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Private sector

Don’t panic

by Theresa Krinninger

In brief

Infrastructure is improving – and mobile networks cover many African countries today.

Infrastructure is improving – and mobile networks cover many African countries today.

Numerous business opportunities remain untapped in Africa. Success stories prove that it essential to understand the terrain. Managers with ample African experience say the biggest risk is not to invest.

Albert Essien, the chief executive officer of the pan-African Ecobank Group says there is a “BBC-effect”. The media report disasters, so African success stories go unnoticed. Many still do not know that the world’s fastest growing economies today are located south of the Sahara. Trade with Africa has doubled since 2012, and middle classes are growing.  Essien foresees African economies catching up with Asia.

Roddy Barclay of Control Risks, a consultancy, similarly points out long-term improvements. Levels of conflict have declined while macroeconomic management and fiscal discipline have improved. Moreover, governments are increasingly aware of the important role of the private sector. Various countries have policies to improve the business climate.

 

A model of success

Kalagadi Manganese is the model of a successful African company. Its chief executive is Daphne Mashile-Nkosi, who is known as the “iron lady of South Africa” and was recently praised as the  “African CEO of the year 2014” by the Africa CEO Forum in Geneva. The mining company she heads is based in South Africa’s Northern Cape Province.  

Nkosi was an anti-apartheid activist and did community work for women. She says she slipped into the mining business “by accident”.  Her grandfather died of the consequences of harsh conditions in mining. Social justice and women’s empowerment are high on Nkosi’s agenda. She is proud that 80 % of the Kalagadi workers were recruited locally and that half of the staff is female. The managers in charge of mining and engineering are women. “You don’t have to look far for expertise”, Nkosi says.

Her approach to doing successful business is realising women’s potential. In her opinion, it is women who invest in society and therewith in the whole South African economy. She argues that 90 % of women’s income goes back to communities – mostly to the education of children. Kalagadi proves that an African company can make profits and promote social welfare at the same time.

Managing risks properly includes labour relations. The miner’s strike of 2012 in the Marikana region shed light on massive shortcomings in the South African mining sector. By contrast, surrounding communities and employees have trust in Kalagadi Manganese. The company is promoting and funding social infrastructure. According to Nkosi, the Northern Cape’s most urgent problems are lack of infrastructure, running water and high rates of alcoholism.

So far, no German company is cooperating with Kalagadi Manganese even though Kalagadi could use German mining technology. Nkosi is interested in establishing contacts. She sees huge investment potential in her country and urges German investors not to consider Africa as one monolithic entity but rather as a continent with many different countries and diverse opportunities.

 

Exaggerated worries

Experts agree, of course, that there are serious risks in Africa. The falling oil price, for instance, will hurt countries that produce this resource. Infrastructure and resource gaps, power deficits and security threats are issues. According to the Control Risks consultancy, social movements and violent insurgencies may destabilise some countries. The names of Islamist militant groups like Boko Haram, Al Qaida in the Maghreb and Al Shabaab are internationally known. Experts say, however, that they mostly pose localised threats.

Nicholas Mulila is the chief risk officer at Safaricom, a telecommunications provider in Kenya. He is not intimidated by Al Shabaab and says that “terrorist attacks can happen anywhere”. His team’s three-year risk assessment sees a bright future for Safaricom. Florian Witt of Commerzbank, a major German financial institution, agrees. In his eyes, too many German companies are “panicking about terrorist groups”. Commerzbank has assessed German investors’ attitudes and found that negative headlines have had a strong impact. According to Witt, however, even a terror militia as strong as Boko Haram has not hurt the Nigerian economy much so far.  

“Germany’s private sector needs to rethink its strategies,”  demands Karl Weinfurtner of Deutsche Investitions- und Entwicklungsgesellschaft (DEG), the subsidiary of KfW which finances private-sector investment in developing countries. In a career of over 25 years, he says, he has only experienced one case in which an investment in Africa did not succeed. Companies from  France, Spain and Belgium have a stronger presence in Africa than Germans, according to Weinfurtner.

Stephan Liebing, the chairman of the German-African Business Association, argues that German managers tend to be risk-averse. Too many of them don’t think they can run businesses profitably in Africa. They doubt they will be able to recover the costs of initial investments. At a conference his organisation hosted in Munich in late February, Liebing said that their view is misled since many foreign companies make profits in Africa.

Africa needs investors, Liebing adds, and the demand for German technology and expertise is immense. For instance, African partners increasingly request professional training and cooperation in renewable energy. Though German companies lead this sector, they are not on the African radar, Liebing regrets.  

It requires some effort to overcome biases and ignorance, of course.  Essien, the top manager of Ecobank, lists key requirements for successful market entry in Africa. One must  

  • pick a market where the balance of risk and reward is good,
  • find appropriate and trustworthy local partners,
  • know the local market regulations,
  • take into account environmental factors,
  • become familiar with the business culture and
  • understand the level of a country’s technological development.

Theresa Krinninger

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