Navigating Business Complexities in Sub-Saharan Africa
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.