Taming the African lion: How a finance manager can assist with an African expansionEmma
Michael Sedge, president of Michael Bruno LLC, a construction business based in Delaware, USA, was approached by a NAFVAC programme manager a few years ago. “We could really use a good design and construction firm,” he said. “Would you consider going to Djibouti?”
“I looked at him and asked, ‘D-Ji-what?’” says Sedge.
Eight years later, he is being asked to establish and head the American Chamber of Commerce in Djibouti, his firm having run almost 80 successful projects in countries such as Ethiopia, Ghana, Kenya, Rwanda and Tanzania. Sedge offers some fascinating insights around the potential difficulties of expanding your business in Africa. We have taken those insights and offered ideas around how to overcome them. Our approach advocates using an ‘Africa finance manager’ to help you get this right.
The process of attracting tenders differs vastly from one country to the next
Sedge’s line of work has involved completing projects for the US military in places like Afghanistan. He observes how many companies have successfully won tenders there and then failed miserably when trying to apply the same principles in Africa. “Many have experience and past performance, but unfortunately they have misconceptions and misunderstandings about how to practically and legally position themselves to receive and execute government awards in Africa,” he says.
Your Africa finance manager should provide a solution. As part of their preparation for the role, your Africa finance manager should spend time understanding the tender process in your host country. This will require them to have a sufficient understanding of the legal, political and financial processes around securing a bid. Knowing the complexity of the process in South Africa, you will appreciate that this role, if executed well by your Africa finance manager, will act as an invaluable platform for business strength in your new host country.
Logistics are complex and highly changeable
Whereas you may be used to relying on a stable infrastructure or postal service (perhaps not the latter if you’re based in South Africa!) to get your goods from one point to another, logistics in your new host country will be a completely different matter. Every country in Africa offers a new set of challenges in terms of infrastructure, transport costs and warehousing facilities. Your Africa finance manager needs to provide you with a realistic picture of what it will really take to get your goods from A to B. This will be impossible to do without having on-the-ground experience. Once they have a proper handle on that, they will provide you with a realistic cost analysis. Having your Africa finance manager carry out this function will mean more accurate planning before you enter the new market, less frustration when you inevitably face logistical hiccups you aren’t used to, and a better sense of the margins you can expect.
Cultural and environmental issues have a cost impact
“Cultural and environmental issues are often overlooked when one is putting together their budget and schedule in Africa,” says Sedge. “Yet they play a major role in both.”
His example: “In 2007 and 2008 we managed a $10 million design-build project in East Africa. It did not take long to realise that trying to make progress in the construction during Ramadan [a month of fasting observed by Muslim worshippers] was a futile act. By the time labour entered the base each morning, went through their traditional prayer, they had to rest due to fatigue from not eating or drinking—the delays and risk of accident out-weighed the little progress.
“We were ultimately forced to stop work during this religious holiday—a factor that had not been considered in our schedule.”
The solution: Make sure you appoint an Africa finance manager who has worked in the new country before, and include them in your planning early. When mapping out your calendar year and costs, your Africa finance manager should have a sense of the cultural implications for the cost and timing of your project. Will the Easter period mean several long holidays and an interrupted work period? Is there a hurricane season that could affect production or require more insurance? You Africa finance manager should anticipate the things you can’t, and communicate how they’ll affect the bottom line.
Just like Sedge, when entering your chosen market in Africa, it will be impossible to know what you’ll face. There will be cultural complexities and bureaucratic hurdles. There will be logistical challenges and surprises. Appointing a seasoned Africa finance manager will help you face this new step with a sense of excitement rather than trepidation. Speak to The Finance Team to find out how our qualified, experienced associates can assist you on a part time or interim basis.