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Five Pillars for Doing Business in Africa: A Road Map to Opportunities

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 Dossier
insight
A ROAD MAP TO OPPORTUNITIES
Five Pillars for Doing
Business in Africa
By ROBERT MUDIDA and ALEJANDRO LAGO
A
t the turn of the century, a promi-
nent World Bank study raised a se-
rious question: Can Africa Claim the
21st Century? Given that the first 40
post-independence years of many African states
had seen little in the form of meaningful devel-
opment, posing such a question was certainly
relevant. Since then, there has been intense de-
bate between those who see the glass half empty,
such as Paul Collier’s The Bottom Billion (2007),
and those who see it as half full, such as Vijay
Mahajan’s Africa Rising (2008), Steven Rade-
let’s Emerging Africa (2010) and Charles Robert-
son’s The Fastest Billion: The Story Behind Africa’s
Economic Revolution (2012).
Without overstating Africa’s potential,
ieseinsight
as many of its economies are small in global
terms, we do believe “economic revolution”
is the right way to describe how, in just a de-
cade, the lists of the world’s 10 fastest growing
economies have come to be consistently dom-
inated by Africa. Macroeconomic indicators
aside, the ground-level reality reveals sizable
business opportunities.
Given the prospects, many companies
around the world are setting their sights on
Africa as a new frontier for business. This
article highlights the main macroeconomic
trends and presents a road map for compa-
nies planning to enter African markets. As
our research is in its early stages, this article
is based on personal experiences and local
issue 24 first QUARTER 2015 15
africa:
avenues to Five Pillars for Doing Business in Africa
growth
insights distilled from interviews and col-
laborations with dozens of entrepreneurs
and executives who are living the realities of
doing business on the continent.
The Facts on Africa
To state the obvious, Africa is a continent, not
a country, and a huge one at that. Sub-Saharan
Africa, the focus of this article, comprises 47
countries, representing a land mass bigger
than China, India and the United States com-
bined. Its population of around a billion could
double by 2050. Its GDP of $1.6 trillion is the
result of not one monolithic economy but a
myriad of economies, each requiring an inde-
pendent approach. (See Exhibit 1.)
To make things more manageable, Africa
is often grouped into blocs, but within each
bloc – indeed, within each individual country
– we find wide-ranging political, regulatory,
business and cultural differences. These dif-
ferences can sometimes appear more magni-
fied than in other emerging economies, due to
transport, infrastructure and other logistical
issues that have historically made trade, com-
munication and integration of systems more
difficult. This means not all countries are
advancing at the same rhythm, an important
consideration when making any macroeco-
nomic assessment of the region.
For the purposes of this article, we speak
in broad terms, focusing on the commonali-
ties across the continent. However, readers
should be prepared to challenge each state-
ment at an individual country level and un-
derstand the general opportunities in light of
specific circumstances.
EXECUTIVE SUMMARY
Companies around the world macroeconomic trends; then
are setting their sights on they present a road map for
Africa as a new frontier for companies planning to enter
business. However, as with African markets. They draw
other emerging economies, on personal experiences and
African ones are tricky to local insights distilled from
navigate for the uninitiated. interviews and collaborations
This article introduces the with dozens of foreign
five pillars that companies entrepreneurs and executives
need to consider in the who are living the realities
African context. First the of doing business on the
authors highlight the main continent.
16 first QUARTER 2015 issue 24
Macroeconomic Trends:
Light and Shadows
Much of the recent excitement about Africa
is generated by positive macroeconomic fig-
ures, which indicate that sub-Saharan Africa’s
overall performance is fast closing the gap
with other developing regions in East Asia and
Latin America (South Africa being a forerun-
ner that needs to be considered separately).
Here we reflect on the overarching trends.
GDP GROWTH: STARTING FROM THE BOTTOM BUT
RISING FAST. “Formal” economies are small:
the combined GDP of all sub-Saharan African
economies in 2013 was only slightly higher than
Spain’s or South Korea’s and less than Italy’s or
France’s. What’s striking, though, is the growth
potential: between 2000 and 2013, sub-Saharan
African economies grew at an average of 4.5 per-
cent a year. Moreover, sub-Saharan Africa’s com-
modities boom, together with it not being so in-
tegrated into the global economy, served to carry
many countries through the worst of the global
economic crisis, helping them to avoid stagna-
tion and making Sub-Saharan Africa the second
fastest growing region in the world after China.
This growth was not limited to countries
rich in natural resources, such as Nigeria,
Angola, Sudan and Mozambique. Countries
such as Ethiopia, Rwanda, Kenya and Uganda
sustained GDP per capita growth above 3.5
percent for extended periods between 1995
and 2012.
Some analysts explain such growth rates
as a natural reflection of low starting points.
Whatever the reason, analysts predict GDP
growth to remain around 5-6 percent until
2016, even in a context of falling commodity
prices, sustained by domestic demand as well
as strong imports and exports. At those rates,
the continent could well double the size of its
economy by 2030, bringing with it continued
improvements in education, health care and
other critical development indicators.
FROM NATURAL RESOURCES TO MORE DIVERSIFIED
ECONOMIES. For half of all sub-Saharan African
countries, natural resources make up a quarter
or more of their export revenues. Increasingly,
however, the service sector – including whole-
sale, retail, transport, telecom, utilities, finan-
cial services, real estate and tourism – accounts
for more than 60 percent of the fastest growing
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growth

