Successful expansion into Africa requires a commitment to long-term investment and development, as well as a sense of adventure.
After the initial euphoria of the Africa Rising narrative, those looking to grow businesses on the continent have been left with an appreciation for the complexity of the task. “Very few people know what is going on in Africa. Perception and reality differ vastly,” Arnold Ekpe, CEO of pan-African financial services group Ecobank told a Gordon Institute of Business School (GIBS) forum on managing beyond borders.
Professor Lyal White, senior director of the Johannesburg Business School said investing in Africa presents a complex environment and business owners must “disaggregate this African mass and make sense of each market and culture with a context-driven strategy.”
Ecobank – Building an African Multinational
Ecobank was founded as a regional bank, with an ambition to become pan-African. Ekpe, who led the bank from 2005 to 2012, explained that African expansion requires scale and diversification to mitigate the risks associated with investing on the continent, where political risk is often greater than business risk.
In order to succeed, businesses have to make trade-offs: “The African market is extremely fragmented. Without scale, operations are not viable. Sometimes you have to sacrifice profitability and efficiency for scale and growth in the short term.”
Ekpe stressed that one of the objectives of companies operating in Africa must be development: “When you enable development, you benefit from it. We must do good to do well.”
Strategy and Complexities in an African context
Founding director and Professor in Leadership and Strategy at GIBS, Nick Binedell questioned whether it was in fact possible to have a strategy in Africa where conditions on the ground often change rapidly, making it extremely difficult to predict and plan.
“The normal ways of thinking of strategy don’t apply because of the vastly different economies and political systems.” Strategy in Africa is therefore not a blue print, but a roadmap: “Planning is not much help,” Binedell said. “You have to get on the plane, walk the streets and build the relationships. Be in the market and understand the system. You cannot plan a business from an office in Johannesburg.”
He said strategy must be informed by geography, which allows you to get a feel for the shape of the economy; demography, including rates of urbanisation; as well as history and culture.
Professor White said factors such as market size, their potential trajectory and per capita income often determine investment decisions in Africa and not governments or institutions, as companies feel they are able to manage and mitigate these risks.
He cited telecommunications firm MTN as an example of a company that started operations in countries where there was “an institutional void” in an attempt to be part of the development process.
Global brewer SABMiller found success in Africa through partnerships in which it preferred to hold a controlling stake. The company managed complexities by developing a thorough understanding of the local context and employing locals in senior managerial positions.
Binedell said South African companies expanding into Africa sometimes demonstrate a “kind of naivety” in expecting conditions on the rest of the continent to be similar to those in the local market. “South African companies wanting to expand into Africa need to understand the context, invest, fail and relearn. There has to be a commitment to Africa.”
Ekpe said those looking to export the same model and strategies to different markets were “in for a shock.” He added that it was important to learn from others who got their expansion right, as well as those in the industry who got it wrong.
“Investment in Africa requires companies to be bold and fearless. Being fearless is the most important factor in Africa.” He said this “fear factor” is often a challenge for South African companies who can be too cautious, allowing a competitive advantage for others from the rest of Africa.
Economic Potential and Intra-Africa Trade
Ekpe said African businesses have the duty to campaign for the opening up of the continent to allow for the free movement of goods, services and capital: “We need more African multinationals and we need to advocate for an enabling environment for the private sector – for too long things in Africa have been driven by government.”
Binedell agreed that intra-Africa trade is not growing as it should, and needed leadership to encourage its advancement. “The economic take off would be extraordinary if we can realise the potential of 55 economies. Politicians’ primary interests are not about development, and they can’t see that the size of the prize is so much bigger than countries working on their own,” he said.
While enthusiasm for Africa’s growth may have waned, the continent has both human potential and natural resources, and a 30 to 50 year platform for potential remains he added.
Ekpe concurred: “Africa is very exciting. It has huge potential and huge risks. But it remains the last frontier. To succeed here you need a sense of humour and sense of adventure, as well as a long term objective.”