As a #CFO, can you spearhead African investment, without high risk? Then, once you have minimised the risk how do you unlock success with substantial returns?
At the recently held ACCA CXO African Convention, top level industry representatives were given an opportunity to discuss the burning issue of risk vs value when investing in Africa.
Traditionally, South Africa has been the destination of choice for foreign investment. South Africa has had relative lower risk factors than many other African countries. However with the rising cost of doing business in South Africa coupled with the lower than desired financial returns, many CFO’s are re-looking the financial viability of moving into Africa without first investing in South Africa.
Countries such as Ethiopia, Kenya and Nigeria are seen as potential investment hubs and now more than ever, the risk vs return is becoming attractive to foreign investors. Foreign investors, many from Europe, Americas and Asia are looking for new frontiers, fresh markets and affordable labour. This perfect mix outweighs the risk generally associated with doing business in Africa. In the 90’s a well-known South African financial magazine published a cover titled “Africa, the hopeless continent”. This was followed with the same magazine publishing a cover story in 2011 titled “African rising”. So what has changed?
According to Nenad Pacek, President of Global Success Advisors, “Global companies have started to take note of the favourable economic growth figures coming out of Africa. Countries such as Nigeria, Kenya, Ethiopia and Zambia are all recording 5%-8% growth figures”. So the figures make sense, but how do we enter these markets with relatively low financial risk?
The focus should be on evaluating the market, risk assessment, economic and social research and importantly the cost of exporting. Many potential investors fail to look at the “smaller” costs of doing business in Africa such as domestic travel, telecoms and access to daily amenities.
“ It is essential for CFO’s to do ground level or onsite research on the cost implications of doing business in Africa, this will help companies lower risk and forecast achievable returns”, Karen Smal, Acting heading, ACCA South Africa.
Nenad Pacek further advises that local representation is essential and that African investment requires full time ground level support. Setting up local offices, supported by a local team will help investors ensure that their product is suitable for the market. Many past failures are attributed to global companies investing in territories that they have very little knowledge of. Specifically to Africa, territorial make-ups differ vastly, and what works in Uganda may not work in neighbouring Tanzania. The product offering may need to be changed or repackaged accordingly. So in brief investing in Africa with minimal risk and maximum returns is to understand the vast differences within each territory and the cost implications of doing business in the respective territory. Essentially Ground level research holds the key to greater returns.
Sub Saharan Africa contributes only 1.5% to global business, the potential for market growth in this region and in Africa as a whole is unprecedented. According to Jo Pohl, CFO Standard Chartered Africa, 2.7 trillion dollars’ worth of revenue sits untapped in Africa.