thriving sub-saharan africa report
TRANSCRIPT
Thriving Sub-Saharan Africa?
Contact information
dfasdf
Amatka (Pty) Ltd
Unit 608, 6th Floor
76 Regent Road (The Point Centre)
Sea Point 8060
Cape Town, South Africa
www.amatka.com
+27 (0)79 618 6570
Amatka – Insight Africa Services
Amatka (Pty) Ltd is a South African company founded and owned by Finnish entrepreneurs based in
Cape Town. Amatka provides knowledge and views of business opportunities in Africa with focus on
Southern and Eastern Africa. Insight Africa also supports networking in these countries.
Tekes – the Finnish Funding Agency for Innovation
Tekes is the main public funding organisation for research, development and innovation in Finland.
Tekes funds wide-ranging innovation activities in research communities, industry and service sectors
and especially promotes cooperative and risk-intensive projects. Tekes’ current strategy puts strong
emphasis on growth seeking SMEs.
Contents
Introduction ........................................................................................................... 2
Background ....................................................................................................... 2
Purpose ............................................................................................................. 2
Recommended Use and Liability Disclaimer ...................................................... 2
Overview............................................................................................................... 3
Context .............................................................................................................. 3
Key Indicators .................................................................................................... 3
Economic Communities ..................................................................................... 7
Political Economic Climate: Business Point of View ............................................... 7
Trade and Investment ........................................................................................ 7
Growth: Drivers and Challenges ........................................................................ 8
Key Sectors of Potential Growth ...................................................................... 10
Innovation Ecosystems ....................................................................................... 12
Innovation Hubs............................................................................................... 12
Research ......................................................................................................... 13
Private Companies .......................................................................................... 14
Sectors in Focus ................................................................................................. 15
Energy and Environment ................................................................................. 15
Healthcare and Wellbeing ................................................................................ 16
Education ........................................................................................................ 16
ICT, Digitalisation and Mobile Solutions ........................................................... 17
Entering the Market ............................................................................................. 19
Future ................................................................................................................. 20
SWOT – Sub-Saharan Africa ........................................................................... 20
Four Scenarios for Future Africa ...................................................................... 21
SWOT – Finnish Companies in Sub-Saharan Africa ......................................... 22
Information Sources ............................................................................................ 23
2
Introduction
Background
This report provides, in a nutshell, facts about Sub-Saharan Africa and insights into
future business opportunities. The report is based on relevant statistics, recent
articles and publications, and expert views.
The report has been prepared by an international team coordinated by Amatka (Pty)
Ltd, a private company owned by Finnish entrepreneurs, based in Cape Town, South
Africa. The report is part of Team Finland’s Future Watch Program in Africa, called
“Strategic Partners for Innovation Actives Africa Services”, and is coordinated by
Tekes, the Finnish Funding Agency for Innovation.
The focus of the process is on the four most promising (defined by size, growth and
ease of doing business) Sub-Saharan African countries: Kenya, Nigeria, South Africa
and Tanzania. Sectors in focus are: ICT, mobile & digitalization, education, health &
wellbeing, energy & environment.
Elements of Strategic Partners for Innovation Activities Africa Services are: Continent
Report Sub-Saharan Africa, Country Reports (Kenya, Nigeria, South Africa,
Tanzania), Alerts: arising signals for the future, Updates: frequent summaries of
alerts and Contact Database.
Purpose
The reports, and this service, focuses on issues, facts, signals and insights that are
likely to play a role in doing business in, for example, Kenya’s medium term future (2-
5 years). This report DOES NOT provide sales leads or provide a picture of how to
establish operations in Africa or any of the countries.
Using present facts and information, combined with future insights, signals, and
scenarios, the report suggests possible futures and the related implications for
Finnish SMEs interested in doing business in sub-Saharan Africa. This report
concentrates on similarities within Sub-Saharan Africa that are critical for Finnish
SMEs that are considering venturing into Sub-Saharan Africa.
Recommended Use and Liability Disclaimer
This report is recommended reading before country specific reports. Additionally, it is
strongly recommended that the readers always check the latest information;
situations in Africa can change overnight.
Amatka has made every attempt to ensure the accuracy and reliability of the
information provided in this report. However, the information is provided "as is"
without warranty of any kind. Amatka does not accept any responsibility or liability for
the accuracy, content, completeness, or reliability of the information contained in this
report. No warranties, promises and/or representations of any kind, expressed or
implied, are given as to the nature, standard, accuracy or otherwise of the information
provided in this report nor to the suitability or otherwise of the information to any
particular circumstances. Amatka shall not be liable for any loss or damage of
whatever nature (direct, indirect, consequential, or other), which may arise as a result
the use of this report, or from use of the information in this report.
