Which Africa business obstacles do you worry about? Corruption? Conflict? Poor infrastructure? And above all, how do you mitigate their impact and avoid losses in your African business?
I think it is important that you are aware of the difficulties you may face when doing business in Africa, and although you may entertain a rather long list of worries, there are actually a few strategies you can use not to run heads-on into them.
First, let’s quickly identify what the main 3 Africa business obstacles really are.
In the latest Africa Survey 2014 released recently by Good Governance Africa (GGA), a comprehensive annual collection of social, political and economic indicators for all African countries, a large number of firms participated in the survey identifying the main constraints for doing business on the continent as the following:
1. Unreliable or insufficient electricity
3. Difficulty in getting bank loans
And yes, in that order.
Ok, this means we now have it pretty much black on white. These are not individual perceptions, but the outcomes received from those doing business on the continent already. It’s good to have that clarity.
More than 45 percent, so almost half of the firms that participated, said the lack of reliable electricity was a major problem. According to the survey more than half of firms in Africa’s economic powerhouse Nigeria (64 percent), Guinea (64 percent), and the Gambia (54 percent) said it was the single biggest obstacle to their business.
Corruption came next. 43 percent of firms in sub-Saharan Africa cited corruption as a major obstacles followed by getting a bank loan (42 percent). Only in Angola did the largest number of firms (29 percent) identify corruption as the single greatest constraint to business.
The survey also stated that more than 40 percent of companies in Zimbabwe (47 percent), Malawi (46 percent), Cote d’Ivoire (45 percent), and Mali (44 percent) cited getting credit as the single biggest obstacle to business.
Now, at Africa Business Jumpstart we want to know how to overcome such obstacles, so let’s get started.
1. Unreliable or insufficient electricity
If you want to build an efficient business you will most certainly need electricity to do so. Even if you employ people to deliver parcels on bikes you will need computers to communicate, make orders, or market your products and services. But yes, there are business models that require certainly much less electricity than others and the bigger your need for electricity is – running a manufacturing or ICT firm for example, the greater will be the impact on your business efficiency and revenue when you face regular electricity cuts.
There is only one real solution in my view: Go solar!
It is somewhat puzzling to witness that African business start ups and established businesses alike invest in all sorts of things, but only a tiny number of African firms use solar panels to run operations. If you have relatively small premises that are not larger than a family house where you administer your business, a couple of thousand Dollars may be all you need to invest. And not only do you save money on electricity bills, but a solar panel installation will finally allow you to work right through electricity cuts, which will save you even more money, because you stay effective and in business without interruptions.
Too many in Africa suffer from the effect of power cuts by either loosing out on business all together or because they use generators, which affect public health and are relatively expensive to maintain considering you need to fill them up with benzin regularly. I think this is bad business calculation when solar power can really solve all those problems for you. So the next time you are doing budgeting or planning to invest in the expansion of your business consider the integration of solar power solutions.
2. Corruption is a major African business obstacle
Corruption still is a major problem in Africa, and it can compromise the progress of your business.
There is usually a way to achieve your goal without giving in to corruption, but usually that means you need a lot of time and perseverance and you will certainly feel the effects of the delays – increased expenses to keep your start up afloat while officers take months to make a decision for a go ahead being just one of them.
In my view however, there are still ways to decrease the impact of corruption. One is to choose a country in Africa where corruption is far less present than in other countries (and please remember this is always in relative terms). So instead of choosing Angola, DRC, or Cameroon – just to name a few – go for the countries with the least corruption, among which are Botswana, Rwanda, and Mauritius.
Further, when you work on new business concepts be aware that there are sectors that are usually less affected by corruption, among them for example the business2business service sector and ICT, and to some extent export and agriculture.
Or better even: choose a business that is run online all together and you will have much less hassle dealing with corrupt officers and other people on the ground.
3. African businesses face difficulty in accessing bank loans
Again, this is a reoccurring African business obstacle and one that is a major concern to a lot of African entrepreneurs during the start-up phase. If you read my blogs regularly, you will find that I try to give attention to this issue in several ways, but my main truth would always be: Don’t choose a business model that requires a big bank loan and you won’t be stuck!
It may sound harsh or at first not very realistic, but I say this with confidence. We can indeed witness throughout the media that a really significant number of African entrepreneurs who have become incredible successful in recent years simply started with nothing more than a few hundred Dollars in hand, and they still managed to earn millions a few years later in agriculture, the beauty industry, ICT, and even solar. They may have received an injection of cash or investment along the way to grow their businesses at a later stage, but they started with pretty empty hands. So, if you had sleepless nights wondering how you could ever get anything started without a chunk of financial capital you should really re-visit your approach and your business model.
Research how you can implement a business plan that simply does not require that US$10,000 loan in order to get your business ambitions off the ground. Once you can proof profitability and you are able to provide financial records the banks will be much more likely to borrow you money to grow your business later on (so make sure you get your financial records right, this is so important!).
Here is what will help you to start poor:
Start and set up a home based business model
Partner with people who have assets or skills but no ideas or knowledge about business and markets (e.g. poor farmers, skilled labourers, people with vehicles or premises you may need etc). You may be amazed how many would love to partner with you!
Start an online business
Produce something that does not need costly input – business services, ICT solutions, growing rare agricultural produce, collecting and processing something of value in nature.
Sell and trade what others have produced
Start small – whatever it is.
Build a brand early on that people like and trust, regardless of how small you are starting, and it will help you grow faster.
Another way to get access to financial support is to look out for so called business accelerators, which you will find in several African countries. They do support you in getting your business started, sometimes even with a small financial injection – but there is a selection process to get into these accelerator programs. The same is the case with African crowd funding, which become more popular.
Here again one of my articles for inspiration if you think your lack of capital is preventing you to get started:
And lastly, try to change your perceptions regarding all the problems you have to deal with on the ground. Don’t be discouraged, instead take pride in facing Africa’s many obstacles when doing business. Don’t forget that this is precisely one of the reasons why the market is not yet very competitive increasing your chances to make it big. And some Africa entrepreneurs are even taking this optimism one level further: Shortage of electricity and lacking access to financial capital? Yes!- they concluded with excitement. For they saw great opportunity in those shortages and built successful solar and financing firms to meet the huge demand. I guess, here is a thought.