Exporting in Sub-Saharan Africa – Worth the Effort?
Authors: Peter Draper and Lesley Wentworth
The ‘Africa Rising’ phenomenon – part myth, part marketing campaign – has faded along with the hype of the commodities super-cycle, which had been pivotal in raising growth rates, FDI inflows and exports in Sub-Saharan African (SSA). Does this signal the end of the road for those doing business on the continent? Our view is that there are still opportunities for intrepid companies willing to negotiate their entry strategies.
There is no simple recipe for exporting to SSA markets. Much depends on the size of your company, the sector you’re in, your general experience with exports, and your risk/reward calculus. Nonetheless, here is a general approach to accessing SSA markets that can be tailored to your specific circumstances.
First, it is important to appreciate that SSA consists of emerging markets often characterised by “institutional voids”, or the absence of formal intermediaries, regulators, contract-enforcers and correction mechanisms. In this space, informal institutions step in to fill the gap. This means that personal connections, opaque power arrangements, tacit understandings, culture, and more, loom large. For those accustomed to industrialised countries, where the rules of the game are clear and enforceable, this may be challenging.
Furthermore, with a few exceptions SSA countries are also “frontier” markets, characterised by different combinations of risk – which could include corruption, arbitrary rules, and faltering democratic rule and economic prosperity.
Therefore, a good political economy assessment of potential target markets is the essential starting point. This requires two levels of market research – political economy risk assessment, and a market scoping exercise. Arising from these two types of analyses, and based on your company’s trajectory, a comparative risk/reward calculation of alternative markets is possible.
Once the target(s) is (are) selected, then scoping of market entry issues is required. Ideally, this should be a combination of desktop research, and in country visits.
Regarding the desktop research, there are many databases and comparative indices that can be used, but each has its own peculiarities and limitations, so a “caveat emptor” approach is required. Some key things to look for include: the business environment (ease of doing business); formal and informal barriers to trade (trade agreements; customs requirements; standards; health issues; corruption levels; etc.); logistics issues (costs; physical and institutional infrastructure; capacity; etc.). Much is contingent on the country being analysed and the product being exported, so it is important to know which sources to consult.
Armed with this desktop picture, the next stage is to visit the target country. Given the prevalence of institutional voids, it is important to spend time there, and engage with as many relevant people as possible, especially local business people and foreigners operating in that market. It is also important to note that setting up meetings can be a haphazard affair. Often emails and phone calls are not returned, and meetings don’t start on time if they happen at all. Patience is a key watchword in some countries, combined with cultural sensitivity and adaptability.
Once in-country visits are concluded, an entry strategy needs to be formulated. This obviously needs to be tailored to the potential destination, and cookie cutter approaches should be avoided. We like to think of this as “negotiating market entry”.
Indeed, negotiations will take place at many levels, some formal, some informal. The key mental framework is that you will be navigating “frontier” circumstances and “institutional voids”, meaning that adaptations en route are inevitable. Nonetheless, common issues will arise: Do you need a local partner? If so, how do you choose that partner? Can the partner be relied upon? What resource commitment do you need to make, factoring potential risks into account? And so on.
Underlying these risks is the critical need to look out for potential minefields, for example: local gatekeepers (ask McKinsey about Trillian Capital); domestic powerbrokers (entrenched incumbents that could make your entry difficult); potential backlash from locals (for example resenting a South African “infiltration”); etc.
This means that – and depending on the scale of the firm looking to enter and its potential exposure – pre-designing a “stakeholder influencing” strategy may be required. We don’t have Bell-Pottinger in mind here, rather a benign approach to working with domestic stakeholders to ensure greater receptivity to your presence in the market. This could mean committing resources to CSI activities for example, or supporting local business associations, or running a sustainability initiative.
In conclusion, proceed with caution. And good luck!