3
Overview
Context
Africa is a vast continent containing 54 countries, of which 48 exist in in Sub-Saharan
Africa. Within these countries, the markets can vary considerably and require country
specific strategies. At the same time, there are similarities among the countries that
are critical to understand and should inform early and continuing business decisions.
This report concentrates on those similarities. Still, Sub-Saharan Africa has great
diversity among its 48 countries, with a mix of low-income, lower-middle-income, and
upper-middle income countries, and several fragile states.
Africa is the most heterogeneous continent in the world – linguistically, culturally, and
ethnically. There is no “one” African culture or society, as it exists in many people’s
mind. Africa is vast, comprised of 54 independent nations. It has more than one
billion people, and over 3,000 ethnic groups speaking more than 1,000 indigenous
languages – in addition to the six European languages (French, English, Portuguese,
German, Spanish, and Italian).
Most economic activity in Sub-Saharan Africa still happens in the informal sector,
which accounts for more than 50% of GDP and employs more than 80% of the
population. As consumer purchasing power increases there is increased spending,
particularly on consumer goods.
Key Indicators
This section provides some key indicators of Sub-Saharan Africa. First, Sub-
Saharan’s population size, GDP and size of middle class are presented.
Figure 1. Sub-Saharan Africa: Key Indicators
4
Figures 2-5 illustrate selected key indicators (sources: IMF World Economic Outlook
2015) for all focus countries (Kenya, Nigeria, South Africa and Tanzania), compared
with those of Finland’s.
Figure 2. Population 2014 and 2020 (source: UN World Population Prospects,
Medium Variant)
Figure 3. GDP Indicators (IMF World Economic Outlook, April 2015)
Growing middle class is one of the factors behind economic growth. However, there
are many definitions for middle class and consequently size of Sub-Saharan middle
class varies from 1-2% of the population (households with income more than $20,000
per annum) to almost 40% (individual income more than $2 per day). Therefore, one
5
should be cautious when drawing conclusions based on growth of the African middle
class and in any case meaning of African middle class is definitely not the same as in
Finland. Figure 4 illustrates number of middle class households (household income
$5,000+ p.a.) in all the focus countries (and Finland) in 2014 and 2030.
Figure 4. Size of Middle Class (source: Standard Bank 2014, Statistics Finland
2015)
Africa is one of the fastest developing regions in the world. Six of the world's ten
fastest-growing economies over the previous decade were situated below the Sahara
Desert, with the remaining four in East and Central Asia. Between 2011 and 2015,
the economic growth rate of the average African nation is expected to surpass that of
the average nation in Asia.
At $1.3 trillion in 2013, its GDP share was 2.6% of world GDP (while Finland was at
0.4%), which was approximately the same as that for France.
The World Bank stated that net foreign direct investment to Sub-Saharan Africa grew
by 16% to a near-record $43 billion in 2013, boosted by new oil and gas deposits in
some countries. Foreign direct investments fell in 2014, reflecting slower growth in
emerging markets and declining commodity prices.
However, a 2015 World Bank report stated that Sub-Saharan Africa’s growth is
projected to slow down in 2015 to below the 4.4% annual average growth rate of the
past two decades. Slower expansion of economic activity largely reflects the fall in oil
prices, and other commodities, on the region’s economies, even though net oil
importers would see gains. Commodity prices and foreign investment are expected to
provide less economic support; subdued demand and economic activity in emerging
markets will weigh on the region’s growth as well.
The diversity in growth patterns matches the diversity of the continent’s countries.
Prospects of oil exporters, such as Nigeria and Angola, are being negatively affected
by weaker global prices. Although continued expansion of non-oil sectors, particularly
6
services, in Nigeria is expected to lift growth in 2016 and beyond. Among frontier
market countries, growth is expected to increase in Kenya. South Africa is expected
to register slow but steady growth, helped in part by gradually increasing net exports,
and reforms to alleviate bottlenecks in the energy sector.
Growth will remain strong in most low-income countries, owing to infrastructure
investment and agriculture expansion, although lower commodity prices will dampen
activity in countries that export metals and other key commodities. However, extreme
poverty remains high across the region.
