Doing business across national borders involves many complexities but the peculiarities of each market differ. Sub-Saharan Africa (SSA) remains one of the most exciting emerging markets in the world and much of its potential, attractiveness, and opportunities have been substantially heralded in recent times.  However, the business environment still present challenges to trade and foreign direct investment in various contexts.

The World Bank Ease of Doing Business Index measures the complexity in each country’s regulatory environment based on many key parameters such as starting a business, obtaining construction permits, getting electricity, property registration, access to credit, paying taxes, trading across borders or logistics, contract enforcement and more to determine how conducive an environment is for business.

In its 2017 report which provides ranking for 190 countries, the first sub-Saharan African country on the list – Mauritius ranked 49 followed by Rwanda with the ranking of 56. Essentially, only eight countries in SSA made the top 100 on the list. Apart from the “doing business” indicators, other areas of difficulty include relatively weak economic policies as well as cultural considerations like strong diversity in ethnicity and language. SSA is one of the most culturally diverse regions in the world with thousands of ethnic groups and over 2000 native languages.

Nevertheless, as profound as these complications appear, with the right strategies, overcoming these hurdles is not such an endeavor. While foreign investors need to operate with a level of sensitivity to culture in SSA, the language barrier has been substantially weakened by improved literacy level. English and French are the most common languages of business. The business environment is largely informal with a high degree of interdependency among members of the society. Also, hierarchy, position and individual social status impact the business culture in a unique manner. Understanding these embedded cultural values can enhance relationships and lead to successful business engagement in the continent.

Some of the obstacles surrounding starting and operating business as indicated in the Doing Business report can be addressed through partnership arrangement with local firms and collaboration with government agencies. Engaging local firms include building a relationship with service providers and suppliers and creating a model that fits the traditional distribution network. This would reduce operating costs and help accelerate market coverage.

Foreign companies that act responsibly by pursuing domestic economic participation, long-term and sustainable development strategies, in order to contribute positively to the host country’s economy, have a higher chance of succeeding in the region. As a reference point, Olam International is a company that successfully navigated through the roadblocks of poor infrastructure, bureaucracy, corruption, inconsistent government regulations, unreliable data, lack of market information, and other resistance in the African business landscape. It started business in Nigeria 28 years ago and has grown to become one of the world’s largest agricultural trading and processing companies. Indeed, many foreign firms have successfully coordinated their international outreach in the continent maximizing efficiency and maintaining their competitive edge.

Economic policies and government regulations are undergoing significant reforms to create a much improved market. Thus, we have seen objective implementation of local content regulations and tax incentives in some countries thereby removing longstanding bottlenecks for trade and business.

This new government approach became necessary since many countries in SSA now seek interest in foreign relationships to support their economic diversification and infrastructure agenda.

In today’s global economic outlook, Africa’s potential has become more apparent and the Export-Import Bank of the United States (EXIM Bank) also recognizes this, having supported US-Africa business transactions in excess of $7 billion over the last eight years. The EXIM Bank recently shared major success stories about U.S. companies involved in trade and business dealings with Africa thereby affirming that the complexities associated with business operations in SSA are surmountable.

Kemi Arosanyin is an international trade specialist for Africa at the World Trade Center Miami. She writes, speaks, and advises on trade and investment in sub-Saharan Africa.

After half a decade of economic growth averaging about six percent from 2010 to 2014 , sub-Saharan Africa’s (SSA) GDP growth descended to its lowest level in more than 20 years, declining from 5.1 percent in 2014 to 3.4 percent in 2015 and further down to 1.5 percent in 2016.

This economic situation was expected due to the crash in commodity (oil and natural resources) prices that the world witnessed since mid-2014, considering that many of the largest sub-Saharan African economies depend heavily on commodity exports. Also many countries in Eastern and Southern Africa have been experiencing severe drought influenced by climate-change, all these coupled with a global environment that has become increasingly unfriendly.

In reality, the weak economic condition is not parallel across the region.

The continent’s three largest economies—Angola, Nigeria and South Africa—are the worst-hit countries. These countries account for about 60 percent of SSA’s GDP and they are responsible for the overall picture of poor economic performance on aggregate level. Thus, a different scenario is revealed when broken down into each country’s economic circumstance.

The International Monetary Fund (IMF) in its recent economic report on SSA classified the countries in the region into two groups—the group of 23 countries with high reliance on commodity exporting which now suffer serious economic pressure—and another group of 22 countries that are non-resource intensive and thus have continued to maintain high economic growth.

According to the IMF, the strong growth momentum of non-resource intensive countries remain undiminished since they are oil importers and they benefit from lower oil import prices and other conditions such as improved business environment and continuous strong infrastructure investment. These countries include Cote d’Ivoire, Ethiopia, Kenya, Tanzania, Senegal and Rwanda each with a GDP growth that range between six and eight percent in 2016 and projection for a similar growth trend in 2017.