Sub-Saharan Africa: Key Stats exhibit 1
ALL DATA AS OF 2013, UNLESS OTHERWISE INDICATED.
Population: 936m
Youth aged 10-24: 297m
(projected 561m by 2050)
Urban population: 37%
GDP: $1.6tr
GNI per capita: $1,657
FDI inflows: $52.6bn
(+12.9%)
Land area: Intra-African trade
20.4% of (2007-2011): 11% of total
Earth’s total merchandise exports
Middle class spending
Ease of doing $2-$20/day (2011): 313m (up
business (2014): 60% since 2001)
20 years since Living above poverty line:
genocide, projected 1.23bn by 2025
Rwanda now ranks Rwanda (up 475m since 2010)
46th worldwide
SOURCES: World Bank, Population Reference Bureau, African Development Bank,
IMF, Silk Invest, United Nations Conference on Trade and Development
economies. Both natural resources and services
are expected to fuel much more growth.
There are concerns that the manufactur-
ing value added is too low, even in the most
diversified economies (South Africa being
the exception). While this affords abundant
scope for the industrial sector to develop, the
leap from agriculture to a fully diversified ser-
vice economy, which is largely dependent on
the wealth generated by natural resources, is
not an easy or stable transition to make.
EXPORTS GROWING BUT LIMITED INTRA-AFRICAN
TRADE. Although exports have quadrupled over
the past 10 years, they still only account for less
than 3 percent of African GDP. China alone ac-
counts for roughly a quarter of Africa’s exports.
Africa needs to find other trade partners and di-
versify beyond natural resources to agricultural,
manufacturing and particularly services exports.
Kenya, Tanzania and Uganda have done well di-
versifying their outputs, while formerly war-torn
Rwanda has done remarkably well transforming
itself over the past decade.
Intra-African trade, at 11 percent of to-
tal merchandise exports, is low compared
with intraregional patterns in other parts
of the world (50 percent in developing Asia,
21 percent in Latin America and the Carib-
bean). Pacts aimed at reducing trade barri-
ers within and among Africa’s main regions
have had limited success, save for South Af-
rica (and its region of influence), Kenya and
Nigeria where some relevant manufacturing
and services trade between neighboring coun-
tries exists. Part of the difficulty stems from
the slow pace of implementing pacts agreed
on paper: shaking hands on a deal is one thing;
tackling the realities of intra-regional trade is
quite another.
A FAST-RISING MIDDLE CLASS. The number of mid-
dle class Africans has been put at 100 million to
more than 300 million, or 1 in 3 Africans, depend-
ing on how one defines middle class. Some cat-
egorize it as those with discretionary purchasing
power of $2-$4 a day, while others allow a broader
$2-$20 a day. Either way, their options to access
consumer goods are limited, and those at the low-
er end of the scale risk falling back into poverty.
Still, the fact that those rates jumped 60 per-
cent in a decade is noteworthy. Countries such as
Nigeria and Kenya rank among the fastest grow-
ing middle classes in the world. This represents
a market potential of $2 trillion, equivalent
to two-thirds of China’s current private con-
sumption. And though they may not be able
to afford as many durable goods yet, the rapid
rate at which they have already adopted mo-
bile technologies augurs well for ample con-
sumer demand. 
To meet this demand, there
are growing numbers of local conglomerates
taking their place alongside Western multina-
tionals such as Coca-Cola, Unilever, Bata and
Gallina Blanca, which established an African
market presence long ago. Kenya’s Bidco,
a manufacturer and marketer of consumer
goods founded and run by a family of Indian
descent, is fast making inroads in a robust
sector. Indeed, Kenya has given rise to at least
five major supermarket chains that compete
fiercely across the East African region, includ-
ing Nakumatt, Tuskys and Uchumi.
A POWERFUL INFORMAL SECTOR. The cause and
consequence of the emerging middle class is the
existence of a dynamic informal sector, which
the McKinsey Global Institute estimates in sub-
Saharan Africa could amount to 25-30 million
microenterprises and small and medium-sized
businesses, on a par with that of Southeast Asia.