Fiscal deficits for the region narrowed as several countries took measures in 2014 to
control their spending. At the same time, however, the fiscal position deteriorated in
many countries. The cause in certain countries (e.g. Kenya and Mozambique) was
the result of rising wages. In others (e.g. Mali, Niger, and Uganda), it was due to
higher spending on public investment. Elsewhere, higher deficits reflected declining
revenues, notably among oil-exporting countries which suffered lower production and
oil prices (e.g. Angola). The region’s debt ratio remained moderate thanks to robust
growth and concessional interest rates. However, in a few countries, debt increased
significantly in 2014, especially in Ghana, Niger, Mozambique and Senegal.
The risks to the region’s outlook stem from both domestic and external factors. The
Ebola outbreak in West Africa is slowing, but fears remain that it could spread more
widely than assumed in the baseline, denting confidence and causing severe
disruptions to cross-border trade and supply chains in the region.
In various countries, government budgets are under increased pressure from urgent
demands for increased spending. Conflicts in South Sudan and Central Africa
Republic, and security concerns in northern Nigeria, northern Cameroon, southern
Niger and Kenya could deteriorate further with harmful regional spill overs.
7
Political
Economic
Climate:
Business
Point of View
Economic Communities
The map below shows the various economic communities within Sub-Saharan Africa.
While others exist, the main regional economic communities depicted on this map
include: COMESA, EAC, ECCAS, ECOWAS, and SADC. Southern African countries
also established SACU, a customs union. In 2008, with the intent of building "One
Africa", the African Free Trade Zone / Free Trade Area (AFTZ/FTA) was established.
However the effects of this free trade zone remain to be seen.
Figure 5. Active Regional Economic Communities (Source: Wikipedia)
The three most prominent economic communities that are likely influence the future
of business in Africa are:
EAC - East African Community (est. 2000)
ECOWAS - Economic Community of West African States (est. 1975)
SADC - Southern African Development Community (est. 1992)
Trade and Investment
In 2009, China surpassed the US as Africa's largest trading partner. By 2012, China's
trade with Sub-Saharan Africa reached $199 billion while US-African trade in 2012
was $100 billion.
8
Between 2005 and 2013, Africa's merchandise exports have proportionally increased
to Asia and other African countries while they declined to Europe and North America.
Figure 6 shows these shifts.
Figure 6. Africa's Merchandise Partners (source: WTO, International Trade
Statistics 2014)
According to the World Trade Organisation (WTO), the value of Africa's merchandise
exports in 2013 was $602 billion of which fuels were 57%. Percentage share of
African merchandise exports in the total world exports in 2013 was 3.2% and share of
imports 3.4%. The total value of African merchandise imports in 2013 was $629
billion.
In comparison, Statistics Finland reports that Finland's exports to Africa in 2014 was
€1.4 billion (2.5% of Finland's total exports) and imports from Africa €0.8 billion
(1.4%). Finland's share of Africa's exports is about 0.1%.
With regards to foreign investment, the US, UK and France still lead the foray. In
2012 their combined investment held the biggest share of Africa investments totalling
$178 billion. The so-called BRICS (Brazil, Russia, India, China and South Africa)
collectively held investments valued at $68 billion, of which $28 billion were Chinese.
Growth: Drivers and Challenges
Africa's rapid urbanization and burgeoning middle class could generate hundreds of
millions of consumers. For example, the rising African middle class is attracting
investors in the retail sector. This can be seen in how French Carrefour and
American Walmart have expanded their operations to Africa. Sub-Sahara Africa has
"democratized" to some extent, and violence and armed conflicts have decreased in
spite of a few hot spots.
9
Figure 7. Key Growth Drivers and Challenges
Investment in resources and infrastructure are widely seen as factors that will help
Sub-Saharan Africa stay on a remarkable growth course. But, political uncertainties
could destabilize those economies. Also domestic risks associated with social and
political unrest form a major threat to economic prosperity in the region.
Other challenges include bureaucratic red tape, infrastructure issues like poor roads
and unstable power supplies, a low availability of skilled and suitably trained staff,
cultural differences, language barriers and corruption. These problems, although not
insurmountable, add to the cost and effort needed to do business.
Contextual considerations affect business in Sub-Saharan Africa. These include
widespread poverty, inadequate educational attainment, major health challenges,
deepening socio-economic inequalities, conflicts over limited resources and border
disputes, the rise of 'African Taliban' in the Horn, Sahel and Maghreb regions as well
as an apparent decline in social cohesion. Despite these themes getting wide
exposure in international media, African prospects for achieving sustained economic
growth are, however, perhaps better than ever.
