On the 1st of March, the Master in International Business of the Carlos III University, Madrid welcomed Eduardo Oliveira, financial director of H OIL, in which he gave a seminar on doing business in Africa. Here is a summary of what he told us.
Many fall in love with Africa, for its picturesque landscapes as well as its people. Many feel drawn to the continent. But is African business culture equally attractive? This image of Africa is one that people tend to misinterpret and often associate it with a lack of resources, poor infrastructure, starvation and risk. Actually, the situation is changing and the country offers many great opportunities.
Opportunities in Africa
It cannot be denied that doing business in Africa is complicated. Companies are challenged with a country of high risk and some other factors which make the internationalisation process difficult such as corruption and strong tribe cultures. Not all is negative however, as the country also has a high potential for growth and has wide margins available. Other factors to take into account when doing business on the African continent are:
- The most commonly spoken languages are English, French and Portuguese as a result of the colonisation process.
- They make deals there and then, and don’t have problems compromising in the case of any justified drawback. For this, they are respectful and would never treat others as inferiors in business negotiations.
- They have good strategic positions.
- In African countries there is a lot of political instability, high levels of corruption, guerrilla warfare as a result of tribal conflicts.
- The presidents, ministers and businessmen have an excellent level of education. The problem exists with the education of the teams with which they work.
- In order to increase the efficiency, expatriates should not only be in the management team, but they should also include directors.
- They lack technology to be able to develop agreements to their full potential.
The possibility of a successful negotiation is much higher when these factors are taken into account. But out of the African countries which present the easiest entry? Which are the most difficult to access?
Nigeria is the country which shows the most potential with its natural resources and perfect geostrategy. There is also less competition given that many there aren’t many companies who dare to enter for business purposes, making it an interesting option. However, it is true that access is complicated as a consequence of racism towards foreigners and high levels of corruption.
Both the DRC Congo and the Brazzaville Congo also boast resources and opportunities. There are a great deal of unexplored prime materials on a large scale, although the countries themselves are rather chaotic given that the government isn’t capable of enforcing much control.
Angola and Mozambique are the most interesting countries when considering internationalisation, although one of the main faults is the bad management of resources. Angola has much potential given that it has vast oil resources as well as strong agricultural and tourism sectors among many others. What makes the country even more appealing is that its tribal communities are not a problem affecting business negotiations, as they have a good image of developped countries. This alongside the availability of good management allows the country to hold great potential.
The government has established a legal framework which facilitates access for foreign companies to take advantage of the energy resources, given that this requires a significant investment that they cannot refuse. The oil companies will have a territory to utilise, sharing the benefits if they obtain the oil and paying the full amount for investment. With this strategy, the country still reaps the benefits even if no oil is found.
How to finance investments in Africa?
As well as making the important decision of selecting the right country, companies face another important question: From where can they get financing to help develop their internationalisation project in Africa? There are several different options. They can obtain multilateral financing, using multilateral organisations such as the World Bank or Central Banks of various countries, as well as bilateral financing. They can also use local banks, institutions and capital markets. The latter opt for investment in projects with certain risk levels, with the aim of obtaining higher revenues, always ensuring that the country is going to be able to pay the interests. An example is the Impala Fund which deals with projects involving renewable energy.
Africa’s development presents several opportunities for foreign countries. Traditionally, the development of infrastructure has been covered by developed nations. Europe for example collaborates by bringing donations and official support for development. On the other hand, other countries contribute differently. The Asian Giant, China for example is making an attempt to improve its relationships with the African Countries by financing investments in infrastructure, under the condition that the projects are undertaken by Chinese companies.
To conclude, Africa is a country that has developed significantly over the last few years, and the situations regarding poverty and famine have also improved. As well as its cultural and personal attractiveness, Africa’s proximity to Europe and its adherence to European countries pose an important advantage for companies based within the EU, given that their entry into the African market will be much less complicated. They should not miss out on the opportunity to take advantage of the endless opportunities available, and should commence upon the path of internationalisation to Africa.