Growing in the last big market

After emerging Asia, Africa is the fastest-growing region globally: in 2022, 21 of the 54 Africancountries have forecasted a GDP growth rate of 5% or more. Africa is also experiencing significantpopulation growth. By 2034, 1.6 billion people in Africa will be of working age (15– 64), surpassingIndia (1.1) and China (0.8). It already has the youngest population in the world with a median age ofbelow 20 years.

With this, consumer markets grow significantly. At the same time, heavy investments ininfrastructure and industrial development will see economies improve, and local manufacturing ispoised to increase in many countries (low labor costs continue to remain a major pull effect andFDI’s have accelerated in the last years).

Global companies that seek to establish their footprint in the region need to create their strategies carefully. While speed is essential, detailed market evaluation is imperative

These dynamics represent a major business opportunity for companies wanting to invest. However,the region is not without major challenges that need to be managed. Social peculiarities, financialconstraints, compliance and political decisions, in particular, influence the stability and investmentclimate significantly.

Global companies (in any sector) that seek to establish their footprint in the region need to createtheir strategies carefully. While speed is essential (first-mover effects), detailed market evaluationis imperative. To navigate the specific complexities for business expansion strategies in Africa, thefollowing considerations are critical for success:

Consider before entry: Success factors for business expansion

People on the ground

“If you want to understand what’s happening in the market, you got to go to the market.” This African proverb is particularly true for market entry strategies in the region. Business decisionsrequire a thorough understanding of the local market and relevant opportunities. Is the market amatch for our company? Are we able to meet the local needs? Investing in market intelligence isessential to navigate bureaucracy, infrastructure challenges, environmental factors and preemptrisk. Secondary data can only take you so far, however; you must have people on the ground. Investin multiple visits and ideally install representatives first before making final investment decisions.Firsthand experience will ultimately help envisage how the company might fit within the market.

Nurture local partnerships

Identify key stakeholders and align with local partners who share your goals and have a long-termvested interest in your success. Partner with those who have insider knowledge and can assist withnegotiation and lobbying, which ultimately maximizes potential profit and minimizes future risk.Entry strategies like joint ventures and licensing deals may also minimize political andenvironmental risk as they are less susceptible to harassment or anti-multinational feelings.

Adapt the way you run your business

Your entry approach needs to be tailored to the country as well as your sector. Fill in country-specific gaps and solve problems that are unique to the market. Applying global (western)corporate rules often doesn’t work. Successful companies allow a significant amount of flexibility(in some cases autonomy) to their subsidiaries in Africa – without compromising on compliance.Foreign firms that embrace a more local, entrepreneurial approach with a high amount of flexibilityand adaptability (in both, corporate rules and expectations as well as product and serviceinnovation) have a significantly higher chance of success than corporate majors that copy and pastetheir standards. Run as a small, local enterprise; grow, evolve and then become corporate.

Be ready for the long term

Investing in China or India was considered a major risk in the 80s and even 90s. Only corporationsthat had a long-term vision were successful. Entering the African market will have high inherentrisks – even compared to other emerging economies. These risks, however, will usually come withsignificantly higher growth rates and returns. Senior corporate management needs to be ready toaccept these risks and must be in it for the long term. Expanding in MEA won’t push the bottom linein the short term. Economists expect inconsistent growth patterns for most of the region. It will be ajourney with ups and downs, and you must be able to ride out the fluctuations for long-termsuccess.

Be selective with your markets

“If you want to understand what’s happening in the market, you got to go to the market.” This African proverb is particularly true for market entry strategies in the region. Business decisionsrequire a thorough understanding of the local market and relevant opportunities. Is the market amatch for our company? Are we able to meet the local needs? Investing in market intelligence isessential to navigate bureaucracy, infrastructure challenges, environmental factors and preemptrisk. Secondary data can only take you so far, however; you must have people on the ground. Investin multiple visits and ideally install representatives first before making final investment decisions.Firsthand experience will ultimately help envisage how the company might fit within the market.

People on the ground

Imagine applying your Korea business strategy in Myanmar - it doesn’t work. Nor does an Egyptstrategy for, say, Senegal. While it may seem obvious, it’s crucial to recognize that there is not oneoverarching Africa strategy. Each country presents its own challenges, practices and attitudestoward international companies and existing business models cannot simply be replicated for thesemarkets; there is no one-size-fits-all model. Africa is huge (you can fit Europe, China, India and theUS in the African landmass). Managing growth and expansion requires resources and investments.As these are limited, a careful market selection is important and usually starts with a detailedmarket attractiveness analysis.

Without a doubt, Africa will continue to be a key growth region for most global and regional businesses.For companies to participate in that growth, they must be bold in the decisions to expand theirfootprint. Success comes with a thorough understanding of the realities and challenges on the ground,as well as a long-term business perspective. But the benefits of the developments can be substantial. AsColin Coleman, Senior fellow at the Yale University and Africa expert outlined in his recent podcast:Assuming the expected growth in Africa materializes, “it will make Africa feel like China 30 years ago.”And everyone understands what that means. May the “new scramble for Africa” be a positive one.

About the author:

Thomas Ruelke is the Executive Director of FORSYGHT Emerging Markets Advisory. He has extensive experience in developing businesses in different Emerging Markets and focuses on organizational efficiencies, growth and logistics solutions.