U.S. businesses not only overestimate the risks of doing business in Africa. They need new strategic pathways that will allow them to innovate through growth in market reach rather than size. How? By pairing resilience with opportunity outside their comfort zone.
U.S. companies already doing business in the region need to refocus their strategies to improve the efficiency of their local operations, rather than retrench. Companies looking to key into the opportunities opening up need to take a differentiated look at the African markets to determine where their critical entry point is and how to capture a “value domain” that is both profitable in returns and delivers a positive impact on local economic development.
Key into sub-Saharan Africa
Of course, Africa is a vast and varied social and political powerhouse and offers immense prospects to microenterprises in the U.S. looking to grow, expand or diversify. You’ll find the most sizzling opportunities in sub-Saharan Africa. Comprised of 47 nations, the region is home to more than 1 billion people, a population projected to double by 2050; it has the most dynamic consumer market in the world, with spending expected to reach more than $1 trillion by 2020; and its GDP is projected to grow an average combined rate of over 3.5% in 2018, compared to the U.S. projected GDP growth rate of 2.3% in 2019, down from 3.1% in 2018, and slowing down to 1.7% through 2023, according to the Congressional Budget Office’s forecast.
In its annual Global Economic Prospects report, the World Bank indicates that the region’s larger commodity-driven economies – Nigeria, South Africa, Angola, and Zambia – are losing steam as engines of growth. They face strong economic headwinds and domestic problems and no longer offer the best prospects for business, trade and investment. But the smaller, non-commodity driven markets do.
Emergent economies such as those of Senegal, Cote d’Ivoire, Ghana, and Rwanda offer enormous opportunities for micro and small U.S. businesses. Their markets are evolving and require processes and technologies that can provide functional solutions to growing needs and demands in non-extractive sectors: agriculture and agribusiness, transport and market infrastructure, logistics and distribution, construction, telecommunications, renewable energy, health/wellness and beauty, education and training, and consumer goods. All these sectors provide micro and small U.S. businesses with opportunities to grow their market reach through projects with high returns on investment (ROI) and that can deliver big differential value through positive impacts on Africa’s development.
The problem is that the business investment rating system used in the U.S. is leading businesses astray because it is not context-specific. The result: more than 92% of the U.S. private sector (i.e. micro, small and medium-sized businesses) is still on the platform waiting to board the train to Africa, while their competitors from Asia, South America, Europe and even the Middle East have already boarded. American businesses are last! and they are missing out on the opportunities that Africa’s emergent and frontier markets are opening up.
Much ado about China
There's a lot of chatter about China being Africa’s largest trading partner and how Africa is becoming China’s China. But the fact is that China’s “white elephant” projects deliver weak economic returns and little developmental impact. So U.S. investments have a golden opportunity to step in and step up.
Researchers at William & Mary’s AidData, an institute that studies international-development aid, found that about 80 percent of China’s overseas spending has no obvious effect on economic growth. This helps make the case for the U.S. in Africa. However, it’s an insufficient argument. Beyond commodities, big infrastructure and Western-style manufacturing, sub-Saharan countries are looking to effectively diversify their economies so they can address key human development issues (health, education, gender equality, security).
Africa doesn’t need more “things”. It is asking for constructive partnerships to develop maker ecosystems with processes and technologies that can and are willingly adapted to their specific context.
Go & Grow with the New Normal
Traditional investment decisions are usually said to be based on rational location attractiveness, based on four main variables: the legal and business environment, desired rates of returns, availability of infrastructure, and openness to trade. All four have positive although variable ratings across the continent, depending on the country. For example, Senegal is leading the drive in West Africa as a good place to do business. In the latest Doing Business ranking
Senegal is one of the top-five most positively reforming countries in sub-Saharan Africa and is one of the 10 most attractive business and investment destinations on the African continent.
In essence, what African nations on the Go & Grow path are requesting is impact-focused investment: profitable business projects with a 3+ impact (financial, social, environmental + security) that ensure sustainable win-win, inclusive, economic development. Unfortunately, few American companies are making the most of the growing opportunities in this dynamically diverse continent because of misconceptions about what it takes to succeed in the region and because the institutions and organizations responsible for informing and providing support are still thinking inside an outdated box focused on helping U.S. businesses export “things”, instead of thinking outside and beyond a box to help businesses build markets.
To compete in Africa, businesses in the U.S need to adapt their strategies to the New Normal: flexibility, resilience, leverage, inclusivity, and coopetition. And U.S. trade and investment support institutions and organizations need to provide more supportive policies and services. In a climate of uncertainty at home and troubled relations abroad, American businesses need new strategic pathways that will allow them to innovate through growth by pairing resilience with opportunity outside their comfort zone.
Think real to capture your value domain
Both companies already doing business in the region, as well as those looking to key into opportunities need to carry “out of the box” due diligence to better and more fully apprehend the market and competitive realities. They will both need to step beyond the usual compartmentalized asset-seeking, market-seeking or efficiency-seeking thinking to enlarge their approach to market gateways. They will both need to develop a competitive “value domain” through emotionally-intelligent catalytic investments.
Sub Saharan African markets offer some of the most potentially successful and sustainable opportunities for weathering expected economic challenges over the next several years. So don’t miss the train! If you have a non-extractive process or technology that can provide a specific solution to market needs and demands in West Africa and your business is micro or very small Upboost can provide you with the support you need.