From a long term perspective, by population alone, Africa offers enormous opportunities. UNICEF has predicted that in the next 35 years, Africa’s population will increase by 1.8 billion people, and with a number of the world’s fastest growing economies located in Africa, the opportunities for business will continue to increase.
Below is a compilation of suggestions for people seeking to establish a small to medium sized business in Africa. In order to make the jump from the States to Africa, there are at least three prerequisites which are essential, if not mandatory.
1. Visit the country and city where you intend to reside—and not once, but multiple times. After you get over the warm glow of being in Africa, you’ll need to get down to the nitty gritty of actually living full time. You’ll have to understand the nuances of your new home and this can not be done in one visit. It may take years of going back and forth but you don’t want to face any surprises you simply weren’t prepared for.
2. Have reliable people whom you know and trust on the ground. This is very essential and without people who won’t rip you off, charge you exorbitantly high amounts for simple paperwork and who will simply answer the phone or respond to an email when you contact then, your stay in Africa will be short lived.
3. Make sure you have enough capital. A few years ago, the Harvard Business School published a report which noted that if a person wants to go into business for themselves, they should have at least one year’s salary saved up. Yes, the dollar does go a long way but this same theory applies in Africa. Due to the poor infrastructure and high electricity costs, life in Africa can be more expensive than expected. Besides being taxed to death, you’ll also find you have to pay for all sorts of business licenses which seem redundant but are required. In addition to the setup costs, you’ll want to make sure you have enough financial backing to start your business and survive a few months or even a year, without turning a profit.
1. Trade – Import
This is an intriguing option as it allows for a person to maintain business links back home in the States, while growing their business in Africa. The idea should be to identify a product which is in demand in your host country, procure a global supplier and then open up your business.
Within this process, you’ll want to make sure you have an outlet for your business, therefore you can either open up your own shop and retail the products yourself, or you can identify viable outlets for the product and wholesale the items to the market. McKinsey & Company estimate that 200 million new customers will enter the African marketplace by 2015. This means that products such as truck parts, clothing, computers, home appliances, paper products and everyday food items (rice, beans, corn, etc.) will continue to be in demand.
Many small shops don’t have the capital or connections to purchase large amounts, thus due to economy of scale, you’ll be in a position to be the link to wholesaling items. Focus on only a few items and don’t try to do too much. Opportunities are plentiful but you don’t want to spread yourself too thin.
2. Trade – Export
The other side of trade is to come to Africa and export products. The preferable scenario would be for you to establish a location in Africa, and then export local resources back to your business contacts in the States. This can be a great opportunity, as you’ll learn that products such as shea butter, coffee, honey, flowers and other products can be purchased for very low amounts in Africa. In addition, it’s actually much easier to export from Africa than it is to import, therefore, the associated business startup costs are much cheaper. The key here is to have a reliable outlet in the States that will actively promote and sell your products. AGOA (African Growth and Opportunity Act) can facilitate trade links at a macro level but also provide great resources and links at the micro level.
The more adventurous minded people may be interested in items such as diamonds and gold, which are available and at bargain rates. However, be warned this is a notoriously shady market and requires a lot of skill and understanding of the business. You really can’t go wrong with importing or exporting out of Africa. If you can ascertain the market and develop viable outlets, it’s a sector worth considering.
3. Open a school
Because in many nations individuals under 18 represent one-third of the population, education has become a business in Africa. Because of the poor state of the public school system, many families from the middle class on up prefer to send their children to private schools. In many countries, not only is it normal, it’s the standard. An American opening a school (elementary or high school) would immediately generate interest from prospective parents because they’d see the value in the U.S. brand of education and quality. With a background in the American educational system, you’ll also bring international best practices and ideas to a community who view education as a means of climbing social and economic ladders.
