African markets increasingly open for business but positive mindset required

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  • Greater regional integration and infrastructure developments hold the prospect of a more connected continent

CAPE TOWN, 7 MARCH 2013. African markets are increasingly open for business. Despite perceptions of elevated and uniform risk, in many ways the continent is no different to others: as with anywhere, sound business practices enable well-run firms and funds to convert business strategies into actual results. This is according to the latest Ernst & Young thought leadership entitled ‘Doing business in Africa: from strategy to execution’ (pdf, 1.3mb), which will be launched today at the start of the Ernst & Young’s Strategic Growth Forum Africa (SGF) 2013.

The report builds on Ernst & Young’s Africa attractiveness surveys and Africa by numbers report – and offers some thinking on the strategic factors most critical to the effective execution of a growth strategy for Africa. While there is certainly no ‘paint by numbers’ approach to doing business in and across Africa’s many and diverse markets, the report provides a helpful framework to help further enhance confidence in companies’ growth strategies for Africa and to accelerate their transition from strategy development to execution mode.

“We continue to be excited and very positive about Africa. We are optimists, but we are realistic optimists – our perspective is deliberately a glass half full rather than half empty one. This is mainly because we believe that it takes a positive mindset to succeed in Africa. If you set out expecting difficulty and risk, you will find it. However, ours is not a point of view informed by anecdotes and wishful thinking – the numbers speak for themselves,” says Ajen Sita, CEO of Ernst & Young Africa.

Unlocking value and managing risks

The world’s emerging economies continue to grow more quickly than its mature ones. It is forecast that developing markets may grow by as much as four percentage points higher than developed economies. Of those emerging economies, Africa is likely to provide the most consistent and robust rates of growth over the next 10-15 years. In 2011, more than 15 African economies registered growth rates higher than 5%, despite a slow recovery from the global recession. Such performances and projections are now fairly familiar, explaining the considerable interest that firms and financiers — both within Africa and around the world — have shown in developing strategies to tap into Africa’s growth story and potential. Indeed, for many the question has moved beyond whether to have an Africa-wide strategy and what content it should have, to executing strategy in ways that unlock value, adjust to change, and safeguard assets and investments.

Five critical success factors

A relatively small number of macro-factors will tend to shape a company’s ability to unlock value in Africa (as well as deepen and protect investments) as it moves from strategy to execution. Plans will be exposed to the wider global geopolitical and economic forces and Africa’s constraints, from energy reliability to transport infrastructure deficits, which are already well documented. Moreover, general business considerations and contingencies apply equally in Africa as elsewhere.

“Africa’s growth momentum and potential is undeniable. We have identified five macro-factors that together we consider vital to maximising strategic opportunities and minimising strategic risks when doing business in and between African countries.  Through our experiences and observations, these factors are most consistently evident in strategies that have been successfully (and sustainably) executed over time in Africa,” says Michael Lalor, Africa Business Center Leader at Ernst & Young.

1. Perspective

The eye of the beholder: African business ventures can be risky, but no more so than those in much-hyped emerging markets in other regions. Giving substance to one’s Africa strategy involves a choice: one can emphasise a search for opportunities and then factor in risks accordingly; or take a ‘risks-first’ approach and only weigh opportunities after first filtering for risk. Successful entities have tended to do the former.

2. Planning

Patience and persistence: results: While it is often said that rewards go to the bold, in African investing it is also true that patience pays. Experienced foreign investors repeatedly note that nowhere else is there such a direct correlation between careful planning (and flexibility about plans once formed) and a successful outcome.

3. Places

Seek platforms and hubs: Africa’s hallmark is diversity; the barriers to creating bigger and deeper common markets and trade areas are considerable, but are arguably receding. Strategy-making around African growth opportunities involves positioning oneself at key nodes; executing such strategies then involves thinking in less conventional ways, both below the country-level (African opportunity as turning on various key cities) and beyond the country level (African opportunity framed in terms of regions and other potential groupings).

4. Partnerships

Relationships matter: Perhaps more than in any other continent — fostering good, proper relations with all levels of government will continue to be vital to realising strategic aims. Similarly, we believe that strong local partnerships are critical to success. Furthermore, the last decade’s focus on competition among foreign players obscures the scope for cooperative partnerships harnessing different players’ strengths.

5. People

No strategy is self-executing: Sustainable success in Africa will increasingly turn on identifying, nurturing and retaining talented and committed local staff. Meanwhile, for firms focused on reaching Africa’s many under-served customers, effective strategy execution is people-focused in another sense: not allowing top-down approaches (informing new consumers of their options) to obscure bottom-up receptiveness (being responsive).

Conclusion

The size, diversity and inherent complexity of doing business across the continent will continue to test even the best-laid corporate strategies for growth in Africa. Yet the rewards to be had are very real, and African governments and communities will continue to welcome responsible and committed investment. Indeed, the same issues that are often cited as barriers to greater interest or success could prove to be those that, especially over time, create scope for realizing strategic growth aims. Greater regional integration and infrastructure development hold the prospect of a more connected continent, while the paucity of data or well-developed services is a situation that forces companies to think for themselves and decide what key performance indicators matter, or not, to their own performance and outlook.

Within an overall context of strategic flexibility, the ‘5 Ps’ framework is intended to assist in supporting decisions on and responses to the factors that we believe are most critical to effective strategy execution in Africa.

Notes to Editors
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Invest in Africa
Invest in Africa is a partnership of companies that have been successfully operating in Africa for many years who aim to drive more sustainable investment into the continent by working together with local African firms to grow markets and support enterprise.
Companies, such as these, who already operating in the region are overwhelmingly positive about Africa’s potential but those without a presence on the continent are surprisingly pessimistic. By harnessing the first-hand experience and expertise of the companies involved, Invest in Africa works to tackle this gap between the perception and reality of doing business in Africa by demystifying the investment process and creating new partnerships to drive both business growth and wider development.