Patrick Gutmann, managing director for corporate and institutional banking at BACB, the UK‐based bank with four decades of experience in Africa, has discussed some major factors driving Africa’s current business landscape with African Review (ATR)
ATR: What are the five major challenges in doing business in Africa and how to overcome them?
Patrick Gutmann (PG): This is a very broad question that is probably best answered through an in-depth conversation rather than as a short-form written response. Furthermore, the challenges faced when doing business in Africa will differ depending on the particular country in question and the sector in which the business is conducted. That being said however, there are a few overarching challenges which inevitably will be encountered when conducting business across the African continent.
The lack of a reliable and stable infrastructure is often a challenge faced by businesses across Africa. This includes areas such as roads, seaports and airports, but also includes the infrastructure associated with telecommunications, technology and power and energy.
The physical infrastructure continuous to be a challenge in many parts of Africa and is often a major barrier to creating more efficient and cost-effective intra-Africa trade activities. Although there has been continued investment in telecommunications and technology infrastructure in many African countries, there has also been a significant increase in demand and usage of this infrastructure.
A reliable, consistent and stable communications and internet environment is a critical ingredient to conducting business in today’s marketplace and the access to this can at time be difficult in certain parts of the continent and hence results in inefficiencies and potentially additional costs which businesses otherwise would not need to incur. Finally, unreliable and inconsistent power supply continues to plague parts of the continent, which adds complexity and costs to anyone running a business or looking to establish a business.
Understanding the local regulations, customs, business environment, languages and consumers is often not straight forward and often not readily accessible nor easily learned through public sources. To overcome these challenges, having a strong local partner is often the best and most efficient solution. Having access to on-the-ground information, knowledge and experience is invaluable and critical to a successful business venture.
ATR: In your opinion what are the top five most promising sectors that will see high growth in the next five years, or in the medium-to-long-term, in Africa?
PG: Clearly a number of the long-standing and established sectors like mining and minerals, oil and gas, tourism, financial services, infrastructure and agriculture will continue to play an important part in many of the African countries. These ‘traditional’ sectors will continue to provide opportunities to companies and investors looking for growth, given their importance to a number of economies, their size and scale in many markets, and the continued demand for the outputs both by neighbouring African countries as well as by countries outside of the African continent.
Beyond these more traditional sectors, there are a number of important sectors that are either underserviced or still in its early days, but which are poised for significant growth. These include sectors such as education, healthcare, power and energy, technology and telecommunications, manufacturing, and retail and fast moving consumer goods (FMCG).
A growing middle class and an increase in disposable income levels will drive investment and focus on major sectors such as education, healthcare, telecommunications, retail and FMCG. As more and more governments are looking to drive diversification of their economy, there will be an increased focus on ‘newer’ sectors such as manufacturing, technology, renewable energies, and certain parts of the services sector. The power and energy sector is traditionally an underserviced sector and will be vitally important as the population continues to grow across the continents and as governments keep pushing an agenda of diversification within its economy.
Overarching all of this, is a growing need for support of the small and medium sized enterprises (SME) sector, which fundamentally is the driving force behind Africa’s strong growth figures and continued growth trend. The SME sector, although representing about 90 per cent of all businesses in Africa (as per the IFC) continues to be underserviced and struggles to gain the necessary access to financing, markets, and support to grown into larger enterprises. This ultimately is a sector that not only has huge potential, both economically and socially, but is underserviced and to a large extent undervalued.
In summary the top opportunities by sector:
· SME
· Established sectors
· Public services
· ‘New to Africa’ sectors driven by middle class demand
· Power and energy
ATR: In the midst of current business uncertainty worldwide, how trading with Africa makes more appealing for businesses?
PG: Africa continues to be an attractive investment destination, with strong forecasted GDP growth for 2018 and 2019. According to the World Bank, growth for Sub-Saharan Africa in 2018 is expected at 3.1 per cent with a slightly higher growth of 3.6 per cent forecasted for 2019. If the big three Sub-Saharan Africa economies of Nigeria, Angola and South Africa are excluded, the forecasted growth is expected to be at five per cent. Furthermore, according to the World Bank, Africa is expected to have six of the top 10 fastest growing economies in 2018. All of this certainly highlights the growth prospects of Africa more generally and of a number of individual countries specifically.
Although there is no denying that the global business environment is uncertain and to some extent more unstable than it has been for some time, Africa as a continent and many of the countries therein continue to be attractive growth markets with a number of ingredients that make it attractive to foreign investors and businesses – including a growing middle class, large youth population, strong technological adoption and entrepreneurial spirit and growing disposable income levels. These social and demographic factors, coupled with strong economic growth create interesting opportunities for businesses looking for growth outside of their traditional markets.
ATR: In the growing relevance of corporate social responsibilities (CSR) across the globe, do you think that private companies should adhere to more CSR for the region’s development? Would you like to draw attention/comparison of CSR in developed nations and CSR in emerging economies?
PG: CSR is an integral part of running a successful company and fundamentally the institutional view on CSR and the importance placed on it should transcend across all activities undertaken by the company regardless of the location. Through a strong CSR focus, a company can clearly have a positive social, environmental and economic impact in the country in which they operate, and this should absolutely form part of any international firm’s presence in an African market. For many African’ countries, a strong corporate CSR engagement can significantly assist in addressing crucial social and environmental issues and often times is a more integrated and longer-term approach as opposed to the traditional donor flows. However, a strong CSR agenda should go beyond merely providing funding towards developmental projects, but should ultimately aspire to drive real positive change through a multi-faceted approach that includes pro-active and continued engagement on topics that are relevant and important in the particular country in which they operate.
Governments alone cannot achieve poverty reduction and sustainable development, and the traditional model of attracting donor flows has not always proven to be effective or as successful as hoped for. A strong CSR agenda by the government and a continued engagement with the local business community should form part of any governments approach and plans. Creating a dialogue with the local business community about the importance of CSR and making it a major expectation of firms conducting business locally, can not only provide additional funds and means to tackle certain important social and environmental challenges, but can also result in stronger integration and deeper engagement in the local communities by the business involved in the CSR activities.
To see and hear more of Patrick’s views on business opportunities in Africa you can watch the first in a series of ‘Trade With Africa’ Webcasts here
In the first show, Patrick is joined by his BACB colleague, James Cantantu-Koomson and former British Ambassador to Libya Peter Millet, as they discuss both the opportunities and challenges for international businesses looking to trade with Africa.
The second shows in the series will be broadcast in September.
