BUSINESS PROSPECTS

Fortune favours the brave – Doing business in Africa is risky, but potentially highly rewarding
Apr 16th 2016 Economist

On the edge of Kinshasa, the capital of the Democratic Republic of Congo, is the Marché de la Liberté, a big wholesale market. Kinshasa is Africa’s third-largest city and has a population of at least 8m, and perhaps as large as 12m (that nobody knows for sure tells you much about Congo). And even here, in the capital of one of the poorest countries on the planet, there is clearly money flowing. At the market’s centre, deafening noise blares from enormous speakers mounted onto cars, which double up as stalls selling mobile phones. You can buy anything here, from fried fish to Premier League football shirts. People flash cash as they negotiate, and everyone is haggling.

The irony of investing in Africa is that it is both one of the world’s most difficult regions in which to do business and also perhaps its most entrepreneurial. In no other part of the world does such a large share of the population rely on their wits and their trading abilities to get by. Even the most modest stallholders are smartly dressed and juggle mobile phones, shouting prices and striking deals. Yet they also tell stories of hardship. “Life is expensive!” exclaims James, who sells plumbing equipment. Cops demand bribes. Transporting his goods to the market costs a fortune. And in the neighbourhood where he lives, there is always the risk of a riot.

What is true for stallholders is also true for the world’s biggest multinationals. Africa holds promise like no other region. For the first time ever, hundreds of millions of people are buying beer, washing powder, mobile-phone credit, fast food, insurance and electricity. But it is also a place to lose your shirt. Too much of Africa’s growth over the past two decades has been sustained by commodities and little else. It seems perverse that in many African capitals where most people earn a few dollars a day, it is still impossible to find a clean hotel room for anything less than $200 a night, or a good Western meal for less than $30. Optimists see this as evidence of a spectacular opportunity to enter the market and make a profit. Pessimists reckon it shows just how difficult it is to do business here—because if it were easy, somebody would have done it.

The receding commodities boom has made this conundrum clear. Nigeria, the continent’s most populous country and many investors’ biggest hope over the past decade, now looks somewhat less appealing. Yet not every country is like Nigeria, and not all the money that used to flow so easily has been wasted. A decade of investment has given Africa lots of new roads, power stations and telephone towers. The next decade will still see new railways, ports and motorways being built, often with Chinese money. Even in Kinshasa, a new highway runs through the centre of the city. Many African countries have taken on large amounts of debt, which may prove a problem in the future. But they are also acquiring assets, which are already generating new sources of growth.

Build on what you have
Over the next decade, the businesses that succeed in Africa will be those that can capitalise on this without the help of cheap money and expensive oil—those that can build a genuine middle class of consumers. Over the past decade, the seeds for this have been planted. It is a hopeful sign that African emigrants are returning to invest the money they earned overseas. In Kenya last year they injected $1.5 billion into an economy that generated only $63 billion in all. In Somalia remittance money is rebuilding war-torn Mogadishu.

From the mobile-phone masts that have spread all over every big city to the soaring apartment blocks, the desire to change things is evident. The question for the next decade is whether governments can live up to those hopes. In Nigeria, the drop in oil revenues may force the country’s leaders to face up to the fact that for decades they have systematically mismanaged their economy. Their attempts to protect the exchange rate and increase manufacturing by diktat are doomed to fail. Ghana and Zambia, which have spent their windfalls on public-sector salaries rather than growth-generating investment, will have to make tough decisions about the best use of their revenues. Not all these countries will do well.

Yet with a number of exceptions, Africa has something that it lacked a generation ago: stability. When commodity prices fell in the 1980s, the result was a series of coups and a generation of war, much of it paid for by superpowers competing with each other. Between 1966 and 1993 Nigeria was ruled almost entirely by military leaders and suffered six coups. That seems unlikely to happen again. The leader of one of those Nigerian coups, Muhammadu Buhari, is now Nigeria’s president again. But this time he won an election in which his incumbent opponent, Goodluck Jonathan, stepped down with far more grace than he ever showed in office. In Burkina Faso, a coup led by the presidential guard was overturned after days of protests in the streets.

Mobile phones do not just create consumers. They also link people up and help them share information. A generation ago politicians could suppress dissent just by controlling the radio stations. Now stories of corruption spread quickly by text message and on WhatsApp. Protest movements can organise far faster and more easily than in the past.

In some places that may be destabilising. In Burundi, opposition to Pierre Nkurunziza’s attempt to hold on to power is being led by just the young urban and educated people that Western companies most want to sell to. But elsewhere, politicians may come under increased pressure to shape up or stand down. For decades, the most corrupt African leaders have tried to resist urbanisation lest it threaten their rule. They are failing.

Even so, the next decade will be more testing than the last. With less money to distribute from the proceeds of oil, copper or gold, it will be harder for patronage politicians to convince their populations that the future is bright. Tanzania’s new president, John Magufuli, has delighted Western diplomats since his election in October by prosecuting corrupt officials and requiring government employees actually to do their jobs. But he has also stoked up xenophobia, expelled foreign workers and shut out imports.

It is only the pluckiest investors who will brave such choppy waters. Revealingly, the biggest private foreign investments recently have been in malls and mobile-phone masts, which are relatively cheap—not roads and railways, which cost billions. But the potential rewards are extraordinary. Africa’s population is expected to more than double by 2050, to nearly 2.5 billion. Many of these people will still be poor, and some will still live in countries torn apart by war. But even if only a small proportion of them thrive, that will still be a market worth going for.

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I would like to think of myself as a full time traveler. I have been retired since 2006 and in that time have traveled every winter for four to seven months. The months that I am “home”, are often also spent on the road, hiking or kayaking.
I hope to present a website that describes my travel along with my hiking and sea kayaking experiences.

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