Recently we hear a lot about the current economic slowdown that is making a new round and its impact on economic growth in Africa. Are markets in Africa really going to be largely affected? So, I thought I share a rather optimistic outlook and insights into how to do business in Africa’s fastest growing markets.
But first a question: Do you actually know which African economies currently do have the fastest growth rate?
Take a moment and have a guess.
Well, we all hear a lot about Africa’s largest economies Nigeria and South Africa, but they are not the fastest growing economies. In fact, after we have celebrated Africa’s resilience during the last global recession both power houses have recently seen a slowdown that I want to quickly bring to your attention:
Nigeria for example has been significantly hit by the crash of the Chinese financial markets and the steep decline in oil prices. South Africa’s economy has shrunk profoundly this year, even raising the fear of a recession. GDP fell and major sectors such as mining, manufacturing, agriculture, and real estate have been hit.
Kenya as the third largest power house has stayed resilient and has largely recovered from the effects during times of local drought and a declining tourism sector after a series of attacks by Al-Shabaab. So this is great news for Kenya and the wider region – Kenya is again on a clear growth path.
But which markets are truly defying all odd and marching forward at a staggering 8% + growth rate? Which 3 top growth markets in Africa are we looking at (source: World Bank 2015)? Let’s start with number 3:
#3 Ivory Coast
Ivory Coast is one of West Africa’s upcoming markets and it is no surprise that it makes it onto place 3 in Africa and place six worldwide. The government is working hard on improving its business and investment climate and in this context a lot of privatisation efforts have taken place.
Ease of Doing Business: Doing business in Ivory Coast is not easy. Having said that it is among the top 5 countries worldwide this year that introduced reforms to make doing business easier. It improved the following:
– Starting a business
– Trading across borders
– Registering property
– Getting credit
– Protecting minority investors
These are welcoming developments, and although doing business in Ivory Coast remains a challenge, it climbed up in the World Bank rankings for ease of doing business from a bottom place at 189 to a 147 in a single year.
Having said that be aware that a number of hurdles remain, public enterprises are still largely insufficient, and that French is the official language, which means you will face added problems if you are an English speaker.
Opportunities: The best opportunities are currently large found in agriculture, in particular commercial cocoa, palm-oil, rubber, coffee and fruit production. There is also a big demand in housing, and the construction and real estate sector is providing new opportunities for investors.
There is now also a one-stop shop for the private sector and investors, the Investment Promotion Centre in Côte d’Ivoire (CEPICI). To have such an institution in any given market in Africa is usually of great help to your undertaking, especially during first time market entry. Make sure you make the most of such a strategic partnership option.
#2 Democratic Republic of Congo (DRC)
The DRC is the world’s third fastest growing economy and stands currently at place 2 in Africa. The DRC is in my view one of Africa’s most intriguing places to do business in, as it is a huge market with amazing opportunities that remain largely untapped. However, doing business in the DRC is not for the faint-hearted and if you are relatively new to Africa the DRC won’t be a smart choice. Having said that, those who are brave and resilient enough, who own enough capital to make market entry successful (the lengthy process and corruption will cost you!), or who are local and well familiar with the country will be looking at an amazing pool of opportunities on the continent that is hard to match.
Ease of Doing Business: Doing business in the DRC remains a difficult undertaking. Although it is among the top ten economies this year worldwide introducing reforms to make doing business easier, running a venture in the DRC is risky and difficult. Infrastructure is extremely poor, red tape and corruption are ripe, and regulatory processes are uncertain.
Opportunities: You will find great untapped potential in the mining sector and agricultural sectors, both of which are largely untapped. The DRC has a huge population of over 70 Million, and is importing most of its food products and consumer items. Just recently the government has marked thousands of hectares for commercial agriculture in the form of some mega-plots and is hoping to attract related investors into the country. Most sectors remain underdeveloped and DRC’s capital Kinshasa has a variety of needs that are poorly met including local food processing, manufacturing, finance & banking options, and ICT. Starting in cooperation with smaller, but already successfully established Congolese businesses can be a good way forward in avoiding some of the bottlenecks.
