- Africa is brimming with opportunities for international businesses that are ready to adapt and to innovate.
- But simply transplanting a model from another region won’t help companies doing business in Africa’s highly varied and complex economic environment.
- As the continent’s population becomes the heart of the global workforce, companies that don’t adapt to fit Africa’s markets risk missing out on significant opportunities.
For the last decade, Africa has tempted businesses with the promise of immense opportunity. The continent’s rapidly growing youthful population, vibrant cultural scenes and wealth of natural resources have drawn significant interest from businesses from around the world. So, with all signs pointing to growth for those entering this market, why are many big corporations now leaving the continent?
Unilever closed its manufacturing operations in Nigeria in March 2023 in an attempt to maintain profitability. Nestlé also halted production of one of its brands, Nesquik, in South Africa last year due to falling demand. Diageo is selling its majority stake in Guinness Nigeria – once heralded as a success story in that market – due to worsening economic conditions and a weakening currency.
The recent exit of these companies, and others, from African markets repeats a familiar pattern; foreign companies doing business in Africa often struggle to navigate local conditions and idiosyncrasies – from corporate oversight to foreign policy and domestic infrastructure. Aside from creating domestic job losses, such departures can affect investor confidence. This leads to more tentative local and foreign investment, which in turn can perpetuate a cycle of economic stagnation and foreign dependency.
With the continent projected to be home to a quarter of the world’s population by 2050, multinationals must rethink current business approaches and operations in Africa to help the region’s economic growth match its potential.
Western model misfit
Policy, infrastructure, or lack of demand are commonly cited as the reasons for corporations leaving Africa, but this also suggests a failure to account for local market conditions.
Africa’s nations vary significantly, with differing customs, languages, currencies and market philosophies. Even regions within countries can be polar opposites – both Ghana and Nigeria have north-south divides, with disparities across religion, ethnicity, political and economic lines. The continent’s markets are not formalised or regulated in the same way Western markets are, and they are dominated by SMEs. Its workforce is largely informal and skewed heavily to early-stage talent.
And so, blindly importing successful strategies from other regions is unlikely to be effective in Africa. Western models of talent identification, development and compensation are unlikely to suit an environment where 83% of Africans work in the informal sector, for example. Indeed, many business leaders cite navigating talent complexities as the biggest challenge (but also opportunity) in African markets.
Further, the large informal economies and stratified markets of Africa cater to a region where 429 million people live on less than $2.15 a day. This is a very different business and investment environment from high-spending consumer regions like Europe. Even so, global investors continue to direct funds into startups targeting high-income customer profiles.
Such strategies overlook sectors that are more ripe for innovation such as healthcare and education – fundamental pillars of societal development with wide-ranging applications across the region. By prioritising short-term gains over long-term investment in these foundational areas, investors and businesses risk stifling sustainable growth and transformative impact across Africa.
Charting a different course for growth
These challenges shouldn’t deter companies from doing business in Africa; rather, they should compel a strategic rethink.
Western business models typically emphasise large-scale manufacturing and centralised operations. Asian models tend to focus on export-driven growth. But Africa’s limited formal transport networks, cash-dependent economies and language variations point to the potential for innovation around localisation and fragmentation at scale.
Also, simply assessing end-consumer numbers and potential demand isn’t enough. Businesses must ensure viability across an entire industry’s value chain. They must see themselves as market-makers that enable and empower suppliers to supply and consumers to consume, so everyone can benefit from a growing economy. Specifically, the likes of Unilever, Diageo and GSK should consider rotating their Africa playbooks to become strategic investment firms and enablers of consolidation of fragmented locally optimised ventures at scale – think Avon versus L’Oreal.
Western multinationals are already being replaced in Nigeria by Asian companies that have succeeded by localising costs and adapting to the country’s unique challenges. Similarly, Movemeback has worked with Uber to help it expand across Africa since 2015. In Africa’s cash-reliant economies, Uber had to pivot, accepting cash payments and partnering with local vehicle providers to bridge the affordability gap for taxi drivers.
Finding the right people for doing business in Africa
Talent is central to success, particularly for corporations that are doing business in Africa. Western companies shouldn’t employ disconnected expatriate leaders who manage from afar and are incentivised to adopt centralised and aggregate means of management across sub-regions. The absence of robust middle management exacerbates this challenge. Companies must employ integrated learning and development solutions and embrace local talent who are aware of market nuances.
Policy-makers also have a duty to support these Africa-focussed business models – both for the greater good of people and to influence multinationals to accept medium-term pain in order to reap long-term benefits for shareholders as the market matures.
Rwanda’s private sector partnership-friendly approach under its Rwanda Vision 2020 plan has set clear expectations for private firms in exchange for creating enabling environments for experimentation and pursuing regional scale. Investment in ICT infrastructure has transformed it into a regional tech hub, attracting significant foreign investment by aligning infrastructure with local needs.
frica has long since shed the false narrative that it needs “saving” – it is a region with ample opportunities where businesses can yield profit and contribute to growth. But there is still untapped potential.
The recent retreat of some major companies from Africa should serve as a wake-up call for multinationals – a reminder to meet Africa where it stands today. Those that wish to succeed will abandon the notion of simply transplanting Western models, thinking local instead: local talent and leadership, local governments, local investment and local value chains. To loosely reference Darwinian evolutionary theory, the directive is clear for companies wishing to prosper in Africa: adapt or fail.
This article is originally published from: WEF
