Expanding To Africa? Risk Management A Cost Of Doing Business

By Susan Erwin AFKI Original Published: January 22, 2014, 1:58 pm
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When Impele Consulting Group, a U.S. company based in Arizona, decided to expand internationally, company leaders chose Cape Town to serve as its risk management hub.

Impele custom-tailors consulting solutions for clients looking to take their businesses to Sub-Saharan Africa. These risk management solutions include eliminating and minimizing real and perceived risks, project evaluation and implementation, auditing and contract management.

“We chose (South Africa) because of its world-class infrastructure in communication, flights, service providers, and financial markets,” Josh Becker, CEO of Impele, told AFKInsider.

Impele does business in nine African countries including Sierra Leone, Liberia, Swaziland, Zimbabwe, Zambia, Malawi, Tanzania, and Kenya.

“South Africa was a natural hub for us given the local network and connections of our founding partners, who are South African,” Becker said. “Additionally, the standard of living for our staff is much greater in South Africa when measured against other potential hubs in the region.”

The company has had clients doing business in South Africa for the past two years — the majority in the agriculture and food sectors, Becker said. “Our South African clients have primarily been private equity funds and institutional investors looking at making investments in the broader Southern African region.”

South Africa is a naturally beautiful and culturally dynamic country, Becker said. “The quality of life for our employees has been a major benefit. Additionally, the workforce is very well qualified and globally competitive, but with relatively lower wages which has enabled us to expand some of our operations and shift some of our back-office activities to our South African office.”

Risk management in South Africa

Challenges of doing business in South Africa include security concerns and the sometimes-difficult bureaucratic red tape involved in dealing with foreign exchange controls, Becker said, referring to the risk management factors.

“Safety concerns for general petty crime has also been an issue,” he added. “However, because of the nature of our business services, the majority of our clients often avoid the dominant challenges in the country around social inequality and labor union influence on strikes and work stoppages that are crippling many industries including manufacturing, mining and agriculture in South Africa.”

The economic climate in South Africa is very promising, but unfortunately, it is held back by a challenging political climate and unsettled social environment, Becker said. “The current government is mired in corruption and inefficiencies, as well as having difficult regulations that keep many companies from expanding operations domestically.”

Still, technology, design, and highly technically skilled businesses in South Africa have an advantage on the global stage, according to Becker.

“These industries largely avoid the labor union issues and leverage a well trained and highly competent labor pool that is still relatively inexpensive compared to global competitors,” Becker said. “Software, technology and tech support companies should be looking to South Africa for many of their solutions and as a hub for innovation and development.”

A business client of Impele’s, Trellidor manufactures security barriers in South Africa. The company makes security products for residential and commercial customers and distributes and installs them through more than 75 franchisees throughout South Africa.

Glen Grebe is managing director at Trellidor Atlantic in Cape Town. The company, established 36 years ago, recently franchised distribution and sales to the Cape Town office through Impele.

“This franchise has been operating for three years and as crime in South Africa is increasing due to persistently high unemployment, it was decided that this was a good business venture as new jobs were being created,” Grebe told AFKInsider.

The rewards of working in South Africa include that it has a well-developed infrastructure with good communications, Grebe said. The country’s banking, retail, and communication are world class, so the rewards of doing business there far outweigh the challenges and risk management considerations compared to other African countries, Grebe said.

Like any other African country, corruption is massive and political leaders are not commonly strong leaders, which creates uncertainty among foreign investors resulting in a very vulnerable currency, Grebe said.

“Labor issues and utterings about land distribution do create an uncertain investment scenario, especially when looking at the mining sector, which is the biggest foreign exchange earner,” Grebe said. “This year there is the election and some radical parties are making noises, which will unsettle everything in the short term.”

Export businesses are doing very well in South Africa right now due to the weakened rand as well as access to ports, Grebe said. “As labor (in South Africa) is expensive compared to other developing countries, any business with minimum labor will also have an advantage.”

Impele is quickly rising as a market leader in custom-tailored consulting solutions for clients looking to take their businesses to Sub-Saharan Africa, said Kristin Hege, a public relations specialist for Convey PR.

“With locations in the U.S. and South Africa, Impele has trusted local relationships and over 25 years of expertise with Africa-based business development and operations to guide U.S. projects and minimize risks,” Hege told AFKInsider.

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