Building business in Africa requires the long view and the local touch

April 30, 2014

The business leaders at the Global Conference panel Pan-African Business were quick to point out that the continent is not one homogenous market. But nor is it 54 national markets.

It’s more like a handful of regional blocs, some with formal economic ties. The West African Economic and Monetary Union, encompassing eight mostly Francophone nations, has common trade policies and currency. Central African countries are also linked by their currency and a shared central bank.

This is a great leg up for multinational companies looking to enter the African market, said Phillips Oduoza,the group managing director and CEO of United Bank for Africa. Companies with a hub in, say, Senegal, can quickly build spokes into a much larger market. At the same time, the risks—economic, political, or social unrest—tend to be contained within national borders. When a political crisis broke out in Cote d’Ivoire after the 2010 elections, for instance, the WAEMU member kept any financial fallout from spreading.

“I think that’s words an investor would like to hear. When it’s good, you have a big piece of a larger pie. And when it’s not, it is just localized in one place,” Oduoza said.

Still, making international business work in Africa isn’t easy. Moderator Jonathan Berman joked that his own book, titled “Success in Africa,” is a slim volume, but one on dismal failures on the continent would be a hefty tome. The panelists shared tales of plants sitting idle, airlines forced to pack their bags, and banks that approved funding three months after the deal was done.

Having a good local partner is crucial—someone who can steer you not just through the bureaucracy, but the culture.

When there is a wide disconnect between multinationals and the local environment, said Pade Durotoye,CEO of Oando Energy Resources, you lose the social license to operate. In other words, the approval and cooperation of the community and stakeholders.

The success of Nigerian oil company Oando in the fields of the Niger Delta—where it works with more ease and success than Chevron or Shell, Berman and Durotoye agreed—show how important that local touch can be.

“When my people who are operating in the field face an issue, they are comfortable resolving it right there and then before the issues become a problem,” Durotoye said. “Foreign companies are a lot more concerned about the whole concept of engaging with the community.… ‘Am I really going to buy food from the market women who put their baskets in front of the well site? I don’t have a contract with them, but they’re saying, ‘If you don’t buy our food, you’re not coming in.’

The person working for Oando says yes, calls the office, pays for the food, and they leave. The person working for another company probably has to call someone in Houston.”

The cultural navigation and relationship building will be worth the effort as the scale of the African opportunity continues to grow. The population is forecast to reach 1.1 billion by 2035, making it the globe’s largest source of labor as well as a booming consumer market.

Ahmed Heikal, chairman and founder of Citadel Capital, said investors in African business need to take the long view. His own firm, for instance, isn’t a private equity investor. Instead, they are a holding company. “To invest in Africa effectively, you have to think on much longer time horizons of 15 to 20 years,” he said.