5 Big Business Misconceptions About Sub-Saharan Africa That Need To Go Away

By Kurt Davis Jr. AFKI Original Published: June 23, 2017, 1:32 pm
Business in Africa is often more sophisticated than some people realise. Photo - JumpstartBusiness in Africa is often more sophisticated than some people realise. Photo - Jumpstart

Life and business misconceptions are commonplace in sub-Saharan Africa. When (and how) you came to know Africa dictates the standard deviation from business reality.

Older generations may know Africa through the eyes of Irish singer-songwriter Bob Geldof on his visits to Ethiopia back in the 1980s. Younger generations may know the same man as chairman of 8 miles, a private equity fund focused on Africa.

The continent is ever-changing and the individuals involved are equally adapting to the change. Yet some misconceptions persist.

These are five big ones than can be immediately tossed out.

Kurt Davis Jr. is an investment banker focusing on the natural resources and energy sectors, with private equity experience in emerging economies. He earned a law degree in tax and commercial law at the University of Virginia’s School of Law and a master’s of business administration in finance, entrepreneurship and operations from the University of Chicago. He can be reached at kurt.davis.jr@gmail.com.

Manufacturing is on the rise across Africa. Photo: edition.cnn.com

Misconception No. 1: Sub-Saharan Africa’s growth is solely dependent on natural resources.

This myth should have been busted by now (as prices have sagged for commodities), yet it persists. For example, oil and gas account for less than 15 percent of Nigeria’s GDP. A hidden truth in that statistic is the fact that the government depends too heavily on tax revenue from oil and gas, thus the significant economic hit on the country in the last couple years as oil prices have remained low.

Economists accordingly argue that oil producers, including Angola, need to find a way to expand the tax base (that is not a misconception). But, for business investors, the interest in sub-Saharan Africa is not about expanding tax bases and boosting tax revenue levels of countries. It is about finding investment opportunities. And these opportunities go beyond natural resources. Consumer goods, financial services, health care, technology, infrastructure, etc. offer great investments returns across the region.

lawyer advancing Facebook in Africa

Facebook founder Mark Zuckerberg and Ebele Okobi, right, Facebook public policy director for Africa, on a 2016 visit to Kenya. Photo: Facebook

Misconception No. 2: South Africa is the natural entry point and hub for doing business in sub-Saharan Africa.

South Africa is a special country in the region…Cape Town does have the Greenwich, Connecticut feel for wealth managers and investors. But it is fool’s gold to think Johannesburg and Cape Town are the natural homes for your business in Africa.

First, South African businesses will begrudgingly admit that they have struggled with expansion to the rest of Africa (e.g., Woolworth’s in Nigeria) because, well, the region does not walk lockstep with its business cultures and ecosystems. For example, Nairobi is viewed more favorably compared to any South African city in business circles for having more reliable power, an entrepreneurial spirit and a more dynamic business ecosystem.

And, for those accessing French West Africa, Dakar and Abidjan have grown in reputation. London, in some circles, is the best launching pad for West Africa, if focusing on both the Francophone and Anglophone countries, when positioned against Nairobi, Johannesburg, Cape Town, and Lagos.

Soweto, South African black middle class

There is a growing middle class in Africa. Photo: Anders Pettersson/Getty

Misconception No. 3: Sub-Saharan Africa is all poor or sub-Saharan Africa is all middle class.

Why group these two statements together? You have two common types of investors. The very pessimistic (or self-described “realist”) think sub-Saharan Africa is all poor people and offers little investment opportunity. This pessimistic group sometimes calls for aid money for sub-Saharan Africa, often arguing that the region should not become dependent on aid money because it creates more corruption and hurts business. It can get tricky when celebrities are sharing the spotlight in this group and become spokespeople (or presumed experts) on the entire continent.

The very optimistic (or “Africa enthusiasts”) talk up the region’s massive middle class (some international consulting firms could fall into this group). The reality on the ground is more in between poor and middle class (No surprise!). Poverty is a problem for many countries and it is hard to miss as you navigate through different nations. That said, not everyone is poor…or real estate prices, food prices, and many other prices would not be high in certain cities.

On the other end, there are rich individuals and families (similar to the West) as well as a growing middle class. The middle class (and what constitutes middle class), however, differs by country. And, by the way, those middle-class families carry the same financial concerns as their western counterparts…with families in both regions of the world knowing a few missed paychecks could easily put them back in poverty.

Somaliland

A woman holds Somaliland’s flag during national celebrations (Image: somalicurrent.com)

Misconception No. 4: Sub-Saharan Africa has too much instability and is dangerous.

Debunking this myth is everyday life…“Do you feel safe when there or trust people?”

First, let me concede that sub-Saharan Africa does have risks in business…high economic growth is not consistent…downturns happen…and investing in these markets requires local knowledge. That is what emerging markets are all about, not solely sub-Saharan Africa. Second, safety is more my concern walking the streets of Richmond, Baltimore, and many other U.S. cities at night, especially if I end up in the “wrong” neighborhood. The same thinking can be extrapolated to many cities in the region. Avoid certain neighborhoods at certain hours.

Third, war is not everywhere nor is it even the storyline for more than a couple of countries (i.e., South Sudan, Somalia). One of the safest places in sub-Saharan Africa may be northern Somalia (otherwise known as Somaliland, a self-declared state internationally recognized as an autonomous region of Somalia). The southern part of Somalia, which includes Mogadishu, is probably one of the “more dangerous” parts of the world.

Fourth, the perceived instability and danger, sadly for the region, has remained bigger than true risk on the ground. Senegal may be an amazing example of a country for religious tolerance, and Botswana is an amazingly stable democracy (also the diamond rich nation is ranked as less corrupt than Italy and Spain by Transparency International). Johannesburg has earned a reputation for petty crime, but it is again about where and at what hours you spend your time.

Come visit the continent… Let’s start with Kinshasa (the Democratic Republic of the Congo), Berbera and Hargeisa (Somaliland), Lagos (Nigeria), Nairobi (Kenya), Johannesburg (South Africa), and other cities necessary to destroy misconceptions and (well) make you sound like an emerging Africa enthusiast. Oh, and if you are worried, lions, tigers and bears are not roaming the streets. You will see the random baboon on the side of the street in southern Africa or a couple of individuals walking cows. The rest of the animals, including that big elephant and lion, will have to be found at the zoo or on safari (neither of which yours truly cares to visit).

Consumer Electronics Show 2017 in Las Vegas

WWF uses thermal sensing infrared technology from FLIR to combat poaching in Kenya’s Maasai Mara Conservancy park. Photo: James Morgan/WWF-US/xtechnews.com

Misconception No. 5: Sub-Saharan Africa is behind in technology.

It is surprising how many business people assume Africa is behind the times in technology. Infrastructure may be a problem…but technology is a different story. Mobile phones (including those that are not ‘smart’ phones) are used to do almost everything in sub-Saharan Africa. For example, mobile banking is vital to financial services on the continent. Brick and mortar banks are incessantly spending the time and money to create financial technology solutions to bring in more clients and consumers, especially in rural areas where constructing an actual building makes little economic sense.

Farmers use mobile applications to manage their crop harvesting, check local market prices, and master the milking schedule of their cows. Insurance companies sell and communicate insurance policies through mobile applications. Mobile (and online) education programs are on the horizon to reach populations geographically outside normal transport routes. Sub-Saharan Africa, in many instances, can make a Western business person feel like she underuses her mobile phone…or simply feel behind the times when she does not know how to use M-Pesa.

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