Oct 30, 2017 | How-To, Markets | Africa | Jacek

Doing Business in Sub-Saharan Africa

Plan your Sub Saharan African global expansion carefully

Sub-Saharan Africa (Africa) is a vast region with 954.7 million citizens spanning 43 countries. Africa is the 3rd most populous region in the world, yet has the dubious distinction of being the poorest region with a gross domestic product (GDP) per capita of only $3,786 USD. With GDP totaling $3.615 trillion USD in 2016, Sub Saharan Africa’s total economic size in terms of total GDP is 9th of 10 globally compared to other regional economies.

Growth in Africa slowed markedly in 2016 to 1.5% and is projected to recover moderately in 2017 to 2.6%. Growth will continue to strengthen in 2018, helped by improvements in commodity prices and domestic conditions. However, the recovery remains fragile with most of the uplift coming from Africa’s two largest economies, Nigeria and South Africa.

Investment levels will recover only gradually, reflecting tight foreign exchange liquidity conditions in major oil exporters. Fiscal consolidation will slow the pace of recovery in metal exporters. Growth is expected to remain generally solid among non-resource intensive countries, supported by domestic demand. Key downside risks to the outlook for the region include stronger-than-expected tightening of global financing conditions and rising protectionist sentiment, and domestically; slippage on reforms, increasing security threats, and political uncertainty ahead of elections in some countries.

Sub Saharan Africa is fighting a war on poverty and famine

Conflict and drought are contributing to a crisis that has put 20 million people in four countries on the brink of famine. Somalia, South Sudan, Yemen, and North-East Nigeria are facing famine or the risk of famine over the coming six months, according to the United Nations. An estimated 1.4 million children are at imminent risk of death from severe malnutrition. While famine can occur for numerous reasons, a common factor in the current famine is a protracted conflict that has exacerbated vulnerabilities that existed before the crisis.

  • In South Sudan, 1.9 million people have been internally displaced since December 2013, and another 1.7 million refugees have taken refuge in neighboring countries.
  • In Northeast Nigeria, violence perpetrated by the terror group Boko Haram disrupted the supply of seeds, and unexploded devices in fields have prevented farmers from going back to planting.
  • In Somalia, the drought has worsened insecurity and driven unsafe migration known as ‘Tahrib’.

Mindful of losing more than one million lives in Ethiopia’s famine 3 decades ago, the United Nations, World Bank, and other charitable organizations are taking the lead to fund programs to fight poverty and famine in Africa. Such programs are designed to improve land and water management as well as other infrastructure improvements.

The World Bank alone is mobilizing $1.8 billion USD to build social protection systems, such as safety nets, and to strengthen community resilience and maintain service delivery to the most vulnerable. In Nigeria, a series of projects are rebuilding institutions, re-establishing services, and food supplies to encourage people to return to their homes. Click here to read more about the World Bank’s strategy to improve conditions and to fight poverty in Africa.

Nigeria is Africa’s largest economy and most populous country

Nigeria’s GDP totaled 375.8 billion USD in 2017, making it by far Africa’s largest economy, ahead of South Africa (GDP of 739.1 billion in 2016) and Angola (GDP of 189.0 billion in 2016). Despite its sizeable economy, Nigeria is also Africa’s most populous country and by global standards is in poverty with a GDP per capita of only $5,853 USD.

Nigeria relies heavily on oil as its main source of foreign exchange earnings and government revenues. Following the 2008-09 global financial crises, the banking sector was recapitalized and regulations enhanced. Since then, Nigeria’s economic growth has been driven by agriculture, telecommunications, and services. Despite this growth, over 62% of Nigeria’s 186 million people still, live in extreme poverty.

Despite its strong fundamentals, oil-rich Nigeria has been hobbled by the inadequate power supply, lack of infrastructure, delays in the passage of legislative reforms, an inefficient property registration system, restrictive trade policies, an inconsistent regulatory environment, a slow and ineffective judicial system, unreliable dispute resolution mechanisms, insecurity, and pervasive corruption. Regulatory constraints and security risks have limited new investment in oil and natural gas, and Nigeria’s oil production has contracted every year since 2012.

Partly because of lower oil prices, Nigeria entered a recession in 2016, contracting by 1.75% from a GDP of 1.108 trillion in 2015 to 1.089 trillion in 2016. The medium-term outlook for Nigeria is positive, assuming oil output stabilizes and oil prices recover.

If you want to expand your business to Africa, South Africa may be your best bet

South Africa is Africa’s 2nd largest African economy with a GDP of $739.1 billion USD. It is a middle-income emerging market with an abundant supply of natural resources; well-developed financial, legal, communications, energy, and transport sectors; and a stock exchange that is Africa’s largest and among the top 20 in the world.

Despite the pull factors for doing business in South Africa, it’s not all positive. International investors are concerned about the country’s long-term economic stability. As of December 2016, most major international credit rating agencies placed South Africa only one level above junk bond status. South Africa’s economic policy has focused on controlling inflation; however, the country faces structural constraints that also limit economic growth, such as skills shortages, declining global competitiveness, and frequent work stoppages due to strike action.

Major industries include mining (world’s largest producer of platinum, gold, chromium), automobile assembly, metalworking, machinery, textiles, iron and steel, chemicals, fertilizer, foodstuffs, and commercial ship repair.

With the relatively flat growth in 2016 and also projected for 2017, South Africa is not an obvious choice to expand your business. But structurally it’s about as good as it gets in Africa, so if you are thinking of expanding in Africa take a hard look at South Africa before making your final decision.

Plan your Sub Saharan African global expansion carefully

Sub Saharan Africa has a long, rich history of conflict including civil war and border disputes between neighbors. Poverty is a structural problem with only 5 of 43 countries achieving middle income or higher status. The remaining countries are in extreme poverty, with an overall GDP per capita of only $3,786 USD across the African region.

The World Bank and other charitable organizations have been contributing huge sums of money over many decades to fight poverty, famine, and natural disaster. Despite these investments, there are precious few structural improvements to point to.

In addition to the normal challenges of expanding into a new global region, you’ll face real issues in sourcing the skilled talent you need to be successful. This means you’ll most likely transfer the talent you need to Sub Saharan Africa to ensure adequate skills. The biggest consideration in transferring your employees to Sub Saharan Africa will be physical security for your staff and their families.

Consult with Blueback Global before you make the big move to obtain assistance with these critical success factors.