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In some cases, the informal sector may involve
80-85 percent of the working population.
Even though these enterprises are dubbed
“informal” because they operate under the
radar of any tax system, some of them can
be quite structured. We’re not just talking
about individual street hawkers but maybe a
six-person consulting or advertising firm or a
small distributor of consumer goods that may
employ a dozen people.
Paul Kinuthia is an example of someone
who started making shampoo in the back-
streets of Kenya under the brand Nice & Love-
ly. Over time, he incorporated his business as
Interconsumer Products, a division of which
he sold to L’Oréal in a deal worth millions.
The multiplier effect of such activity on
the wider economy is powerful. These enter-
prises generate relatively stable jobs and in-
comes, which in turn drive consumption and
boost the middle class. In addition, as these
businesses grow and develop, they require
more sophisticated levels of support in terms
of financing and ICT, which opens up ancil-
lary business opportunities to facilitate their
transition to the formal economy.
INCREASED FDI AND STEADY DIVERSIFICATION.
Foreign direct investment (FDI) has increased
steadily since 2004, but compared with other
emerging markets, it remains constrained and
directed mainly at extractive industries and in-
frastructure projects. However, there are signs
of diversification, particularly in East Africa, with
Kenya the favored hub for technology, industrial
production and services. Intra-African invest-
ments, mainly by banks and IT services compa-
nies, are increasing, led by South African, Kenyan
and Nigerian companies. Private equity groups
such as Carlyle, Helios and Actis are placing big
bets on the continent.
GREATER POLITICAL STABILITY BUT CONCERNS
PERSIST. The sociopolitical instability that used
to characterize many African states has settled
down a lot over the past 25 years as their democra-
cies have matured, leading to better governance
and stronger, more inclusive institutional frame-
works. This has bolstered investor confidence.
That said, real problems persist. Poverty,
though generally declining, still affects a
significant percentage of the population, and
in some regions, population growth is lead-
ing to more poverty. This usually goes hand
in hand with system failures in health care
and education. Unreliable infrastructure and
auxiliary services such as power, water and
transportation networks continue to present
challenges.
These shortfalls persist owing to “extrac-
tive elites,” which the economists Daron Ac-
emoglu and James Robinson describe in their
book, Why Nations Fail. These are rapacious,
politically powerful actors who will expro-
priate the majority of a society’s wealth and
resources for themselves. Having to deal with
these entrenched local political interests and
tribalism can translate into higher costs for
business.

about the authors Five Pillars for Doing Business

Robert Mudida is the academic
director for the Master of Public
Policy and Management at
Strathmore Business School.
He holds a doctorate, as well as
an MA in International Studies,
from the University of Nairobi,
and an MSc in Financial Eco-
nomics from the University of
London’s School of Oriental and
African Studies. He has carried
out consultancy assignments
with the World Bank and the
Intergovernmental Authority on
Development.
Alejandro Lago is an as-
sociate professor in the
Production, Technology and
Operations Management
Department at IESE. He holds
a PhD in Engineering from
the University of California at
Berkeley. A visiting professor
at Strathmore, he is the acting
director of the African Initia-
tive and academic director for
IESE’s Overseas MBA Module,
“Doing Business in Africa,” in
which students work on con-
sulting projects in Nairobi.
On balance, the macro data are promising, but
because of the mixed picture, business lead-
ers may not be clear on how best to identify
and structure the opportunities. To address
this, we propose business leaders base their
approach to Africa on five pillars of general
management. These emerged as recurring
themes during our interviews with entrepre-
neurs and executives operating in Africa. Let’s
examine each in turn.
1. Strategy: Focus Your Approach
by Country and Industry
Africa’s diversity requires a strategic focus.
Different countries present different op-
portunities and challenges, making it vital