Based on the region’s uneven growth level, foreign investors and other trade stakeholders would need to assess the potential and stability of each country as against considering the latest regional growth rate of 1.5 percent which appears misleading and discouraging. In my opinion, there should be moderate concern over this result as the IMF has also hinted that the outlook for SSA is a short-term challenge. It expressed optimism that medium-term growth prospects of the region still remain favorable to the extent that the key fundamentals of growth such as investment in infrastructure, strong private consumption and favorable demographics continue to be in place.

The economic acceleration recorded over the last decade was enabled by reforms and improved domestic policies across the region. As stated in the World Bank Doing Business 2017 report, the continent is the second-highest adopter of reforms and it accounts for over a quarter of all reforms globally.

Many countries in SSA have made pronounced efforts to improve the business climate for investment which has driven economic growth, reduced poverty and expanded the middle class with disposable income. The increased economic activity during this period can also be attributed to substantial progress made in financial development, technology and advanced systems in banking and telecommunications which supported growth and reduced volatility in the region.

Finally, major steps have been taken by some governments in SSA to boost investor confidence and trust through more transparency in regulatory procedures including taxation and property. Trust in the political system is a critical tool that influences investors’ decisions in channeling investment flows and as SSA continues to address issues that can hold back investment flows such as institutional frameworks and corporate governance, the region remains a favorable destination for trade and investment.

Kemi Arosanyin is a Global Trade contributor. She writes, speaks, and advises on trade and investment in sub-Saharan Africa.

African Growth and Opportunity Act (AGOA) is a United States Trade Act signed into law on May 18, 2000. The trade preference program currently provides market access to the United States for 38 qualifying sub-Saharan African (SSA) countries. Under this program, virtually all marketable goods produced in eligible countries, approximately 7,000 products are granted duty-free entry into the U.S. market.

AGOA is considered a cornerstone of U.S. trade policy with SSA but reaction across SSA to the opportunity can be likened to the children’s story “If You Give a Mouse a Cookie,” which presents the consequences of benevolence, charity, and humanitarianism. The book describes a Good Samaritan’s dilemma where a boy becomes exhausted by the mouse’s incessant demands and dependency.

The story goes, if you give a mouse a cookie, then he would ask for a glass of milk, and then a straw, and then a napkin, a mirror, a pair of scissors, a pillow, and then scotch tape and so on leading to a cycle of perpetual requests even beyond the book. The relationship between the boy and the mouse is similar to that between the U.S. and SSA where the SSA has become overly dependent on the U.S government regarding all responsibilities pertaining to the implementation of AGOA.

AGOA was meant to be a major paradigm shift in terms of boosting economic growth and diversifying African exports to the U.S. but unfortunately that objective has not been substantially accomplished considering the poor and declining trend of non-oil imports from SSA. According to data obtained from the U.S Department of Commerce, non-oil exports from SSA to the U.S. under AGOA have consistently declined since 2011. It decreased by four percent, two percent, ten percent and seven percent in 2012, 2013, 2014 and 2015 respectively.

Obviously at the time this Act was enacted, sub-Saharan African countries were unprepared to take advantage of this opportunity due to low level of industrialization, weak regional connections, compliance issues and technical barriers to trade. However, more than 15 years later, the implementation of the program across SSA has fallen short of expectations as many countries in the region still lack clear strategy on AGOA.

Apart from creating this non-reciprocal trade concession for SSA, the U.S. government through its various agencies provides trade capacity building assistance to industries in the region to boost utilization of the opportunity and complement other multilateral efforts to facilitate SSA’s integration into the global economy. Also, the provisions of AGOA has undergone several reviews and extensions since it was created to expand preferential access for imports from beneficiary SSA countries. It was again recently enhanced through some provisions and flexibility to increase utilization in September 2006.

Despite these efforts, SSA governments and stakeholders across the continent have expressed concerns about AGOA; attributing their shortcomings to many factors and requesting the U.S. to expand the list of eligible products allowed under the program, simplify the process and paperwork, clarify guidelines between U.S customs and the country of origin, relax the strict rules of origin and the 35-percent threshold on value addition, extend the treaty by a minimum of 15 years, broaden the act and apply significant changes, provide special assistance in the areas of standards, certification and buyer-seller linkages, review other trade rules and include products such as tobacco, sugar, peanuts and dairy; the list is endless, in order for them to maximize the benefits of AGOA.

The question then is, What are the responsibilities of SSA in implementing AGOA? Anyone familiar with the governance system in the region knows that these excuses would not stop. For a continent that has failed to address the fundamental issues of infrastructure deficit, standards, and regulations as well as trade capacity building, to be making such numerous demands is basically asking for more than a glass of milk after being given a cookie.