One other point to identify is the country of choice. In theory, you may want to choose an English speaking nation, such as Kenya, Ghana, Nigeria, Uganda or South Africa. However, another more unique option may be to establish an English speaking school in a Francophone or Portuguese speaking country and corner the market. Providing such a service in Senegal, Angola, Mozambique or Chad can be a niche market in which you could do quite well.
4. Information Technology
The U.S. Department of Commerce recognizes the IT sector as one of the fastest and potentially most profitable sectors in Africa. This sector represents a great opportunity for businesses at all levels of the economy. Due to the ever increasing connectivity of the world, more companies and governments are seeking ways to use technology to make their systems more efficient.
An American IT professional who decides to move to Africa and venture into the sector will find that the systems, ideas and technology in the States are far superior than those on the continent. This will open up numerous options to either introduce new technology and ideas in to Africa, or even play a role in bridging the gap.
In addition to its strong growth, an important aspect of entering the IT sector in Africa is that, in comparison to other sectors, it’s relatively free of corruption and nepotism. If you have good technology and services, you’ll receive contracts and customers. It’s one of the key fields which are required for Africa to have sustainable growth and can provide an entrepreneur with fertile ground for investment.
5. Construction and Real Estate
With a strong economic growth rate, which is paralleled by an increasing birth rate, Sub-Sahara Africa is a natural destination for entrepreneurs seeking opportunities in the construction sector. In many of the major cities in Africa from Accra, across to Kampala and down to Cape Town, there is a tremendous shortage of housing. According to the World Bank, Sub-Sahara Africa’s urbanization rate is expected to increase from 36 percent to 50 percent by the year 2030. The massive increase in urbanization in the past 10-15 years has led to more informal housing which has become an eyesore to many cities on the continent. In turn, a number of governments are seeking to ban the expansion of these areas and are seeking to provide more formal housing.
However, there is one word of caution. There are two general directions in the housing and construction sector in Africa. The private sector, which will generally involve a company which either provides construction services by contract to clients or purchases property themselves and in turn, builds the development and sells or leases the units. The other path is the public sector. This involves constructing developments for the government and depending upon your connections, can be done at various levels. While this sector can be quite lucrative, it generally involves the tender process and in many cases, may involve knowing the right people, in the right places. Both the private and public sector offer tremendous financial returns and it really depends on one’s own comfort level, and connections on the ground.
6. International Law Firm
With hundreds of multinational companies present in East Africa alone, and similar numbers across the continent, there will inevitably be conflicts, disputes and disagreements. And as the same dynamic exists in the States, companies in Africa turn to lawyers. An American who decides to establish a law firm in Africa will be able to capitalize on American companies who are seeking to establish a foothold in Africa, but retain some level of protection against local laws and corporate taxes. In addition, the same holds true for non-American but foreign companies who will want a firm who is abreast of international laws and procedures as it relates to the goods and services and how it will impact their business.
A suggestion would be for an American firm to establish a partnership with an African firm and provide services and consultations. The American firm would then be in a better position to facilitate U.S. firms seeking to enter the African market, while the local firms would be able to have the prestige of an American partner, which is no small thing when seeking larger government contracts and tenders. In addition, both parties would be able to cross reference information, procedures, laws, tax related issues and other legal wrangles at a formal level. An American lawyer may not decide to move his entire practice to Africa initially, but an established partner and occasional visits to the continent won’t hurt.
7. Financial Services
Many businesses in Africa fail for the same reason that many in America fail—lack of capital. As the economies in Africa grow, many analysts point out that the growth is top heavy with many multimillion and billion dollar investments, but not much in the way micro-investments and assistance for small to medium businesses. Numerous economists note that almost half of all Africans do not have bank accounts and although services such as Safaricom Kenya’s Mpesa have provided innovative ways for people to transfer funds, they fall short of providing business capital.