#1 Ethiopia
Yes, that’s it. Ethiopia is currently Africa’s fastest growing economy! Oh wait, there is more: Ethiopia is – according to the World Bank 2015 – the WORLD’s fastest growing economy and you will feel the pace when you step into the country’s urban areas! Many Ethiopians from the Diaspora have returned to open and run successful enterprises, infrastructure projects are shooting out of the ground, and investing in Ethiopia has without a doubt become a fast increasing trend over the last couple of years.
Overall, Ethiopia remains by and large a closed economy, which can make market entry and expansion difficult for established companies, especially in more controlled sectors such as banking and mining.
However, Ethiopia has made amazing leaps forward and this is noticeable to anyone who is following developments in the country or regularly visiting. The face of the country is changing and as Africa’s largest non-oil producing economy, Ethiopia is not only impressing with figures on the balance sheet, but with vision and hands-on progress accelerating by the day.
Ease of Doing Business: Doing business in Ethiopia needs both resilience and enough capital reserves to get you started, because market entry and business start-up processes do take considerable time and that can be costly – make sure you include that aspect when you start planning. Aspiring entrepreneurs and investors however, who start from scratch and with a low-key plan that feeds into the wider development context, will be able to start more promptly and grow considerably; many of such success stories have been told in agriculture, leather and food processing, ICT, the service industry, and fashion.
Opportunities: Ethiopia has a range of sectors that are extremely profitable if you get in and take the right approach. They include: commercial agriculture & leather industry, manufacturing, construction, and renewable energy among others. One focus that is clearly and ambitiously driven forward by Ethiopia’s government is the increase of exports based on agricultural and manufacturing sector developments – so if you are interested in doing business in or trading with Ethiopia your focus on export opportunities will be a smart strategy in an effort to realize market entry and galvanize support of local strategic partners long-term.
There is also the possibility that Ethiopia finally decides to join the East African Community which is growing into a powerful regional trade zone.
Well, I think we really do have a list of intriguing markets in front of us attracting with huge and largely untapped potential, yet at the same time presenting considerable risk. Risks can to some extent be mitigated, but you will still need an extra amount of resilience and perseverance when operating in these markets.
So, if you are looking for alternative markets that are simply safer, more open, and easier overlooked while providing an equally optimistic outlook in terms of economic growth rates, Tanzania, Rwanda, and Kenya should be on your list. All three of them also made it into Africa’s top ten of the fastest growing economies.
We would love to hear your feedback and questions!
If you are interested in Africa market entry or expansion and you need some support in this regard, feel free to contact me or visit my site www.drharnet.com for further details.
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Dr. Harnet,
I follow up your articles and it is worth reading! I appreciate your effort to promote African businesses.
The world is changing so does Africa. Many businesses are recognizing the business potential of the continent but still many are not aware of it not just because there are not opportunities but being in the shadow of wrong perception. Yes, the decline in oil price has affected the growth of some of the countries in Africa but if you see Ethiopia for example it is rather a favor for the economy.It is a matter of identifying the countries where growth has been happening, as you said.
Ethiopia is well aware of the barriers for doing business, poor infrastructure being one of them. That is why the need for investment in infrastructure for many years with a lot of capital. Some of the biggest infrastructures are coming to operation and will assist the trade logistics in general. Moreover, I do believe, the way businesses approach African markets better be local rather than expecting a kind of developed markets as any where else. With decently calculated risk, there is a lot of reward and it is just happening. Thanks to technology, there is also an emerging local expertise to support the doing business efforts in the continent if approached properly.
I was actually surprised when the Addis Ababa light rail way line(the picture in this article of yours as well) hit the headlines of the media while it is the smallest achievement among the many biggest project ongoing. It is just the reflection of the expectation of the continent by the people outside of Africa.