monetary risks. In some countries, risks related to employees safety must also be treated in a specific way. Multinational companies generally have their own risk management services. As for SMEs, they must pool, professionalize and outsource this function.
Be pragmatic in distribution
You need to be pragmatic in the distribution of products. Everything is open, especially in terms of digital media and collaborative platforms, the informal sector included. Africa is not a desert of distribution. It images Southeast Asia or India, a mixture of elements that seem archaic and microscopic to us and ultra-fast digital, mobile and e-commerce modernization.
Focus on consumer goods and services
Financial services, such as insurance, is a developing sector. Telecommunications, consumer goods, construction services, private education, pharmacy, logistics or tourism also offer many opportunities. Everything related to consumption and basic needs is secured by nature, even for SMEs.