The reports we read and hear about Africa in Australia would have one believe the continent is caught in an inescapable spiral of corruption, poverty and violence. Even for some who can see past the negative press, Africa has stubbornly remained synonymous with risk and uncertainty. But things have changed in parts of Africa. Across numerous countries we are seeing an increase in political and economic stability and an improvement in macroeconomic conditions, which in turn fosters productive business environments. Australian businesses large and small should be paying attention.
There is no denying the continent has seen more than its fair share of bloodshed and turmoil and still battles with some troubling problems such as wide-spread poverty, poor infrastructure and political instability. Because of these shared challenges, Africa is often painted as a homogeneous continent, however, this is far from the case.
The African continent comprises many countries with differing resources and geo-political factors contributing to their individual economic performance. What many Australian’s don’t often hear about — and far fewer ever see with their own eyes — is that many countries in Africa are advancing rapidly and some are thriving. These countries hold considerable opportunity for Australian businesses and must not be ignored. Why? Because Australian businesses simply can’t afford to miss the ‘rise of Africa’.
Africa is the second fastest growing region in the world behind Asia, and has enjoyed an annual average growth rate of more than 5 per cent over the past decade. Some countries are diversifying away from a dangerous dependence on resources and we are seeing growth in output from sectors such as manufacturing, construction and services; Nigeria, Angola, Botswana, Rwanda, and Zambia are good examples of African countries successfully diversifying their economies. This diversification has been aided by foreign investment which continues to flow predominantly from the United Kingdom, the United States and France, with investment from China and other BRIC countries also on the rise. Improvements in governance and investment conditions have acted as catalysts for this increase in investment.
Demographic and social trends also reinforce Africa’s prospects for long term growth. The population is young and growing, people are moving to urban centres and the middle class is expanding. In fact, by 2020 it is estimated that 128 million Africans will have disposable income and by the middle of the century Africa will have the largest workforce in the world.
Telecommunications and mobile technology are exciting growth sectors and local entrepreneurs are spearheading the expansion in e-commerce and mobile payments throughout the continent. According to Goldman Sachs, it is predicted that internet usage on mobile phones will increase 20-fold in the next five years in Africa, which is double the rate of growth in the rest of the world.
Australian businesses are continuously being informed of the opportunities in neighboring Asia but we have a neighbor to the West that is equally worthy of our attention.
Australia’s bilateral merchandise trade with Africa grew to almost $12 billion in 2013, more than double the value in 2009, which is indicative of the positive changes taking place in the region and the growing opportunities for trade and investment.
Moreover, Australia has an untarnished reputation in Africa and Australian businesses do not tend to experience the level of distrust that those from ex-colonial countries can. Australia was also a champion of the anti-apartheid movement and hence we are genuinely welcomed in most African nations.
So where do the opportunities exist for Australian small businesses in Africa?
Africa is a natural destination for two of Australia’s truly globally competitive industries, mining and agriculture, as well as their related services. More specifically, opportunities exist for Australian businesses with core capabilities in the following areas:
- Tropical agriculture and horticulture products and services that improve efficiency, including in irrigation and livestock management in tropical environments. Africa suffers from significantly lower agricultural productivity than the rest of the world and is seeking solutions to improve yields. Australia’s already advanced best practices will be useful, especially in areas with similar climate conditions.
- Mining Engineering and Technology Services (METS) – Given the prominence of Africa’s resources sector, there are significant opportunities for Australian METS companies. According to the Department of Foreign Affairs and Trade, there are over 200 Australian mining companies with more than 700 projects operating in Africa. Organisations such as the Australia Africa Mining Industry Group are a great resource for interested companies to tap into.
- Infrastructure solutions to meet Africa’s infrastructure needs, including in the areas of aviation and logistics. Poor infrastructure increases the cost and risk of investing in Africa and impedes economic growth, which is why many governments are prioritising improving domestic infrastructure.
- Consulting and financial services to meet the growing demand for world-class services, which Australia is well positioned to supply.
The best African market for your business will vary greatly depending on your product or service and your risk profile among other things. With regards to the above mentioned opportunities, and in terms of stability, South Africa, Ghana, Kenya, Nigeria, Botswana and Mauritius are all markets that hold a lot of promise for Australian companies. However, as with any potential export opportunity in a new market, it’s important to do your homework and think carefully about risk management.
Tips for Australian companies thinking about exploring opportunities in Africa:
- Go there. Don’t assume you know what Africa is like. If you have never been there and seen it with your own eyes you must go.
- Test it out by dipping your toes first before a deep dive. You learn a lot more by dipping your toes in than you would through desktop research.
- Manage risks – Like with any overseas venture, consider all possibilities and protect yourself.
- Obtain expert advice when planning to enter into the market. The countries that were British colonies can offer the easiest entry points as English is a common language plus there are similarities with the legal and business systems. However, these countries tend to be more developed with lower growth rates and sometimes fewer opportunities available. South Africa can be perceived as an easy avenue into the continent but it may not necessarily be the best option. Really look at your markets of interest in their entirety and consider the broader parameters – political, economic, social, market trends – before deciding you entry point.
- Be patient in building the business. You need to understand the African concept of time and don’t rush into your first business relationship.
- You need to have the ability to improvise and to be flexible in your approach.
- Pick the right entry strategy – do your own market research.
- Understand your customer – consumer preferences vary greatly across the continent so don’t go with a blanket approach.
- It is an information poor continent so you need to have really good people on the ground.
Organisations in Australia such as the Australia Africa Business Council, bi-lateral chambers of commerce, Austrade and more boutique advisory firms such as Ignition Investment, can help you identify opportunities and facilitate introductions.
* May 25, is Africa Day and is the annual commemoration of the 1963 founding of the Organisation of African Unity. This day is also an opportunity to celebrate African culture and the relationship and cooperation between Australia and Africa.
Stacey Mills-Smith is the trade policy and research manager for the Export Council of Australia