Thomas Ruelke is Chief Commercial Officer for the leading global logistics service provider DB Schenker, in the Middle East and Africa. He has extensive experience in developing business strategies in different emerging markets and is currently responsible for the business growth in the region.
The Economist called it “the new Scramble for Africa“; business on the continent is accelerating and foreign firms are increasingly keen to capitalize on its potential as the next (and probably “last”) big growth market.
After emerging Asia, Africa is the fastest-growing region globally: in 2022, 21 of the 54 African countries have forecasted a GDP growth rate of 5% or more. Africa is also experiencing significant population growth. By 2034, 1.6 billion people in Africa will be of working age (15–64 years), surpassing India (1.1 billion) and China (0.8 billion). With a median age of below 20 years, it already has the youngest population in the world.
With this, consumer markets will grow significantly. At the same time, heavy investments in infrastructure and industrial development will see economies improve, and local manufacturing is poised to increase in many countries (low labor costs continue to remain a major pull effect and FDIs have accelerated in the last years).
“Global companies that seek to establish their footprint in Africa need to create their strategies carefully. While speed is essential, detailed market evaluation is imperative”
These dynamics represent a major business opportunity for companies wanting to invest and grow in Africa. However, the region is not without major challenges that need to be managed. Social peculiarities, financial constraints, compliance and political decisions, in particular, influence the stability and investment climate significantly.
Global companies (in any sector) that seek to establish their footprint in Africa need to create their strategies carefully. While speed is essential (first-mover effects), detailed market evaluation is imperative. To navigate the specific complexities for business expansion strategies in Africa, the following considerations are critical for success:
“If you want to understand what’s happening in the market, you’ve got to go to the market.” This African proverb is particularly true for market entry strategies in the region. Business decisions require a thorough understanding of the local market and relevant opportunities. Is the market a match for our company? Are we able to meet the local needs? Investing in market intelligence is essential to navigate bureaucracy, infrastructure challenges, environmental factors and preempt risk. Secondary data can only take you so far, however; you must have people on the ground. Invest in multiple visits and ideally install representatives first before making final investment decisions. Firsthand experience will ultimately help envisage how the company might fit within the market.
Identify key stakeholders and align with local partners who share your goals and have a long-term vested interest in your success. Partner with those who have insider knowledge and can assist with negotiation and lobbying, which ultimately maximizes potential profit and minimizes future risk. Entry strategies like joint ventures and licensing deals may also minimize political and environmental risk as they are less susceptible to harassment or anti-multinational feelings.
Your entry approach needs to be tailored to the country as well as your sector. Fill in country-specific gaps and solve problems that are unique to the market. Applying global (western) corporate rules often doesn’t work. Successful companies allow a significant amount of flexibility (in some cases autonomy) to their subsidiaries in Africa – without compromising on compliance. Foreign firms that embrace a more local, entrepreneurial approach with a high amount of flexibility and adaptability (in both, corporate rules and expectations as well as product and service innovation) have a significantly higher chance of success than corporate majors that copy and paste their standards. Run as a small, local enterprise; grow, evolve and then become corporate.
Investing in China or India was considered a major risk in the 80s and even 90s. Only corporations that had a long-term vision were successful. Entering the African market will have high inherent risks – even compared to other emerging economies. These risks, however, will usually come with significantly higher growth rates and returns. Senior corporate management needs to be ready to accept these risks and must be in it for the long term. Expanding in MEA won’t push the bottom line in the short term. Economists expect inconsistent growth patterns for most of the region. It will be a journey with ups and downs, and you must be able to ride out the fluctuations for long-term success.
Imagine applying your Korea business strategy in Myanmar – it doesn’t work. Nor does an Egyptian strategy for, say, Senegal. While it may seem obvious, it’s crucial to recognize that there is not one overarching African strategy. Each country presents its own challenges, practices and attitudes toward international companies and existing business models cannot simply be replicated for these markets; there is no one-size-fits-all model. Africa is huge (you can fit Europe, China, India and the US in the African landmass). Managing growth and expansion requires resources and investments. As these are limited, a careful market selection is important and usually starts with a detailed market attractiveness analysis.
Without a doubt, Africa will continue to be a key growth region for most global and regional businesses. Benefits can be substantial for companies who participate in this development; however, they must be bold in their decisions to expand the footprint. Success comes with a thorough understanding of the realities and challenges on the ground, as well as a long-term business perspective. As Colin Coleman, senior fellow at the Yale University and Africa expert, outlined in his recent podcast: Assuming the expected growth in Africa materializes, “it will make Africa feel like China 30 years ago.” And everyone understands what that means. May the “new scramble for Africa” be a positive one.
Published March 2021