The African continent has a reputation for being particularly risky for investors. However, that is not true. We show you how to deal with risks in Africa.
Stories of unsuccessful business in Africa circulate abundantly. Just sit down in the bar of a business hotel in African and you will hear many of them. Some may have happened that way. Many have been exaggerated by hearing and saying over time. And yet: It is important to know how to deal with risks in Africa.
We are not saying that it would be easy to trade or invest in Africa. But hand on heart: do you really believe that it is easier to do business in Germany, Italy or Mexico if you only know the country in question superficially?
Invest in a country, not in the continent
Therefore, the most important thing at the beginning is to realize that nobody can invest in Africa. You can only invest in Ghana, Kenya, South Africa, Angola or Senegal. Every country in Africa is different. Each of them has a different culture and a different history. They all have a different legal system and a different economic structure. In some countries, the government has a strong influence, in others less.
A major hurdle for doing business in Africa is initially the legal system. In many countries, national and regional laws coexist alongside traditional and often verbally conferred law. This makes it difficult to find your way around.
Choosing a lawyer is not that easy either. International law firms are often expensive. And investors often face difficulties to assess the competence of local lawyers in advance.
Finance becomes much easier
An export of goods may also fail because no corresponding correspondent bank can be found on site. But in this respect too, a lot has happened in Africa in recent years. Today, some African banks operate in many countries on the continent, so that the network of correspondent banks is more closely linked.
In addition, of course, there are the typical problems that investors will find in many emerging countries. The public administration is often understaffed and insufficiently trained. But many countries have taken remedial action here: Contact the investment agency in the partner country. They will certainly guide you reliably through administrative matters.
Investors often face economic risks. There are typically three categories of risk:
- Working capital and supply chain risk,
- Operational and efficiency risk, and
- Country, currency and counterparty risk.
The Covid-19 pandemic has put supply chains all over the world under stress. But thanks to modern technology, much has changed for the better in Africa in this respect as well. Universal electronic views of cash positions provide treasurers with an instant and universal view of cash across the entire business. And they can overlay this with their financial supply chain to identify and liberate working capital.
Trust Artificial Intelligence
Modern technology, blockchain or artificial intelligence also help to get operational and other risks under control. As for currency risk, many banks now offer contracts on African currencies. Most of them more or less follow the dollar rate. That makes it cheaper to at least partially hedge your business.
If you are feeling unsafe in Africa, investing can be a first way of dealing with Africa. In a previous blog, we looked at the different options.
In general, you need to be on your guard. Do a background check before embarking on an expensive project with your new business partner. Or, even better, hire an experienced management consultancy to support you on your way to a new African country.
Make yourself at home in the new market
Some companies seek advice from consultants, especially when they enter a new market. Beyond this, we still support other customers of ours. We have long since put them in touch with lawyers, accountants and other service providers. But they appreciate it when we monitor the work of these suppliers. They want to make sure that everything runs smoothly.
However, you do it, it is important that you quickly become comfortable in your new market. It is always good if you have someone you trust on site who has already worked at the headquarters and knows your company inside out.
It can be an enriching task, especially for prospective young managers, to set up your company in Kenya, South Africa or Nigeria.