18 first QUARTER 2015 issue 24 ieseinsight

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The sociopolitical instability has settled down as
African democracies have matured, leading to better
governance and stronger, more inclusive institutional
frameworks. This has bolstered investor confidence.
to carry out a proper market analysis on the
favorability of the markets in which you are
interested. The following dimensions need to
be assessed at the very least (see Exhibit 2).
ECONOMIC POTENTIAL & DEGREE OF DIVERSIFI-
CATION. Entry in a given country is dependent
on your particular industry. A construction or
industrial goods company would obviously tar-
get Nigeria, Mozambique, Angola and Congo for
their abundant supplies of oil, gas and minerals.
Consumer goods and services companies, on the
other hand, might find Kenya, Ghana and Nigeria
better markets, given their middle incomes, large
urban populations and high literacy rates.
MARKET ORIENTATION & RULE OF LAW. Countries
that adopted market-oriented economic systems
since independence, such as Kenya, Senegal and
Botswana, tend to have more dynamic, less gov-
ernment-controlled economies. Others, such as
Tanzania and Mozambique, are more inclined
toward state intervention in economic life, while
Ethiopia is mimicking the Chinese development
model of high government intervention com-
bined with high local private initiative.
Apart from market orientation, you also
need to consider the independence of a coun-
try’s judicial system, the freedom of its media
and the guarantees of civil liberties. To oper-
ate in Africa, it is better to follow the right and
long way than taking shortcuts.
SOCIAL, ECONOMIC & CULTURAL PROXIMITY. His-
torical colonial ties still play a role in trade and
business relationships today. As such, French and
other Mediterranean companies find it easier to
do business in Francophone countries, Dutch
and British companies in Anglophone Nigeria,
Kenya and South Africa, and Portuguese compa-
nies in Mozambique and Angola.
The more recent influx of Chinese cor-
porations is creating what some see as “neo-
colonial influence,” which is being felt all over
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the continent, but especially in countries with
socialist-inclined regimes.
In addition to the influence of these out-
side actors, many countries have well-estab-
lished diaspora communities, such as the
Lebanese community in West Africa and the
Indian community in East Africa, which are
powerful actors in certain sectors.
This need for strategic focus implies that
successful business models are not so easy to
replicate across borders. M-Pesa, the mobile
money transfer system of Kenya’s Vodafone
franchise, Safaricom, is a case in point. After
its quick penetration of the Kenyan market,
Vodafone believed expansion into neighbor-
ing Tanzania, a country of similar size, popula-
tion and language, would be straightforward.
In reality, cultural differences, access to dis-
tribution networks, the role of the regulator
and even the emotional non-attachment of
the Tanzanian population to a Kenyan brand
made it more difficult than imagined.
Of course, internationalization is happen-
ing across the continent. But as Africa Ariño
writes elsewhere in this same IESE Insight
dossier, companies wishing to expand their
operations across the continent need to make
sure their strategies are informed by a deep
grasp of the non-traditional factors and soft
variables that make growing a business in any
one country possible.
2. Operations: Plan for an
Extended Perimeter
In most African countries, business opera-
tions need to assume shortfalls in basic in-
frastructure. Many African countries still ex-
perience severe infrastructure challenges in
areas such as energy, roads and ports. As such,
your company may need to develop internal
operating capabilities that go beyond the tra-
ditional operations perimeter that would be
considered adequate in another context.
issue 24 first QUARTER 2015 19
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exhibit 2
Country Taxonomy for Doing Business
THE FOLLOWING DIMENSIONS NEED TO BE ASSESSED AS PART OF A
STRATEGIC ANALYSIS PROCESS.

