The Land of Opportunity

The idea of doing business in Africa is often met with critics and predictions of doom and gloom due to its unfavorable environment. Political instability, conflict, red tape, corruption, inadequate infrastructure and disease are often cited for reasons why you should not invest in Africa. The World Bank issues an annual Doing Business report that shows countries in Africa on average are some of the worst places in the world to do business, and the region with the lowest growth in reform to promote business.

However, there are examples of successes that show that opportunities exist in the vast continent of Africa. For example, mobile phones have been suprisingly profitable. An article in the Economist, Africa Calling, dicusses how Mr. Michael Joseph of Safaricom, took over a company in Kenya with 20,000 customers in 2000 and grew it to a business with 10.5 million customers today. His boses at Vodacom (controller of Safaricom) predicted the market would top out at 400,000 customers. They were off by an order of magnitude and Safaricom recently made an annual profit of $223.7 million.

Graham Mackay of SABMiller is also very optimistic about opportunities in Africa. Expansions of breweries into places like Uganda have been very successful. With interests in 29 African countries and investments of $2.4 billion, SABMiller is one of the largest investors in southern Africa. Mackay says, "If there was any more of Africa, we'd be investing in it." Since 40% of the economy is informal, local knowledge is extremely important. Investing in Africa requires a different set of skills, argues another article by the Economist, Different Skills Required. Business managers cite as the most common constraint on doing business, complicated logistics, poor infrastructure, abundant red tape, shortage of skilled labor and HIV/AIDS.

All businesses face challenges. And as the article in the Economist argues, some require a different set of skills. The set of skills vary depending on the type of environment and industry your enterprise resides. A large corporation in the U.S. will have developed a set of complex skills useful for operating in places with a strong rule of law, developed free markets and formal institutions. These type of organizations are not well-equipped to deal with a complex external environment and informal institutions in places such as Africa. However, I would argue that opportunities exist for an organization that is highly flexible and is primarily focused on developing core competencies such as local knowledge and working with informal networks.

Placing businesses into buckets of categories based on the type of challenges they face that is core to their success, I would place them into the following categories:

INNOVATION

• high growth industry
• heavy investments in technology or R&D
  
• business friendly environment with little or no government intervention and regulation
• on the technology frontier
• access to high skill labor
  
• i.e. Apple and Intel

SCALE

• mature low but steady growth industry
• business friendly environment
• drive profit by cost-cutting and/or increasing scale
• access to high skill labor
  
• i.e. GE and Kraft
  

ADOPTION

• transitioning business environment
• adopt global business practices and technologies to a new environment
• some access to mid to high skill labor
  
• government intervention and regulation, although business friendly
• i.e. Lenovo and Genpact
  

PIONEER

• unfavorable or conflictual business environment
• significant resources dedicated to adopting global business practices and technologies to a new environment (discovery costs)
  
• limited access to mid to high skill labor
  
• high degree of government intervention, regulation, rents
  
• i.e. Safaricom and SABMiller
  

In conclusion, every business focuses on building a skill set appropriate to the type of challenges they face. This is no different for a business that operates in highly unfavorable business environments such as Africa. It is erroneous to believe that you cannot do business in Africa. Instead focusing on on developing the appropriate skillset (i.e. lowering discovery costs, interconnectedness with government, utilizing informal networks and so forth), could yield a vast continent of opportunities for the right players.

Note: Criminal organizations effectively utilize informal networks. More on this in a later blog.