The Ease of Doing Business Index also implies that the majority of the Sub-Saharan
countries are among the more difficult countries in the world in which to do business.
Of the focus countries, South Africa scored best being 43rd
out of 189 in 2014. Scores
of other focus countries in 2014 were: Tanzania 131st, Kenya 136
th and Nigeria 170
th.
10
Figure 8. Ease of Doing Business (Source: World Bank, Doing Business 2012)
Key Sectors of Potential Growth
The following sectors demonstrate Sub Sahara Africa's key areas of potential growth:
Banking. Foreign investors are now innovating to focus on urban centres with a high
potential for consumer spending. Moreover, portfolio investments in equity markets,
domestic bond markets, and Eurobond markets are increasing and private equity
firms are increasingly investing in the region. Another industry seeing significant
growth is the banking sector, which has grown extensively over the last decade and
has become a substantial player in emerging-market banking.
Infrastructure. Large infrastructure projects in Africa need foreign partners.
Infrastructure spending in Africa is estimated to reach $93 billion per year, and tax
revenues and other domestic resources will not be enough to fill the financing gap for
infrastructure projects.
Information, telecommunication/communications technology and digitalization. This
sector's needs remain high in spite of the rapid growth in mobile phones and mobile
banking. Major companies, including Facebook, Google, Microsoft, Huawei and GE,
are betting on the continent and investing in research and development.
Agriculture. One still largely untapped area is agriculture for major investment. This is
Africa's largest economic sector representing 15% of the continent's total GDP and
more than $100 billion per year. It is estimated that more than 60% of the globe's
available and vacant land is situated in Sub-Saharan Africa. The continent needs an
economic transformation that taps into Africa's other riches: its fertile land, its
extensive fisheries and forests, and the energy and its people. Agriculture will likely
be at the heart of economic transformation.
Diversification in manufacturing. In order to find a sustainable growth path, Africa
needs economic diversification, especially with manufacturing companies (or other
industries requiring relatively low level of skills) to ensure the critical growth of middle
class.
11
Business-to-consumer. Retail. The continent as a whole has suffered from
undeveloped traditional forms of retail (physical). New shopping malls are
mushrooming all over African megacities. E-commerce (bolstered by financial
inclusion) can replace traditional retail shops, offering a new shopping experience in
terms of choice, quality and cost.
12
Innovation
Ecosystems
Innovation ecosystems are relevant for Finnish companies as at their best these
ecosystems provide vital networks, potential co-operation partners as well as insight
into local market dynamics. Often these key stakeholders and influencers in the
ecosystems are also important entry points to new markets.
In general, the African innovation ecosystems differ compared to European
counterparts, such as the larger role played by individuals and mentors as well as
that of international donors. This section illustrates what potential role different types
of organisations and institutions play in the larger innovation environment.
Figure 9. Framework: Innovation Ecosystem in Sub-Saharan Africa
Innovation Hubs
The creation of technology hubs is increasingly becoming a popular policy goal in
Sub-Saharan African countries. Start-up and tech hub hype and innovation clusters
often are seen as giving rise to increased employment, income, and tax revenues.
Sub-Saharan economies looking to diversify from natural resource exports and take
advantage of the continent's mobile revolution are, for better or worse, looking to
innovation/technology hubs as the solution.
Kenya has already broken ground on the continent's most ambitious tech hub-
building effort: an entirely-new $10-15 billion Konza city just south of the capital which
is already attracting attention from tech giants such as Microsoft and Apple. Nairobi
itself may have by now earned its moniker of "Silicon Savannah." A less supportive
policy environment exists in Nigeria, but is made up for with massive market size, low
mobile penetration, and perhaps a more entrepreneurial-minded culture. Indeed, in
13
spite of slow internet speeds and frequent power outages, a lively start-up scene has
developed in Lagos.
These two examples, however, have been largely software-focused. There have
been very few home-grown hardware successes. Manufacturing the "silicon" in
Silicon Valley seems to be much more difficult. Initial investments and red tape
(reinforced by tariffs) result in larger barriers to entry for firms, which mean that the
higher gains in employment and agglomeration that come with value-added
production have not been realized.
Research
There are a number of private and public research institutions across the continent.
Of the TOP 20 Universities 12 are located in South Africa. Figure 10.
