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Business in Sub-Saharan Africa: Exploring Opportunities

November 12, 2016
It’s a regular day in Cotonou, Benin. As one makes their way through the bustling city, a number of conspicuous elements cause feelings ranging from admiration to puzzlement. On the side of a popular road, dozens of aligned stands offer various local products. Traders - mostly women - proudly display their items. Friendly banter, mixed with vociferous price negotiations, make this particular part of Cotonou, a lively hub. From Abidjan to Nairobi to Lusaka, similar scenes animate daily life.

By Lionel Detchou

Doing business in sub-Saharan Africa has always been challenging. From the fragile institutions to the lack of infrastructure to economic stagnation, many factors have long kept investors away from the continent. Since the 1980s, growth on the continent has been elusive, with economic retardation becoming a defining characteristics for most African countries (Kempe, 1997). The combined efforts of Multilateral Financial Institutions (MFIs), donors, and other development actors, while laudable, have often failed to meet their targeted objectives. As a result, many have questioned the true utility of those programs. Shifting from the traditional aid model, many prominent African figures, such as Nigerian economist Ngozi Okonjo-Iweala, have been pushing for an alternative form of involvement: foreign direct investments in the private sector. In a 2007 TED Talk, she declared: “The best way to help Africans today is to help them stand on their own feet. And the best way to do that is by helping create jobs… imagine the impact on a family: if the parents can be employed and make sure that their children go to school, that they can buy the drugs to fight diseases themselves. If we can invest in places where [investors] make money whilst creating jobs and helping people stand on their own feet, isn’t that a wonderful opportunity? Isn’t that the way to go?” [1]. Her sentiments are shared both inside and outside of the continent. Contrarily to popular beliefs, sub-Saharan Africa is positively changing, and those changes bring a myriad of economic opportunities.

Among the many reasons why sub-Saharan Africa is considered by many to be the next frontier of economic opportunities is its booming population. By 2050, the United Nation projects that 1.2 to 2 billion people will be living in sub-Saharan Africa [2]. With a growth rate of 2.3%, half of the global population growth is expected to happen within the continent. By the sheer number of potential consumers, addressing the continent’s needs should be at the top list of investors looking for new business prospects. Today in sub-Saharan Africa, the median age is below 25 everywhere but in South Africa. The youth are richer, better educated, and more ambitious than ever before. According to the UNESCO Institute for Statistics, 39 out of the 48 nations in SSA have a youth literacy rate of at least 70 percent [2]. In 2015, the percentage of people living on less than $1.90 a day fell to 35%, down from 56% in 1990 [3]. Improved infrastructure and noticeable progress in the fight against detrimental diseases such as AIDS and malaria have created a much healthier population. The continent, hungry for opportunities, provides both a capable and diligent workforce. Its only request is the opportunity to use its talents.

For decades, foreign investors have only focused on the commodity sector. Being home to 99 percent of the world’s chrome resources, 85 percent of its platinum, 70 percent of its tantalite, 68 percent of its cobalt, 66 percent of its diamonds, 54 percent of its gold, and 10 percent of its oil, Africa does indeed play a significant role in the commodity market [4]. Those commodities are crucial components of technological goods such as airplanes, iPhones, and fMRI machines, just to name a few. In today’s world, it is quasi impossible to find a technological good with no ties to the continent. Unfortunately, despite its important role in the development of such technologies, the continent has yet to enjoy the same benefits the rest of world has experienced. A heavy, almost destructive reliance on commodities might play a key role in keeping the status quo.

 

Many African entrepreneurs, conscious of the immense opportunity within the continent, are constantly looking for ways to break their nations’ dependence on commodities. They understand that commodities, while helping economic growth in the short-run, leave African countries vulnerable to exogenous forces. Weak demand from abroad, overproduction, and slow global economic growth are some of the many factors that lead to price fluctuations. Naturally, the harshest consequences disproportionately affect the most vulnerable members of those nations. In order to address the needs of this vastly untapped market, investors and other private actors must shift their focus from the primary sector, and redirect their investments to the secondary and tertiary sectors. For example, slowly emerging industries such as manufacturing, hospitality, tourism, and telecommunication could use the vision and expertise of savvy businesspeople. While dealing with sporadic corruption could initially prove to be troublesome, I firmly believe that, with the proper execution, those avenues will greatly benefit all parties involved.

 

References

 

  [1] Okonjo-Iweala, N. (2007, March). Ngozi Okonjo-Iweala: Want to help Africa? Do business here. Video Retrieved from: https://www.ted.com/talks/ngozi_okonjo_iweala_on_doing_business_in_africa?language=en

  [2] World Population Prospects - Population Division - United Nations

  [3] UNESCO Institute for Statistics - Adult and Youth literacy, 2014

  [4] The World Bank Group - Data API

  [5] Africa Economic Analysis - Rich Countries and their Leverage on Africa, 2008

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