Once seen as the 'risky' continent, despite being considered a viable investment destination for natural resources, Africa's respectable growth rate and improvements within business environments has made the continent an attractive destination for foreign direct investment.
Despite growing optimism, investors need to be wary of the challenges still present in Africa before jumping into the deep end.
Narrowing it down, a recent online survey by Adams & Adams, through its Adams.Africa Advisory unit
, identified seven key challenges facing business wanting to enter or grow operations in Africa. 1. Ease of doing business
Almost every respondent flagged the ease, or lack thereof, of doing business in Africa as a key challenge. Contributing factors include the lack of procedural awareness and the hierarchy of systems, all of which affect and prolong the commencement period of a business.
Other contributing challenges include delays in securing construction permits, lengthy periods of registration, and credit to tax payment mechanisms.
Businesses need to understand the working environment on the ground by assessing the area’s other companies have found most challenging. Risk can further be reduced by gaining insight into all the various business components, from property registration to credit accessibility. 2. Ineffective regulations and corruption
Understanding a legal landscape can be challenging, especially in Africa with its rigid regulatory environments that are prone to corruption.
When entering the market, businesses need to avoid adopting a ’one-size-fits-all’ blanket approach, as this does not constitute a recipe for success.
Businesses need to familiarise themselves with the legalities of a country to minimise risk and potential susceptibility to corruption. 3. Difficulties in establishing local partnerships
Establishing partnerships rooted in trust is critical to the survival of operations, especially given the strong local business hold.
Treating Africa as a single entity continues to be a major setback for many multinationals. To counteract this, businesses need to understand the supply chain movement, market, consumer trends, and competitive landscape analysis.
Successful market integration provides businesses with increased flexibility, allowing them to adapt to diverse markets. 4. Ineffective intellectual property (IP) policies
IP protection is problematic for most businesses operating in Africa. Despite not being fully compliant and aligned with international protocols governing IP protection, more African nations are focusing on improving their IP legislature.
The African Regional Intellectual Property Organisation (ARIPO) has set out to improve IP protection by hosting informative seminars across the continent, while the Organisation Africaine de la Propriété Intellectuelle (OAPI) has also started offering specialised IP training.
However, there is still a long way to go to achieving the Intellectual Property Commission Strategic Plan 2020 vision for Africa.5. Limited market size
Consumer spend is being driven by increasing urbanisation rates seen across Africa, particularly in countries that are still in the early stages of development, creating greater demand for a wider range of manufactured goods.
In fact, by 2030, it is estimated that 1.7 billion Africans
will require food, beverages, access to pharmaceutical products, healthcare services, education, and security, among others. The food and beverage market alone will account for US$740 billion.
However, the lack of research within local markets has led to inconsistent assumptions being made about industries and countries.
Investors should develop appropriate strategies based on sound research within their respective markets. 6. Inadequate infrastructure
Inadequate infrastructure continues to be a major obstacle in Africa achieving its true economic potential. Africa is seen as one of the globe’s fastest growing hubs
, presenting opportunities for investors who need to look past the traditional Western view of the continent as a homogenous block.
In sub-Saharan Africa, areas of concern include transportation, communication, power, and water infrastructure. Additionally, only 26.5%
of Africans have access to the internet, with connectivity further hindered by recurrent power outages and high data costs.
For investors, detailed research on infrastructure and resources can help in the understanding of the nuances and opportunities each region presents. 7. Lack of access to capital and funding
Access to funding remains an inhibitor to the continent’s development and directly impacts the growth potential of the continent.
International institutions have made sizeable contributions to assist in attracting and mobilising larger investment pools across public and private sectors.
The development of domestic and regional capital pools can be increased by the improving partnerships between the public and private sector. However, only a handful of African economies have managed to achieve this. Minimise risks
Reviewing individual markets, assessing the most promising areas for operations, and involving local partners is key to creating an effective set-up.
Africa is by no means a simple investment, but if done right can be the most rewarding yet. Businesses need to prepare before taking the plunge, and once they dive in, need to be able to swim. This requires continuous analysis and staying up to date with ever-evolving trends and developments, while investing in developing local partnerships. Helping keep businesses afloat, Adams & Adams can assist in navigating obstacles present in Africa by using strategic and targeted research through its Adams.Africa Advisory unit, offering a comprehensive range of business, economic, political, and legal research services, coupled with up-to-date information and a precise framework for brand expansion and IP protection across Africa’s jurisdictions.
Contact us should you wish to investigate any of our research options further.About Adams & Adams
Adams & Adams is an internationally recognised and leading African law firm that specialises in providing intellectual property, corporate and commercial services. Our Intellectual Property law practices work with clients around the globe and across many industries to protect, enforce and commercialise their intellectual property. These services include counsel and handling of transactions in cases involving patents, copyrights, trade marks, designs, licensing, and data security.
Likewise, the Adams & Adams general commercial legal services practices boast competent and powerful teams that are purposed to represent clients in expertise areas such as commercial and contract law, commercial litigation, property services, public procurement, banking and finance, mergers and acquisitions, tax, exchange control, franchising, competition, labour, personal injury, arbitration and dispute resolution, among others.