Figure 10. TOP 20 Sub-Saharan Universities (source: Webometrics Ranking of
World Universities)
14
Private Companies
Global giants are increasing their involvement in Africa: Apple is considering building
a bigger operation in South Africa, Uber is spreading its tentacles, and the likes of
Facebook and Google are making a play for Africa's unconnected. Increasingly,
however, major players are turning to the continent's start-ups in a bid to offer
support and ensure access for themselves to the next wave of innovative products to
spring from the continent. Mobile operators such as Millicom, Safaricom, Airtel,
Vodacom and Orange are making investments in African start-ups, and Samsung
has gone one step deeper by pledging to get involved in start-ups' planning and
development.
Of the private companies in Sub-Saharan Africa, South African companies hold 17 of
the first 20 places. A vast majority of Sub-Saharan largest (in terms of market value)
companies operate in one of the following sectors:
Finance and insurance
Mining
Telecom
In terms of innovative new companies Sub-Saharan Africa isn't an empty canvas.
Figure 11 illustrates "The Top 10 Most Innovative Companies of 2015 in Africa"
according to Fast Company.
Figure 11. The 10 Most Innovative Companies of 2015 in Africa (source: Fast
Company)
15
Sectors in
Focus
Energy and Environment
It is estimated that one in three Africans has no access to electricity. Neither do some
10 million SMEs. Those homes and businesses fortunate enough to have power pay
three times as much as those in the US and Europe. Routine power outages cost
countries from one to four percent in lost GDP every year.
Sub-Saharan Africa has some of the world's largest hydropower and geothermal
resources, bountiful solar and wind resources, as well as significant natural gas
reserves. However, total power generation capacity in Africa is about 80,000 MW
(including South Africa's 40,000 MW), roughly the same as that of Spain or South
Korea. Strikingly, Sub-Saharan Africa is using just eight percent of it hydropower
potential.
As Africa's GDP grows, the continent needs more electric power. Specifically, Africa
needs to add 7,000 MW of generation capacity each year to meet the projected
growth in demand, yet it has achieved only 1,000 MW of additional power generation
annually.
"A better functioning energy sector is vital to ensuring that the citizens of sub-
Saharan Africa can fulfil their aspirations," said IEA Executive Director Maria van der
Hoeven. "The energy sector is acting as a brake on development, but this can be
overcome and the benefits of success are huge." (IAEA)
It is estimated the continent needs $288bn of investment in energy to fuel
development. The US, EU, and China are investing heavily in Sub-Saharan Africa's
energy sector, raising hopes and sometimes concerns. China has promised over $20
billion in infrastructure, farming and business loans. EU member states have pledged
to provide energy access for 500 million people by 2030. In June 2013, US President
Barack Obama unveiled "Power Africa", a largely private sector effort to increase
generation capacity, improve access for 20 million new households, and give $7
billion in energy financing over five years.
Considrations for Finnish companies:
Businesses have to consider building their own power plants.
Middle and upper class people are interested in secure energy solutions
independent from parastatals.
Having reliable and affordable energy is more important than nature of
energy (i.e. "green" isn't really a sales argument).
Selling to governments requires understanding local hierarchies and ways of
doing business (i.e. often including what one can interpret as corruption) -
local partners are a must.
"Ecological" isn't really a sales argument, either (e.g. in South Africa poor
people take compost toilets as an offence since only flush toilets are
considered "proper") .
Environmental innovations have huge potential if they can deliver visible
advantages in terms of economic and social development.
16
Healthcare and Wellbeing
Healthcare outcomes in Africa and associated investment opportunities have
improved drastically over the past decade. HIV and child mortality rates are falling,
government health expenditures are rising, and new healthcare delivery models are
bridging the gap between urban and rural quality of care.
The private sector and investor community have taken notice of these trends and are
increasing their presence in the healthcare sector on the continent. There are now
multiple health-focused private equity funds investing between $70-100 million solely
in Africa.
Reports issued by consultancies such as McKinsey expect the Sub-Saharan African
healthcare market to grow to $35 billion by 2016. This means that there will be a
number of opportunities for investors across the healthcare landscape who
understand what types of solutions can be most effectively employed to address the
current challenges on the continent.
Considerations for Finnish companies:
Population is aging even in Africa.
Increasing demand for simple online healthcare solutions (private sector).
Limited market for well-being solutions (mainly western expats, some local
upper middle class) with the exemption of South Africa.
