Once seen as the ‘risky’ continent, despite being considered a viable investment destination for natural resources, Africa’s respectable growth rate and improvements within business environments has made the continent an attractive destination for foreign direct investment.
Despite growing optimism, investors need to be weary of the challenges still present in Africa before jumping into the deep end.
Narrowing it down, a recent online survey by Adams & Adams, through its Adams.Africa Advisory unit, identified seven key challenges facing businesses wanting to enter the African marketplace.
Ease of doing business
Almost every respondent flagged the ease, or lack thereof, of doing business in Africa as a key challenge. Contributing factors include the lack of procedural awareness and the hierarchy of systems, all of which affect and prolong the commencement period of a business.
Other contributing challenges include delays in securing construction permits, lengthy periods of registration, and credit to tax payment mechanisms.
Businesses need to understand the working environment on the ground by assessing the area’s other companies have found most challenging. Risk can further be reduced by gaining insight into all the various business components, from property registration to credit accessibility.
Ineffective regulations and corruption
Understanding a legal landscape can be challenging, especially in Africa with its rigid regulatory environments that are prone to corruption.
When entering the market, businesses need to avoid adopting a ’one-size-fits-all’ blanket approach, as this does not constitute a recipe for success.
Businesses need to familiarise themselves with the legalities of a country to minimise risk and potential susceptibility to corruption.
Difficulties in establishing local partnerships
Establishing partnerships rooted in trust is critical to the survival of operations, especially given the strong local business hold.
Treating Africa as a single entity continues to be a major setback for many multinationals. To counteract this, businesses need to understand the supply chain movement, market, consumer trends, and competitive landscape analysis.
Successful market integration provides businesses with increased flexibility, allowing them to adapt to diverse markets.
Ineffective intellectual property (IP) policies
IP protection is problematic for most businesses operating in Africa. Despite not being fully compliant and aligned with international protocols governing IP protection, more African nations are focusing on improving their IP legislature.
However, there is still a long way to go to achieving the Intellectual Property Commission Strategic Plan 2020 vision for Africa.
Limited market size
Consumer spend is being driven by increasing urbanisation rates seen across Africa, particularly in countries that are still in the early stages of development, creating greater demand for a wider range of manufactured goods.
By 2030, it is estimated that 1.7 billion Africans will require food, beverages, access to pharmaceutical products, healthcare services, education, and security, among others.
However, the lack of research within local markets has led to inconsistent assumptions being made about industries and countries.
Investors should develop appropriate strategies based on sound research within their respective markets.
Inadequate infrastructure continues to be a major obstacle in Africa achieving its true economic potential. Africa is seen as one of the globe’s fastest growing hubs, presenting opportunities for investors who need to look past the traditional Western view of the continent as a homogenous block.
In Sub-Saharan Africa, areas of concern include transportation, communication, power, and water infrastructure. Additionally, only 26.5% of Africans have access to the internet, with connectivity further hindered by recurrent power outages and high data costs.
For investors, detailed research on infrastructure and resources can help in the understanding of the nuances and opportunities each region presents.
Lack of access to capital and funding
Access to funding remains an inhibitor to the continent’s development and directly impacts the growth potential of the continent.
The development of domestic and regional capital pools can be increased by the improving partnerships between the public and private sector.
Investing in Africa
For those looking to invest in the continent, Adams.Africa Advisory has pegged investment opportunities in five sectors that are set for take-off.
Africa’s economy is heavily dependent on its agriculture sector, which contributes significantly to the continent’s development. While Africa accounts for about 60% of the world’s uncultivated arable land, only 7% is irrigated and only 8% is under managed water and land development.
Despite Africa’s sizeable pools of energy resources, access to both fossil fuels and renewable energy are in short supply. African states are placing the utility of renewable energy high on the agenda, while looking to maximise its potential.
Healthcare in Africa has seen marked improvements over the past decade, with new technologies such as medical drones, AI, robotics, telemedicine, mobile screening and mobile applications gaining momentum, allowing Africa to leapfrog traditional infrastructures and improve access to services.
Telecommunications is fast becoming a key pillar of development in Africa. However, the continent continues to experience delays in the development of reliable and fast internet infrastructure.
Investment is needed for the development of broadband networks, as well as the expansion of advanced telecommunications technologies.
Though the continent houses some of the fastest-growing economic hubs, inadequate infrastructure capacity across all four modes of transport continues to hinder economic growth.
Modernising Africa’s transport infrastructure requires both investment and expertise, specifically public-private partnerships. The sector presents unprecedented opportunities for foreign actors.
Africa is by no means a simple investment, but if done right can be the most rewarding yet. Businesses need to prepare before taking the plunge, and once they dive in, need to be able to swim. This requires continuous analysis and staying up to date with ever-evolving trends and developments, while investing in developing local partnerships.
Helping keep businesses afloat, Adams & Adams can assist in navigating obstacles present in Africa by using strategic and targeted research through its Adams.Africa Advisory, offering various business, economic, political, and legal research services, coupled with up-to-date information, precise frameworks for brand expansion, and IP protection across jurisdictions.
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