New horizons

Monday, 01 July 2013
Haydn Taylor encourages trustees to look to Africa.

Africa: for so long the continent that only the bold dared invest or do business in. But now the stories flooding the financial pages are of the world’s fastest growing region1 – and one with many opportunities:

  • It has abundant natural resources.
  • It has a rising consumer market, presenting opportunities for pan-African trade.2
  • It has the world’s fastest growing, and youngest, population.3 The entrepreneurial spirit of the continent’s young businesspeople, combined with the growing political willingness to work together through the African Union (AU), has increased intra-African trade.
  • Its infrastructure is rapidly developing due to an increase in foreign direct investment projects.4

Africa’s growing economies need infrastructure investment, including energy, water, sanitation, transport, and information and communications technology. Infrastructure investment in Africa can be easier than in other high-growth areas, such as China, because it’s easier to gain access to Africa. However, historically, private investment in African infrastructure has been limited.

Infrastructure, by its nature, cannot be moved and involves long-term projects, so it is important that investors have confidence in a country’s political stability. Financing can also be complicated, and while many investors might fund a project with foreign currency, revenues may be in a local currency. But these impediments have been reduced in many countries. First, the Programme for Infrastructure Development in Africa5 provides coherent, long-term planning for infrastructure development for all African stakeholders. Second, countries have worked hard to improve investment opportunities. Reforms in Zambia, for example, have made it easier to invest by liberalising interest rates and abolishing exchange rate controls, allowing the 100 per cent repatriation of profits and establishing the Zambia Development Agency.

Business considerations

The opportunities are clear, but how can trustees invest their skills in Africa? The continent contains more than 50 countries with over 2,000 dialects and languages; it is not one big, homogenous whole. Language and culture aside, there are other things to consider. Each country has its own rules and regulations, although the AU is creating the groundwork for more stable laws and policies across its member nations through its Constitutive Act.

Due diligence

The need for extensive background checks is one of the biggest considerations for many businesses. Intelligence on the ground is required to check that prospective business partners are bona fide. Security and the fear of fraud and scams are a concern, and anti-money laundering checks are needed. Working with a team that has experience of this kind of work can help with due diligence.

The UK Bribery Act 2010 came into force in 2011. In accordance with the Act, bribery and corruption must be carefully mitigated, which can be challenging. Many African countries now realise that to develop and do business externally they need to comply with Western standards, but ‘commission’ payments are still an issue. When looking to track the source of funds of a particular individual, there is not always a paper trail to follow of the kind you would expect to see in a Western nation. This is where local knowledge combined with an Africa-nuanced risk assessment is key. Did you know, for example, that it is illegal in Nigeria for certain public officials to hold offshore bank accounts?

Understanding the local market

Africans are brand-conscious, and demand not only top-quality products, but also products that are locally relevant. When starting to do business in Africa, whichever country it is, it is beneficial to team up with a partner who is recognised and trusted locally and understands the local market needs.

Global outlook

With the search for new business becoming harder in traditional markets, it is important to have a global outlook. The growth figures for Africa are attractive compared to Europe and North America, but despite the growth and opportunities, many retain negative perceptions of the continent. Risks such as political instability, corruption and security are seen as insurmountable obstacles, but this negativity is limited to those who have yet to do business in Africa.6 Those who are already there are overwhelmingly positive.

Those who embrace Africa’s opportunities will at times find themselves on a challenging and uneven path, but with the steadying arm of a trusted advisor, someone with local expertise and profile, they will find the journey easier and the rewards greater. 

  • 1. The Economist Daily Chart, 6 January 2011, www. dailychart/2011/01/ daily_chart
  • 2. McKinsey’s Africa Consumer Insights Center, 2012, south_africa/en/rise_of_ the_african_consumer
  • 3. World Population Prospects: The 2010 Revision, United Nations Department of Economic and Social Affairs/ The entrepreneurial spirit of the continent’s young businesspeople, combined with the growing political willingness to work together through the African Union (AU), has increased intra-African trade.
  • 4. Its infrastructure is rapidly developing due to an increase in foreign direct investment projects.The Ernst & Young Africa Attractiveness Survey 2012, 
  • 5. Formulated by the African union Commission, in partnership with the united Nations Economic Commission for Africa, the African Development Bank and the Planning and Coordinating Agency of the New Partnership for Africa’s Development
  • 6. The Ernst & Young Africa Attractiveness Survey
Author block
Haydn Taylor

Haydn Taylor is Head of Corporate and Business Banking at Standard Bank, Jersey.

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