Private sector will play bigger role also in the future in organising healthcare
services.
Education
Education and skills development are the biggest challenges facing Africa in 2015,
followed by building sustainable governance systems and the delivery of hard
infrastructure. While UNESCO predicts that Africa will soon be home to 50% of the
world's illiterate population, Maria Ramos, Chief Executive of Barclays Africa Group,
points to the focus of governments and businesses on creating real improvements
through training programmes and scholarships. Africa's rapid increase in mobile
phone users indicates that technology will play a fundamental role.
Sub-Saharan Africa is home to 43% of the world's out-of-school children, levels of
learning achievement are very low, gender disparities are still large, and the learning
needs of young children, adolescents and adults continue to suffer from widespread
neglect. After much progress in increasing government investment in education, the
financial crisis has reduced education spending in some countries and jeopardized
the growth of education trends in others. However, in most Sub-Saharan countries
effective and affordable literacy policies and programmes exist.
Participation in tertiary education is modest. In an increasingly knowledge-based
global economy, higher education systems play a vital role in skills development. In
Sub-Saharan Africa, 4.5 million students were enrolled in tertiary education in 2008,
twice the number in 1999. However, the region's tertiary GER remained very low at
6%, far below the world average of 26%. And the gap between Sub-Saharan Africa
and other regions in terms of tertiary enrolment has widened.
Considerations for Finnish companies:
17
Increasing demand for affordable private schools as quality of public schools
is in many countries extremely poor.
Business opportunities in infrastructure, knowledge transfer and technology
(e.g. e-learning solutions). Adjustment to local cultures us required.
Plenty of local and international players competing/operating in this field.
ICT, Digitalisation and Mobile Solutions
According to McKinsey & Co "Lions Go Digital" report (November 2013) Africa "going
digital" is as complex as it is exciting. The emergence of a growing African middle
class in the cities, is arguably a pivotal phenomenon in the shift towards the
embracing of the digital technology.
In 2013 internet penetration within the continent stood at 16%, by 2025 this is
expected to have risen to 50%. This increase in access translates into a rise in
internet users from 167 million in 2013 to an estimated 600 million. To put that into
perspective, the online consumer market will roughly quadruple in size over the next
12 years.
In some African countries, digital growth will be driven almost exclusively, in the short
term at least, by private consumption, whilst in others the main catalyst will be
Business Process Operations (BPO's).
The key drivers of the digital technology transition in Africa are:
Africa is the world's most youthful continent with 200 million people aged
between 15-25. These demographic data are widely recognized as
correlating with early adopters of technology.
It is expected that within a decade, incomes for 128 million households will
exceed $5,000. It is at that point that households begin to spend half of their
income on items other than food - i.e., the beginning of disposable income.
There is the entrepreneurial culture. This has emerged as a driving force for
innovation and also fuels economic development. Thus, the expansion of the
Internet has become a launch pad for entrepreneurs and their new
innovations.
E-government market starting to evolve from planning to execution.
Effects of digitalization will no doubt be profound with particular benefits to be felt in
many sectors such as:
Finance. The growing penetration of Internet & technology will have an
unprecedented effect on financial inclusion, given that in sub-Saharan Africa three
quarters of the adult population are without bank accounts. Digitalization will apply a
downward pressure on transaction costs, encouraging micro trades and stimulating
growth. If forecasts are realized and technological advances continue at the current
trend, by 2025, 60 % of Africans could have access to banking services and more
than 90% could be using e-wallets for daily transactions. Financial inclusion will be a
driving force behind economic development and could facilitate a boom in e-
commerce on the continent.
18
Education. Digitalization will make education more accessible by removing physical
barriers (such as distance). Digital tools will also empower users to take charge of
their own educational needs, thereby delivering instant access to educational
resources, enhancement of teacher training and enhanced learning outcomes.
Health. The sheer size of the continent and nations within it have often been cited as
hindering effective delivery of health services. With only 1.1 doctors per 1000 patients
and 2.7 nurses per 1000 patients, (aggregate across the continent) health provision
is an immense problem. It is envisaged that technology will allow users to interact
with healthcare service providers online, so that centralized services become more
efficient and effective in their delivery.
Retail. The continent as a whole has suffered from undeveloped traditional forms of
retail (physical). E-commerce (bolstered by financial inclusion) can replace traditional
retail shops, offering a new shopping experience in terms of choice, quality and cost.