An established mid-level lender/investment group in the States may find most of their opportunities on the safer side of the market. This is because in comparison to some of the larger groups, they simply do not have access to bigger projects and investments. A small to medium lender from the United States investing in Africa would become one of the premier groups in most countries. With immediate access to capital and an established network, an American lender would be able to pick and choose some of the more profitable investment opportunities. In addition, because a number of investment opportunities are tied into the local government, there is an increased level of protection.
Additionally, you don’t actually need to have the capital yourself. If you as an individual have legitimate access to investors and capital, you can establish your own financial services company and facilitate the opportunities between your network and the project sponsors on the ground. At all levels, financial services is a great investment opportunity in Africa. At the micro level, a group can provide assistance to small to medium companies who lack access to most banking institutions. While at the macro-level, there are terrific investment options in areas ranging from energy, infrastructure to the health sector.
8. Grocery Store
While not entirely lucrative, opening a grocery store can be a relatively stable and easy way to establish a business in Africa. As in other sectors, many potential entrepreneurs in Africa lack capital. Thus in many areas, particularly small towns, people will travel a good distance in order to purchase food items. This would take a bit of investigating but if an American entrepreneur were to identify the right location, they could open a small grocery store which would provide a good service to the public, along with facing very little competition.
The most important aspect to be considered is location. A new business such as this would likely face a better chance of survival if it were located in an area just outside of the city’s center or even outside the city altogether, but not too distant. For one, you’ll want to make sure that you can purchase your supplies within a reasonable distance. But also, you want to be far enough so that your potential customer base sees more value in purchasing from your store, rather than traveling to the city.
You would need to have good local contacts, who would likely be the managers and clerks of the store, because in your location, the majority of people would almost exclusively speak the local African language and not converse much in English. A good supply chain and proper organization will make your grocery store a reliable means of food stuff and a hub of local commerce.
9. Small scale food processing
In my home, we have ketchup. It’s made by Heinz and it’s far too expensive but the quality is good and my kids like the taste. Now just take this scenario and multiply it ten times over and know that Africa faces a severe shortage of processed foods and canned foods. The World Bank estimates the demand for food in Africa could be equal to $1 trillion dollars by the year 2030. On the ground the demand is growing but many consumers still complain of high prices. This is mainly because of the lack of food processing which allows for goods to be transported to distant locations without expiring. Many producers may lose up to one-third of their product during shipping alone and will make up this difference with higher prices.
A U.S. based entrepreneur can establish a small packaged juice company, canned food and packaging center or establish a company that produces condiments such as mustard, mayonnaise and ketchup. There is competition on the ground from other companies but the market is still wide open in some countries as many retailers still rely on imported products from India, South Africa and Western nations.
A suggestion would be to establish a small processing center near the produce, which is generally outside of most urban areas. The land will be cheap and the locals will appreciate the investment and subsequent employment opportunities. From there, the other side of your investment should be to establish a distribution center within a major city. From here, you’ll have buyers coming from around the country or region to purchase your products. You’ll be far cheaper than imported goods and more than likely, provide better quality than local producers. It’s definitely something worth considering and you can establish a firm presence in the food market.
10. Security Firm
As the economy grows in Africa, there has also been a greater spotlight on the need for security within a number of countries. Nations such as Nigeria, South Africa and Kenya along with other middle market African economies are prime locations for private security firms. Opportunities for security services range from apartment complexes, to banks, to VIP security personnel. Many African business people and governments are seeking high quality security services and an American company with up to date techniques and technology would do very well in the market. Security monitoring systems and surveillance equipment are much sought after items and can allow a company to gain major contracts in both the private and public sector.
With a security/police background in the States, a security firm or individual would have a strong enough profile to bring in clientele and in addition, have an idea on the direction of the sector. Partnering with a local entity may not be necessary but having local staff with a military or police background would be essential. Because many of the mid to low level military/police officials are grossly underpaid, you would not find it difficult to establish a team of trusted and qualified individuals.
Jamal Bradley is an American businessman and writer from Philadelphia, who is currently based in Kenya.