The real assistance SSA needs is foreign direct investment (FDI) which will deliver immediate impact in creating jobs, reducing poverty and facilitating market integration globally. According to the U.S Trade representative, Michael Froman, “market access is important but simply not enough. The U.S needs to do more to help the region overcome infrastructure, skill shortages and other supply-side constraints that infringe on Africa’s ability to compete and integrate successfully in the global trading system”.

Yes, the U.S. has to be more aggressive in its commitment to promote trade and investment in the region by encouraging its companies to invest in the continent. Many U.S. firms have not figured out the strategies to use to maximize the benefits of this huge potential market. Realizing Africa’s immense opportunities, Mark Zuckerberg of Facebook on his recent visit to SSA said, “Africa is where the future is going to be built.”

U.S. manufacturers have been relatively slow in responding to this horizon and now they are in a race to catch up with emerging economies already entrenched in the continent. The United Nations Conference on Trade and Development recently reported that textile and garment firms from Bangladesh, China, and Turkey seeking alternative production bases for export to the European Union (EU) and North America invested $2.2 billion in Ethiopia in 2015 especially because of its privileged exports under the AGOA Act and Economic Partnership Agreements (EPAs). Even though this FDI is a good development for Africa, it is an indication that AGOA is technically fueling the operations of U.S. trade competitors.

Trade competition within the African territory is becoming more challenging between firms from advanced economies and firms from emerging markets. AGOA should be considered a tool for strategic investment and U.S investors would have to move beyond trading and exporting to core value-addition by setting-up manufacturing operations in SSA in order to achieve strong strategic positioning in the market and also achieve the objectives of AGOA.

Kemi Arosanyin is a trade development specialist for Africa and she can be reached at kemicarolyn@gmail.com

Africa is generally regarded as a high-risk environment for trade and investment. Truly, doing business in Africa has inherent risks just as anywhere else—Latin America, Middle East, Asia, Europe and North America.

However, sub-Saharan Africa has been afflicted with an exaggerated risk perception over the years while there is limited understanding of its realistic trade and investment prospects.

To put this in perspective, many managers of U.S. multinational companies see China as an ideal business destination, but according to Harry Broadman, director of Johns Hopkins’ Council on Global Enterprise and Emerging Markets who worked for twenty years in China, “the investment environment in China is far more complex than most investors appreciate. It is a place where the on-the-ground investment risks are understated.”

A new report from the United Nations Conference on Trade and Development shows that foreign direct investment (FDI) flows to Africa in 2015 dropped by 7.2 per cent to a total of $54 billion and sub-Saharan Africa in particular suffered a significant decrease in FDI inflow.

Africa’s share of world FDI is still relatively low, about 3 per cent, but there’s a growing trend from other emerging economies such as Asia and the Middle East while many potential investors continue to view Africa as a high-risk zone.

Based on the 2014 Ernst and Young survey on “Africa Attractiveness,” the risks identified as major barriers to increased investment in this market are unstable political environment, corruption and weak security.

These challenges exist but things are changing, the situation is improving and it is possible to manage the risks associated with doing business in sub-Saharan Africa through awareness, understanding and open-mindedness. Even though corruption remains a critical challenge, whether African countries are more corrupt than other emerging markets is debatable.

Democracy in Africa is rising, there is a profound change in the political orientation, and many countries have experienced non-violent transfer of power from one political party to the opposition party in the ongoing political liberalization.

Also, many African economies have embarked on structural reforms over the last couple of years thereby creating a more conducive environment for business and investment, according to a most recent World Bank report. The World Bank survey which is seen as a standard for measuring the world’s business environment, reported that sub-Saharan Africa account for about 30 per cent of the regulatory reforms in 2014/15 identifying five countries in the region among the ten top reformers.

Adjustments in domestic policies in these countries—Uganda, Kenya, Mauritania, Senegal, and Benin—reduced the complexity and cost of regulatory processes while Mozambique, Ethiopia, Rwanda, Kenya, and Tanzania have pushed for more strategic liberalization measures as some now permit 100 per cent foreign ownership of listed companies.

Although these reforms do not guarantee sound economic policies or growth, it reflects willingness and commitment of these governments to attract foreign investment and boost trade.

The reality about the high-potential and diverse sub-Saharan Africa market is that it continues to offer numerous opportunities in three major groupings: infrastructure, natural-resources, and consumer goods. The region is deficient in infrastructure—power, transportation systems, healthcare, and housing—which are often seen as obstacles to trade and investment, but this situation actually present unique opportunities for long-term investments.

The huge population, urbanization and growing middle class supports high demand for consumer products and the continent’s rich natural resources can fuel development and growth opportunities in mining and agriculture.

