Only a few years ago, Africa was being dubbed “the next Asia,” and multinationals watched with mounting interest as local economies boomed across the continent. Although a decline in global commodity demand has since ushered in a slowdown, Africa remains a promising long-term growth market. Its GDP grew about 3.4 percent in 2015, a full percentage point above the global growth rate, and is expected to increase to 4.2 percent in 2016, according to World Bank forecasts (pdf). The African Development Bank (pdf) estimates that consumer spending will reach US$2.2 trillion by 2030 (up more than twofold from $680 billion in 2008). As home to seven of the world’s megacities, and with 29 million youths entering the labor force each year, Africa is fertile ground for investment in such areas as infrastructure and manufacturing.
These figures paint an optimistic picture of the continent as a whole. But Africa is made up of 54 fully recognized sovereign states that cover a vast range of natural ecosystems and an even vaster range of cultures, with some 2,000 languages spoken. Unfortunately, we’ve seen too many multinational corporations (MNCs) take their businesses into Africa without a deep understanding of local market dynamics, skills, and conditions. They assume that success is a sure thing, and, as a result, their strategies turn out to be too broad. They revolve around growth projections rather than what individual markets actually need.
Understanding distinctions is critical. But it is equally important to know where your own strengths lie and to match these capabilities to the circumstances of each local market, or to know what capabilities you need to succeed and find partners that possess them. Either way, you’ll also need to develop a network of local experts to execute your strategy on the ground. This is what companies that have established thriving businesses in Africa have done. Many are Africa-based companies that have expanded throughout the continent. MNCs based elsewhere should learn from their experience.
The companies that perform best in Africa tend to target countries in similar stages of economic development. The expertise that benefits their operations in South Africa would also do so in Botswana or Namibia, but wouldn’t get them far in Mali or the Democratic Republic of the Congo (DRC). It can therefore help to think about groupings of countries with comparable wealth (measured by GDP per capita) and institutional quality (measured by the World Bank Doing Business Index)(pdf). Based on these criteria, African countries fall into six basic categories (see map). The first three described below offer the most opportunity; the others tend to be more challenging environments in which to operate.
Countries with high income and strong institutions have reliable ports, roads, legal systems, police, and educational resources. They typically have a sizable middle class, along with a skilled workforce. Companies with distinct capabilities that include world-class product, service, and technological innovation; quality management; and branding and marketing management can thrive in these markets. For example, South Africa–based First National Bank has delivered impressive profits in Botswana, Namibia, and Swaziland, based largely on its innovations in such areas as mobile applications and online banking. Such features are popular in these countries, where income is higher, infrastructure is more robust, and penetration of banking and mobile phone services is greater than in many other African countries.