Economic Low Medium-Term Short-Term High

Potential low income, small population, low-middle income, medium- middle income, medium- high income, large
low GDP growth sized population, medium large population, medium- population, high GDP growth
GDP growth high GDP growth

Degree of Subsistence Economies: Pushing to Diversify: Diversified: Diversified:

Diversifica- Benin, Burkina Faso,
Burundi, Cape Verde,
tion Central African Republic,
Comoros, Eritrea,
Gambia, Guinea-Bissau,
Madagascar, Somalia,
Togo
Resource Dependent:
Chad, Equatorial Guinea,
Guinea, Liberia, Niger, São
Tomé & Principe, Sierra
Leone, South Sudan
Cameroon, Djibouti, East Africa bloc (Kenya, South Africa (including
Ethiopia, Ivory Rwanda, Tanzania, Botswana, Lesotho,
Coast, Malawi, Mali, Uganda), Ghana, Senegal, Mauritius, Namibia and
Mozambique Zambia, Zimbabwe Swaziland, which, though
Resource Dependent: Resource Dependent: small and with highly
Congo, DRC, Gabon Angola, Sudan different institutional
situations, fall under the
influence of South Africa,
boosting their potential)
Resource Dependent:
Nigeria

Institu- Instability or Purely Market Driven: Market Driven: Market Driven:

tional En- Extractive Institutions: Djibouti, Ivory Coast, Ghana, Kenya Almost all countries in
Most countries in the Malawi, Mali Government Control: the group above
vironment
group above Government Control: Angola, Rwanda, Senegal,
Cameroon, Congo, Sudan, Tanzania, Uganda,
DRC, Ethiopia, Gabon, Zambia, Zimbabwe
Mozambique

Social, Anglo: Cameroon, Eritrea, Ethiopia, Gambia, Liberia, Anglo: Ghana, Kenya, Nigeria, Rwanda, Sudan,
Economic Malawi, Sierra Leone, Somalia (fading Italian Tanzania, Uganda, Zambia, Zimbabwe
& Cultural influence), South Sudan Anglo-Dutch-German: South Africa (and region of
Proximity French: Benin, Burkina Faso, Burundi, Cameroon, influence)
Central African Republic, Chad, Comoros, Congo, French: Rwanda, Senegal
DRC, Djibouti, Gabon, Guinea, Ivory Coast,
Madagascar, Mali, Niger, Togo Portuguese: Angola

Portuguese: Cape Verde, Equat. Guinea (also Spanish), China Push: Angola, Ghana, Sudan (strong), Tanzania,
Guinea-Bissau, Mozambique, São Tomé & Principe Zambia (moderate)
China Push: Ethiopia, Mozambique

For instance, it is usual for industrial com-
panies to own and operate their own power-
generating and sewage facilities, and even to
have a small department in charge of trading
and importing oil or some other raw materials
as part of their operations.
For consumer goods and services com-
panies, this extended perimeter may include
the distribution network to make their prod-
ucts or services accessible to local markets.
Companies such as Coca-Cola, Nestlé and
Gallina Blanca have well-developed multitier
systems, relying partly on their own distribu-
tion centers and delivery trucks, and working
in partnership with local entrepreneurs who
act as wholesalers for them.
In addition to infrastructure and distribu-
tion networks, there are professional short-
falls, too. Outside of South Africa, Nigeria,
Kenya and Ghana, professional services like
marketing and accounting are not always up
to the requisite international standards.
For this reason, many companies take a
staggered operations approach. They initial-
ly trade or import finished products, before
gradually assuming control over some part
of the distribution chain and commercializa-
tion process. Once sales are secure, they start
to engage in some basic value-added activi-
ties locally while still sourcing mainly from
abroad. Finally, they integrate forward, incor-
porating the whole production chain.

