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The Biggest Obstacles Facing Businesses in Africa

Africa offers incredible long-term business opportunities, but also poses unique obstacles that the continent's existing companies and new entrants must overcome. Below we show you what challenges you may face if you are doing business in Africa.

  • Africa offers incredible long-term business opportunities. A 2018 McKinsey survey found that businesses believe Africa’s combined GDP will be among the fastest-growing globally
  • The continent poses 10 key obstacles in corruption, insufficient regulations, political instability, infrastructure, establishing partnerships, funding scarcity, IP laws, skills shortages, gender bias, and globalisation

Africa offers incredible long-term business opportunities. A 2018 McKinsey survey found that businesses believe Africa’s combined GDP will be among the fastest-growing globally. However, Africa also poses unique obstacles that the continent’s existing companies and new entrants must overcome. Below we show you what challenges you may face if you are doing business in Africa. 

Corruption

The African Development Bank estimates that the continent is losing up to $148 billion to corruption. From government officials’ susceptibility to bribes and insider trading in banks to unethical procurement and money laundering, businesses and investors have to contend with corruption in the government and company leadership. Having strict company policies and procedures can help reduce this. 

Rigid and insufficient regulations

Navigating Africa’s regulatory environment is challenging, not to mention the red tape businesses have to face. At the same time, Africa is yet to enforce international anti-bribery laws, such as the OECD Convention on Combatting Bribery of Foreign Officials. 

Trading, political and regulatory rules are unpredictable in most of the African regions. Strict regulations to import, numerous currencies and the rise in import items’ cost may keep overseas suppliers and investors confused.

Political instability

Businesses will find themselves worrying about the endemic and emerging political risks in the African country they operate in or wish to penetrate. These include electoral fraud, labour unrest and Islamist insurgency. Governments in both Western and Eastern African are affected by political instability.

Infrastructure woes

Africa’s infrastructure is limited, expensive and deficient in quality. Climate change is an emerging addition to this problem. The majority of African countries have excellent infrastructure in capitals and key big cities. Many countries have excellent infrastructure throughout most regions such as Nigeria, Ghana, Tanzania, Uganda, and Ethiopia. Areas that don’t have adequate or suitable infrastructure usually suffer from recurrent power surges, poor roads and Internet connection. This makes it harder for businesses to deliver goods or operate 24/7.

Difficulty establishing local partnerships

Africa is not a single entity but 54 countries, each with its own distinct culture. It takes time and effort to understand local markets and build rewarding partnerships. Additionally, companies targeting acquisitions and takeovers grapple with a lack of financial and credit information. Once most businesses establish partnerships, these are long-lasting, often very strong and much more favourable than in Western countries. It pays to build these partnerships.

Scarcity of funding and capital

Except for South Africa and Mauritius, African financial systems are among the smallest in the world. A mid-sized bank in continental Europe is bigger than most African economic systems, with total assets often under US$1 billion. For startups, especially, a lack of access to funding can be incredibly debilitating. 

Ineffectual intellectual property laws

Undeveloped IP protection, expensive and convoluted product registration processes and weak national court systems are setbacks to ambitious, innovative businesses. The African Regional Intellectual Property Organisation (ARIPO), around for over 40 years, has attempted to create an efficient system that protects and administers intellectual property rights in 19 African countries. This will continue to improve over time.

Skills shortage

Sub-Saharan Africa is the world’s youngest region, yet captures 55% of its human capital potential, below the global average of 65%. The need for high-skilled workers is assuming even more importance with the increasing ICT intensity of jobs. This report elaborates on these statistics. 

Gender bias

Although Africa beats many countries in having a higher number of women business owners, discrimination and other issues have led to financially underperforming women-owned enterprises. 

Economic globalisation

Strengthening international trade can be a double-edged sword for least developed as well as developing countries. Sub-Saharan Africa has already been affected by this phenomenon.

Final Thoughts 

Though these obstacles are substantial, they are not insurmountable. Businesses who invest their energies in overcoming them are in the best position to harness the continent’s immense potential. If you’re willing to put in the effort, your business can become a large player within any industry in any of Africa’s countries.

Amin Bilal is a business consultant, founder of CompanyHand.com, and content creator. He specialises in advising SMEs and large multinational corporations solve finance, operational, and technological problems.

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