Agriculture. Digital tools will provide this industry with the necessary data to drive
growth, efficiencies and economies of scale. The Internet will provide access to data
on weather, crop selection and pest control and enable users to make informed
decisions on land management. Furthermore, it is likely to lead to access to new
markets and reduce food prices within the continent. The African Development Bank
Group has calculated that growth in the agricultural sector is twice as effective at
reducing poverty, than growth in any other sector.
Considerations for Finnish companies:
There are plenty of local solutions available. Instead of trying reseller model,
partnership model with local partners might be a better option.
Connections are still often very slow.
Internet connections are expensive and often charged by megabyte.
Technology doesn't sell. Simplicity and affordability sells.
19
Entering the
Market
Many companies from the developed world are setting their sights on Africa as a new
frontier for business. Finnish SME's interest should be growing based on the
improved political environments, above-average GDP growth rates and the promise
of rich opportunities in a continent where many opportunities still needs to be
developed from scratch.
However, sub Saharan Africa like any other emerging economy, is a tricky terrain to
enter. Figure 12 provides a summary of key thoughts derived from talks with local
entrepreneurs and business people from western companies established in the
continent.
Figure 12. Key Considerations for Entering Sub-Saharan Africa
Each area also has its own key entry points. For example, in the tech sector
partnering with organizations that have expertise in bringing health innovations to
market in frontier economies, focusing on agricultural ventures (agriculture employs
65% of Sub-Sahara African labour force), and serving underserved populations -
especially female entrepreneurs, are all potential ways forward.
Finally, Finnish SME's should consider additional cultural nuances, such as:
Long term is much shorter than in Finland (3-6 months).
Offering should be simple and at least some results visible in a matter of
months.
At the same time local partners expect companies entering the market need
to have a long term plan. "Fly-by-night" western companies are a common
phenomenon in Africa.
Years of inflow of foreign aid has taught many actors to "play the aid game".
20
Future
SWOT – Sub-Saharan Africa
This SWOT matrix provides an investors’ viewpoint of Sub-Saharan Africa.
Strengths Weaknesses
Growing middle class: It is expected that
within a decade, incomes for 128 million
households will exceed $5,000. It is at
that point that households begin to
spend half of their income on items other
than food - i.e., the beginning of
disposable income.
Growing, youthful population.
Natural resources from land to hydro
power that are still not fully exploited.
Plenty of room in many sectors and
markets: versatile group of countries
create huge amount of opportunities in
many sectors.
Diversification of economies is very low,
usually economies are dependent on a
few industries.
History of colonialism and more recently
bad governance combined with aid
dependency have had a negative impact
on people’s ability and willingness to take
responsibility for their own future.
Lack of good governance, corruption and
red tape.
Poor infrastructure from energy to roads.
Poor quality of education, unskilled labour
force.
Opportunities Threats
Africans - based on their own work and
achievements - become role models (i.e.
culture of “hard work pays” develops).
China: Chinese firms are able to deliver
quickly and work in close coordination
with their financial and other national
partners. Speed is a big comparative
advantage as the continent has large
infrastructure needs and policymakers
are under pressure to deliver.
Developing a stronger manufacturing
sector.
Economic growth continues creating
larger middle class with emerging
purchasing power.
End of the global commodities super
cycle: Over the past decade, the rise in
commodity demand and prices has often
masked structural issues in many of
these nations and delayed much-needed
reforms and industry diversification.
Foreign aid driven initiatives are
managed to turn into healthy and sound
business co-operation that benefit local
economies.
“Invest in Africa” boom disappears if there
are opportunities yielding higher potential
profits at less risk.
Disease outbreaks.
Extremist (terrorist) movements.
Increasing political and social unrest.
Negative impact of expansion of social
media usage: easy and quick way to
mobilize riots.
Infrastructure investments made by
China/India have a hefty price: natural
resources will be outsourced for very
little.
Over-stressed urban environments.
About 40% of African people live in urban
environments. By 2030, the number will
exceed 50% and some cities will swell up
to 85% of their current size.
21
Four Scenarios for Future Africa
Figure 13 illustrates four scenarios for Sub-Saharan Africa 2020. These scenarios
are based on various available sources of information and market signals. The
scenarios have two main components:
Level of economic diversification
Openness of the economy
Sub-Saharan Africa is at a crossroad; any of the scenarios, or combinations of the
scenarios, could come true. Much depends on local government policies and actions
of international players.
Figure 13. Scenario framework
Each scenario is shortly described in more detail in Figure 14.