These opportunities outweigh the risks and foreign investors need to recognize that Africa offers relatively high returns on investment possibly due to its high risk and low competition environment. A recent World Bank report shows that the overall rate of return on FDI in Africa has been above nine percent since 2006, higher than the world average of 7.5 per cent and developing country average of 8.1 per cent. Specifically, sub-Saharan Africa has a risk/reward balance profile, and profitability in manufacturing is generally even higher compared to other sectors.

Some of the actual and perceived risks can be mitigated. One fundamental fact about all business environments is an understanding of local market peculiarities regardless of whether foreign firms are looking to negotiate with suppliers, navigate bureaucratic government channels or reach out to new customers.

A key success factor is the investor’s determination to do business in sub-Saharan Africa with compassionate view and genuine commitment to the development of the region. The current excess industrial capacity in China creates an opportunity for investors to begin to consider Africa.

Potential investors should focus on opportunity and design strategies to tackle the risks. These could include adopting a risk-sharing business model with locals by building strong partnerships across government, the private sector, and communities which will encourage strong support, adopting long-term perspectives in planning, and flexibility in implementing those plans. Investors should also look at embracing Africa’s diversity and developing its human talents.

If all you focus on in Africa are risks and challenges, you will never see the opportunities. The biggest risk is not any of the identified ones, it is ignoring the sub-Saharan Africa markets.

Kemi Arosanyin is a trade development specialist for Africa at the World Trade Center Miami.

Despite several initiatives, programs, agreements and bilateral investment treaties established to promote trade and investment between the U.S. and Sub-Saharan Africa, U.S. trade with this region has continued on a downward trend since 2011.

U.S. trade with Sub-Saharan Africa declined from more than $96 billion in 2011 to $36 billion in 2015, and, according to the U.S. Census Bureau’s data for first five months of 2016, total trade is down by 13.01 percent versus same period in 2015.

There exists a variety of trade preferences and programs including the African Growth and Opportunity Act (AGOA) which is a strong driving force for U.S.-Africa trade and investment development. One of the goals of AGOA is to stimulate foreign direct investment in Sub-Saharan Africa and support development of the region by making it an attractive destination for U.S. corporations to establish manufacturing operations.

Sub-Saharan Africa has a population of about a billion people, a fast growing middle class with increasing demand for quality products, and growing demand for improvement in energy, healthcare, transportation and communication networks. With an average of about $20 billion in U.S. exports to the region annually in the last five years, U.S companies have not fully maximized the enormous potential of this emerging market.

What are the contributing factors responsible for the declining trend in U.S.-Africa trade?

While many factors can be attributed to the total trade decline, something more fundamental such as “poor understanding” and “negative perception” about the Sub-Saharan Africa market may be responsible for the U.S. relatively low investment in this market. The level of understanding about opportunities in Africa is significantly low, particularly in North America. The media coverage and discussions around the challenges of poor infrastructure, corruption, governance issues, and poverty have overshadowed the positive developments recorded in Africa.

There are 48 countries in Sub-Saharan Africa, and, while it is true that some countries are still plagued by these challenges, it is not a uniform experience across the region as many countries have witnessed considerable improvements in governance, institutions, macro-economic environment, trade facilitation, economic growth, political and social stability in the last few years.

To dismiss the prevalent misconceptions of Africa within the international community, I will make reference to testimonies of Nouriel Roubini, a foremost American economist who was part of the group of investors on tour of Africa about two years ago, and Rob Hersov, an entrepreneur and founder of Invest Africa who facilitated the tour.

Roubini, on his first visit to Nigeria, said he “had low expectations because usually what you read in the U.S. press about Nigeria is only bad news, violence, terrorism and lots of other bad stuff.”

“I was actually positively surprised,” Roubini added. “Africa has come as a positive surprise and all in all, I think over the last 20 years, the macro framework for many of these frontier economies has improved.”

“I think people perceive a lot more risk in Africa than there really is,” said Hersov. “Africa is open for business in an extraordinary way. People have perceptions of corruption, poverty and chaos, the kind of old-world story of Africa. On the contrary, we have met dynamic business people, extraordinary entrepreneurs, and governments liberalizing and welcoming foreign investment.The entrepreneurial spirit that you find across the continent is second to none and the level of professionalism of the people is world class.”

The emerging markets of Sub-Saharan Africa present a huge trade and investment opportunity for U.S. firms and many of these countries are now more open to trade and foreign direct investment. There is stronger trade infrastructure in the form of regional integration networks that can expand market opportunities for companies operating in the continent. This is the right time for U.S companies to take advantage of the environment.

According to Rob Hersov, in five to ten years, investors who don’t penetrate the market now will look back and regret having missed one of the greatest opportunities of their lifetimes.

Kemi Arosanyin is a trade development specialist for Africa at the World Trade Center Miami.