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Given the central role of the extended family in
African societies, unless you understand how these
communities work and select the right partners, it will
be practically impossible to get anything done.
Due to the lack of direct land connectiv-
ity, border bureaucracy and differences in
regulation across countries, some redundant
country-specific management and opera-
tional structures are inevitable. This was so
for Coca-Cola, whose franchise, the Equato-
rial Coca-Cola Bottling Company, at one stage
operated 19 factories, each with independent
management, in the 13 countries where they
bottled, distributed and marketed the exact
same beverages.
In spite of such redundancies, this ex-
tended perimeter can be transformed into an
opportunity, providing additional sources of
revenue and affording first-mover competi-
tive advantage over latecomers. Freightwings,
for example, the logistics and freight forward-
ing division of the agribusiness Vegpro, offers
services to other exporters of agricultural
products from Kenya, which generates con-
siderable revenue for Vegpro.
3. Finance & Resources: Identify
Local Partnerships & Ownership
Local connections are key everywhere in the
world to understand local markets. But in Af-
rica they are even more important for navi-
gating the regulations, winning approvals
and gaining access to resources like land and
financing.
In many African countries, retail and com-
mercial banks primarily serve governments
and large public companies rather than the
private sector (albeit this is changing). Con-
sequently, people rely on alternative sources
for funding, mainly family and friends.
Given the central role of the extended
family in African societies, this means that
wealth ends up being concentrated in certain
segments of the population. This creates in
each country a web of family businesses with
interconnected owners who control key peo-
ple and resources like land. Unless you under-
stand how these communities work and select
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the right partners, it will be practically impos-
sible to start a business or get anything done.
To get around these dynamics, you could
go for a direct acquisition of an established
business. As stock markets are small and not
very liquid, many local companies are seeking
foreign partners, and there are ways to buy
your way into the market like L’Oréal did with
its acquisition of Nice & Lovely. As consumer
goods, agribusinesses, Internet companies
and professional services expand across the
continent, there will likely be more opportu-
nities of this nature.
But be careful. Africa is also special in
terms of the competition for “development
money,” such as “social impact” funds and
loan programs offered by the World Bank
Group’s International Finance Corporation
(IFC). Critics argue that the preferential con-
ditions offered in some of these “deals” may
actually be distorting acquisition target prices
in sectors like health, education and respon-
sible tourism. Private investors must never let
themselves get complacent about the special
character of Africa.
4. People Management:
Develop & Retain Your Talent
Finding and retaining talent is by far the most
relevant concern for managers. Talent short-
ages are a serious problem – both at the lower
end, because of lack of training and high il-
literacy rates, and at the upper end, because
of the shortage of managerial expertise. As
the people we interviewed acknowledged,
competent local managers are highly sought
after and come at a premium, sometimes com-
manding salaries larger than those in devel-
oped economies.
We do not expect this situation to change
in the short term. As with operations, this
means companies may have to reach outside
their traditional roles and boundaries to work
in collaboration with universities and public
issue 24 first QUARTER 2015 21
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exhibit 3
A Road Map for Africa
IN YOUR BUSINESS PLAN, PAY SPECIAL ATTENTION TO FIVE PILLARS
OF GENERAL MANAGEMENT.
Business Pillar Challenges
1. Strategy Large multi-country continent
Isolated, diverse economies
Different regulatory and cultural
contexts
2. Operations Poor infrastructure and accessibility
Lack of industrialized base
Rural populations
3. Finance & Business ownership and wealth
Resources concentrated
Poor access to banking finance
4. People Low skills: lack of industrial expertise
Management Scarce pool of talented managers
Short-term mentality
5. Stakeholder Corruption tolerated at the private
Engagement level
Social practices related to exchanges
of favors, wealth redistribution
institutions to create fresh educational ini-
tiatives tailored toward developing market
skills. General Electric is pioneering some
initiatives in this regard, collaborating with
engineering and business schools in East Af-
rica. At the lower level, it may be necessary to
invest in vocational training.
As important as training is, socioeconom-
ic realities understandably make employees
more preoccupied about short-term needs.
Managers said it was hard to convince em-
ployees of the payoff that training would have
on their careers further down the road when
a competitor was offering them the chance to
earn more money now.
To retain employees, managers suggested
that extending health benefits to family mem-
bers and supporting their pursuit of higher
education are effective motivators, especially
for lower level workers. For mid-level manag-
ers, they stressed the need to identify high
22 first QUARTER 2015 issue 24
Actions to Take
Do a focused country-by-country analysis before entry
Reevaluate one country’s business model before expanding
to another country
Stagger operations development: from commercialization
to progressive value-adding activities