22
Figure 14. Four Scenarios for Africa
SWOT – Finnish Companies in Sub-Saharan Africa
Below, as a summary, is presented a SWOT matrix for Finnish SMEs planning to do
business in Sub-Saharan Africa.
Strengths Weaknesses
Has managed to create smart society
that nurtures good country perception;
healthcare and education systems as
examples.
Neutral country of origin.
Persistence and “not give up” attitude
that is needed in order to do business
with Africans.
Some companies already present
(Nokia, Suunto, Polar, Kone)
Technologically advanced solutions in
general e.g. digital banking (not so
much mobile, though)
B-to-b orientation (Africa’s growth is
largely based on public spending or
consumer consumption).
Corruption considered a stop sign, not an
obstacle.
Lack of flagship
companies/brands/products.
Lack of patience that is needed in cultures
where time often isn’t money and building
trust takes time.
Lack of solutions for private sector
(especially consumers).
Negative stereotypes and the
misconception that “Africa is a country”.
Poor understanding of the importance of
networks/local partners with whom to
operate – Finnish straightforward way of
doing business isn’t going to work out in
Africa.
Solutions are too complex/technology
oriented.
23
Opportunities Threats
Clear focus in go-to-market activities at
all levels: 1) country, 2) customers, 3)
offering.
Creating good value propositions for
local markets that are backed by well-
resourced local sales activities.
Developing products for private sector.
Finding a niche with local/existing
NGOs.
Focus first on small and down-to-earth
solutions that create mutual monetised
advantages in short term.
Looking for partnerships with local
companies instead of resellers.
Sharing risks and working together with
other companies.
Understanding that Africans want to do
business and make deals with short
term interest in mind – offering needs to
serve this purpose.
“Teacher-like” approach.
Lack of courage: Africa is not for sissies.
Lack of understanding about requirements
and resources needed (especially
marketing, sales and networks).
Lack of understanding the local business:
culture becomes a show stopper.
Misinterpreting the market and their
business partners: big picture first and
details later is preferred.
Missing the boat – in order to success in
the future one has to be there now.
24
Information
Sources
Publications:
African Development Bank: Tracking Africa’s Progress in Figure 2014
African Development Bank, Development Centre of the Organisation for Economic Co-Operation and Development, United Nations Development Programme: African Economic Outlook 2014, Global Value Chains and Africa’s Industrialisation
International Energy Agency: Africa Energy Outlook 2014
The Economist: Africa is the horizon 2015, African Business Outlook Survey
McKinsey Global Institute: Lions on the move: The progress and potential of African economies 2010
McKinsey & Co: Lions Go Digital 2013
World Bank: World Development Report 2015
World Trade Organization: International Trade Statistics 2014
Internet:
http://en.wikipedia.org/wiki/African_Economic_Community
http://worldpopulationreview.com (based on UN World Population Prospects)
http://www.africaprogresspanel.org/publications/policy-papers/2014-africa-progress-report/?gclid=CPfN6ID-hMUCFYnKtAodRk4AGw
http://www.dw.de/sub-saharan-africa-on-solid-growth-course-survey-claims/a-17549181
http://www.fastcompany.com/3041821/most-innovative-companies-2015/the-worlds-top-10-most-innovative-companies-of-2015-in-africa
http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/EXTPUBREP/EXTSTATINAFR/0,,contentMDK:21106218~menuPK:3094759~pagePK:64168445~piPK:64168309~theSitePK:824043,00.html
http://www.fin24.com/Entrepreneurs/News/Doing-business-in-sub-Sahara-Africa-20140915
http://www.forbes.com/sites/iese/2014/07/31/doing-business-in-sub-saharan-africa-six-aspects-to-consider
http://africanbrains.net/2015/03/17/auc-school-of-business-partners-with-top-five-business-schools-in-africa-to-enhance-entrepreneurship/
http://www.gemconsortium.org/National-Teams
http://www.howwemadeitinafrica.com/uncharted-african-regions-and-sectors-offer-growth-opportunities-for-smes/48283/
http://www.ifc.org/wps/wcm/connect/region__ext_content/regions/sub-saharan+africa
http://www.stat.fi/til/tavu/index.html
http://www.tekes.fi/en/programmes-and-services/grow-and-go-global/team-finland-future-watch/
http://www.worldbank.org/en/region/afr/overview
https://agenda.weforum.org/2014/11/whats-biggest-challenge-africa-2015/