What Are the Main Costs of Hiring in Africa

Costs of hiring in Africa vary greatly. The continent of Africa presently includes 55 countries, all with varying economic, cultural, and political conditions.

When you recruit for Africa you can’t rely on the same methods you use in your host country. Accounting, payroll, tax, and other requirements often differ greatly. Additionally, some African countries are better-suited for foreign business than others.

Fortunately, Blueback Global can help your business overcome these challenges. Here are just a few considerations when hiring in Africa.

Recruitment Costs

The accepted standard measurement of hiring is the cost-per-hire metric. It calculates internal and external costs associated with sourcing, recruiting and filling open positions in your company.

Internal costs are money spent inside your company for hiring in Africa. This might include recruiter salaries, overhead, and hardware and software for tracking applicants.

External costs generally include items such as advertising and marketing, third-party hiring agencies, recruitment events, travel, background and reference checks, and more.

In 2016, a SHRM survey estimated the average cost per hire was $4,425, or approximately 15% percent of all HR-related expenses. That’s substantial, but you do have options for filling jobs in Africa to minimize expense and to simplify the hiring process.

Our experienced global expansion agency can recommend what would work best for your business. They have the knowledge and foresight to reduce risk, so your business isn’t blindsided by unexpected expenses.

Labor Law Compliance Expenses

The International Labor Organization reports most African nations ratified basic human rights conventions. However, areas such as minimum wages, social security, occupational safety and health, and other legislative issues are less defined in many regions.

Consequently, labor laws change often and quickly. South Africa recently moved from a recommended to a mandatory minimum wage in 2018. Nigeria is currently discussing changes to their minimum wage law too.

Labor laws are always in flux; nonetheless, foreign businesses must adhere to local and regional laws for workers in Africa.

Large corporations may have the HR resources to monitor legislative changes, yet smaller enterprises can find this a significant challenge unless they rely on a global partner to ensure compliance in Africa.

Bureaucratic Costs

Some African countries encourage foreign business and simplify the startup process. Others make it very difficult, and expensive, to establish and operate a company within their borders.

According to Forbes’ Best Countries for Business, the small East African island of Mauritius is a better choice than many European countries. Ranked 39th globally, they have progressive business policies to spur economic growth.

Compare that to the landlocked Central African Republic, ranked 161st. They lack proper transportation, a skilled workforce, political stability, and sound economic policies.

It may be worthwhile to jump through bureaucratic hoops when potential profits merit it. Many factors can derail your international expansion plans if you’re not aware of issues that could affect your business.

Blueback Global experts can help you choose the region best-suited for your company, so you can avoid excessive bureaucratic costs. Get the workers you need quickly and reduce startup expenses and costs of hiring in Africa.

Tax Compliance

An effective, well-developed tax system makes it easier to operate in Africa. It lowers operational risk and ensures stability for infrastructure, fair treatment, and governmental transparency.

Many African countries make it difficult to manage and submit taxes. They lack the technology and infrastructure needed.

Fortunately, some countries are progressive and have simplified tax compliance. A PWC report mentions Kenya now an I-Tax system for filing and paying taxes online. Mauritania has simplified tax compliance and decreased the number of tax filings or payments.

Tax avoidance and evasion are still a major problem in many African nations. As a result, governments collect less tax than needed, which creates economic and social instability.

For example, The Globalist reports only “9% of Nigerian companies pay corporate tax, while only 12% of registered businesses comply with VAT obligations.”

While this may sound like a great way for a foreign company to reduce expenses, it isn’t. The Globalist adds almost all Nigerian businesses are unregistered, which isn’t an option for foreigners. This puts foreign business at a distinct disadvantage from the get-go.

Additionally, corporate tax rates vary drastically between regions. 2018 Tax Foundation data, states the country of Comoros in Africa has one of the highest corporate tax rates on the planet (50%).

Blueback Global can recommend the best areas for your business. We also have in-country experts tracking regulatory changes and requirements to manage tax compliance and reduce your costs of hiring in Africa.

Trade Area

Most countries in Africa have joined The African Continental Free Trade Area, making it the largest trade coalition in the world. This is important for foreign businesses as once fully-ratified; it will remove tariffs from 90% of goods, allowing free access to commodities, goods, and services across the continent.

Additionally, the arrangement could offer new opportunities in areas such as manufacturing and agriculture, boost employment, and encourage free movement of the African talent pool.

As of April 2019, Benin, Botswana, Eritrea, Guinea-Bissau, Nigeria, and Zambia are not part of the agreement. Consequently, operating in these nations could increase a company’s costs of hiring in Africa.

Mandatory Contributions

African countries also demand mandatory contributions borne by the company. These include social security contributions such as unemployment, solidarity, public pension, housing, and education funds.

Legislations vary widely between African nations and change often. For instance, Tunisia recently introduced an additional corporate income tax contribution of 7.5% of taxable profits.

UHY International suggests Nigeria’s average employment costs are higher than the U.S., Canada, and many European countries.

Choosing the best African country for your business must include a review of mandatory corporate contributions. Fortunately, your business may have options to reduce or eliminate many of the costs of hiring in Africa.

Labor Relations

Some areas of Africa rely heavily on labor unions. As an example, South Africans have a legal right under the constitution to join a trade union and they represent 25% of the formal work force.

Unions can strike, and most of the strikes in the public sector are driven by wage disputes. For instance, in 2014 platinum workers went on strike demanding at immediate doubling of their wages. Even though they eventually settled for much less over three years, it was the longest and most expensive strike in South African history.

In 2012, a series of strikes for higher wages and improved employment opportunities were even more noteworthy. Agricultural strikes by Western Cape Farm Workers’ led to 3 deaths, millions of dollars in damages, and a 52% increase in the official minimum wage.

Not all African governments treat workers fairly, even when they make agreements with unions. They may renege on promises of wage increases or reforms.

As a result, it is very important your business understands which African regions offer favorable business opportunities, and which to avoid for minimal costs of hiring in Africa.

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Blueback Global is your international business expansion expert. We offer African business expansion advice and services including business set up, global payroll, accounting and reporting, statutory compliance, immigration support, recruitment and hiring, and more.

With a network of African professionals each with regional knowledge and local business savvy, we simplify doing business in Africa. We’re well-positioned, highly-experienced, and can help you overcome your multinational business challenges.