With the fastest growing middle class in the world and with little formal competition, Africa is often considered the final frontier for many companies. Although rich in minerals, the real resource in Africa is its people – so companies expanding into Africa should take advantage of this. One of our previous blog postings highlights Professor Nick Binedell of GIBS thoughts on companies expanding into Africa ( here )
With companies expanding into Africa having a total of 61 counties to choose from, it would be irrational to randomly select a country to expand into. To ensure a successful expansion, companies expanding into Africa must choose countries that almost guarantee success.
GDP Growth Rates and Digital Penetration are good indicators of fertile ground for expansion
We found two useful infographics produced by Afrographique, the first one shows Gross Domestic Product growth rates, and the second refers to digital penetration statistics. Combining the information in these two infographics could help you select the countries for your African expansion strategy.
We will explore the details of these infographics a little later on.
Using an interim CFO to scout out expansion countries
It is often the task of the CFO to do the necessary research when companies are expanding into Africa. This exercise requires many hours of travel and man hours, taking the CFO or other senior financial resources away from their day-to-day responsibilities within their company.
Therefore, companies expanding into Africa should consider using an interim CFO or even a project accountant to do the necessary groundwork. These experienced and skilled resources available through interim financial executive firms such as The Finance Team are available for short and long-term projects.
Many companies expanding into Africa use Johannesburg as a base of operations when undertaking their expansion northwards. Due to the location and access into Africa, it stands to reason, that an interim CFO from South Africa be used to setup and up-skill the in-country staff. This is especially the case for companies expanding into Africa that want to take advantage of Africa’s biggest resource – the people.
Analysing GDP Growth Rates as selection criteria
Countries with high GDP growth rates clearly have rapidly expanding economies, and as a result these countries are an attractive target for companies expanding into Africa.
The infographic below shows that Ethiopia currently has the largest GDP Growth Rate of 12.4%, this is followed by Benin and Nigeria. Some of these growth rates may be misleading though, as many of these countries are growing from a very low base.
Countries such as Kenya, South Africa and Egypt all have lower growth rates, but have the most established economies on the continent.
Using an interim CFO to help companies expanding into Africa to select their targets will enable companies to visit countries and make an assessment based on infrastructure available, as well as political stability and cultural alignment.
Digital penetration is another important factor for companies expanding into Africa
Companies often rely on technology in order to manage internal processes as well as to service clients. A short few minutes of network downtime can result in millions in revenue being lost by a company. It is for this reason that digital infrastructure penetration and stability plays a major role for companies expanding into Africa.
The infographic below shows that with 11 million internet subscribers, Nigeria is certainly attractive for companies expanding into Africa that rely heavily on digital transactions. Nigeria, along with Kenya, Ghana and South Africa are the countries with the largest mobile phone penetration and the numbers are growing rapidly.
With the fairly recent addition of undersea cables landing in many African countries, fixed line internet is being speedily adopted and it is this fixed line broadband that enables companies to more easily operate in Africa. The infographic shows that the largest markets for fixed line broadband are South Africa, Egypt, Morocco, Algeria and Tunisia.
For those countries with poor digital infrastructure that cannot handle video conferencing or shared systems, having a reliable and experienced interim CFO onsite who can report back and manage operations in country becomes even more imperative.
Strategic targeting is key for companies expanding into Africa
The two infographics have clearly indicated that if your business is exploring expansion into Africa, there are indicators that can be used to help you make your selection. These indicators are by no means exhaustive and it is our recommendation that you use senior and experienced financial executives such as an interim CFO or part-time financial manager to help you explore expansion targets, and then setup in country operations.