Develop an extended perimeter: control industrial
processes and supplies; rely on local entrepreneurs for
distribution
Accept need for some redundant operational structures
Understand relevant local communities and
interconnections
Develop partnerships with well-connected local players
Consider direct acquisition of established, mid-sized local
businesses
Budget for expensive top managerial talent
Develop partnerships with educational and public
institutions
Leverage motivators: health plans and education; explicit
career paths
Favor those with long-term orientations
Select trustworthy customers and partners
Be public and transparent in all your dealings
Understand and leverage social programs
potentials early on, and clarifying career
paths and growth plans for them, including
giving them international exposure.
5. Stakeholder Engagement: Understand
the Power of Communities
Yes, corruption exists and its influence on the
development of the continent is huge. All in-
terviewed managers agree that corruption is
publicly rejected by governments and insti-
tutions, but privately tolerated. (Africa is not
alone in this.) Managers recommended the
following approach:
PATIENCE & A LONG-TERM VIEW. As one entrepre-
neur in Kenya remarked, not taking the easy route
of corruption may mean that your business will
grow at a slower rate, but it doesn’t mean you
can’t be successful. There is growing awareness
and understanding among business leaders that
corrupt practices are not the only way. Finding
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avenues to Five Pillars for Doing Business in Africa
growth
trustworthy partners and customers may take
time and reduce your potential market, but do-
ing so will lead to a more resilient business over
the long term. Keep in mind that most African
countries are relationship-oriented rather than
legalistic, so it is worth taking more time to build
enduring relationships.
BE PUBLIC. In the intertwined business communi-
ties of most African countries, everybody knows
everybody else. Being open in the media about
everything you do means any corrupt parties will
have to think twice about interfering in business
deals that stand to benefit the public, as the con-
sequences could come back to bite them. Admit-
tedly, the reputational card works better for large
corporations than for small and medium-sized
firms with less reputation at stake.
UNDERSTAND THE SOCIAL RULES & THE ROLE OF
COMMUNITY. Many times, the corruption is not
blatant but falls in a gray zone. The social cus-
tom of gift-giving would be an example. More-
over, many community leaders consider it
their duty to redistribute wealth and exchange
favors among members belonging to their
network. Understanding these social rules is
paramount, not least to preempt conflicts and
misunderstandings.
One manager made sure there weren’t too
many members of the same community work-
ing together in the same department, not just
to avoid the temptation of corrupt conduct,
but also to ensure that diverse sets of people
worked together to serve varied groups of cus-
tomers, independent of anyone’s background.
For another manager of a construction com-
pany, whenever he arrived on a site, he made
sure to meet with local leaders first to develop
social outreach activities as a means of win-
ning the favor of local communities without
having to bribe anyone.
A Final Remark: Make a Deep,
Positive, Lasting Impact
There is an oft-cited quote about business in
Africa by Mo Ibrahim, founder of the mobile
phone company Celtel, that goes, “Whenever
there is gap between perception and real-
ity, there’s a fantastic business opportunity.”
We can only back this statement. We hope
nothing in this article deters you from see-
ing Africa for what it is: a continent ripe with
ieseinsight
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opportunities, whose challenges, though real,
should not be exaggerated.
Making a business run smoothly in an un-
familiar environment takes time and effort.
In your business plan, pay special attention
to the five pillars, adding contingency time
to reach your desired goals (see Exhibit 3).
Many things are possible if you adopt a long-
term mentality, persevere and, above all, are
humble and open-minded enough to under-
stand the context and get deeply informed
about cross-cultural differences.
Finally, not only does Africa offer opportu-
nities, it deserves to be given an opportunity.
As we are seeing with other emerging econo-
mies, business development and private en-
trepreneurship, supported by solid institu-
tions, are crucial for developing countries
and lifting people out of poverty. If business
leaders aspire to have a deep, positive, lasting
impact on the future of our world, then nowa-
days Africa is the place to make this happen.
TO KNOW MORE
The following IESE case studies are available from
IESE Publishing (www.iesep.com) along with
related IESE Insight articles on real-life business
dilemmas in Africa.
n Sieber, S., A. Lago and T. Go. “M-Pesa: Mobile
Banking in Kenya.” IESE Publishing (SI-192-E),
2014.
n Nueno, P. and P. Akua Afful-Kwaw. “Vodafone
Ghana.” IESE Publishing (E-153-E), 2013.
“Vodafone Ghana: Are Profits Just a Call Away?”
IESE Insight, Issue 18, Third Quarter 2013.
n Chaturvedi, A. and V. Martínez de Albéniz. “The
Flower and the Volcano: How Eyjafjallajokull
Disrupted Kenya’s Flower Industry.” IESE
Publishing (P-1106-E), 2011. “Kenyan Flower
Industry: A Business as Delicate as a Flower.”
IESE Insight, Issue 12, First Quarter 2012.
n Szecowka, B. and L.G. Renart. “Gallina Blanca
Star Africa: To Launch or Not to Launch a
Bouillon Tablet Enriched With Vitamin A?” IESE
Publishing (M-1238-E), 2010. “Gallina Blanca:
Adapting to African Tastes.” IESE Insight, Issue 7,
Fourth Quarter 2010.
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