The Ease of Doing Business in Africa
Establishing a business anywhere in the world can significantly help to improve the country's, or the local area’s, economy.
Companies provide jobs to the people in the surrounding area and contribute tax money to the government; thus, helping fund federal, state, and local projects.
But if you’re in Africa, what are the prospects for starting a business? How manageable is starting a business, and what is the ease of doing business in Africa? In this blogpost, let us look at the advantages and disadvantages of being a business entrepreneur on this continent.
Doing Business in Africa: Yay or Nay?
Being the second-largest and second-most-populous continent in the world, Africa can be a good place to start your business. Its growing population provides countless business opportunities to entrepreneurs. In fact, over 400 million companies in Africa earn approximately $1 billion annually - according to a Mckinsey report.
Now, let’s weigh the advantages and disadvantages of doing business in Africa before you start writing your business and marketing plans.
1. The continent has a growing and youthful population
As of 2021, Africa has a growing population of 1.3 billion. It has been predicted that the continent’s total population will skyrocket to over 4 billion in 2100. The increasing population in Africa calls for the need to develop more businesses and expand the market to meet the demands and needs of the people.
Data showed that in 2015 alone, the number of Africans who entered the consumer goods market reached 200 million.
2. Endowed with rich natural resources
Africa holds a significant portion of the world’s renewable and non-renewable resources. It is home to 60% of uncultivated arable land, 30% of mineral reserves, 40% of gold, and 90% of chromium and platinum of the entire globe.
These large deposits of natural resources open countless opportunities for developing value chains. Moreover, you can be a part of shaping global economic activities in the future if you invest in adding value to such commodities.
3. Strategic location
Africa provides business owners with a strategic location, especially when you establish your company in a country like South Africa. In South Africa, you will have easy access to other African countries across the continent. Apart from that, 50% of the purchasing power of the entire continent comes from this country. Thus, making it an excellent place to start your business.
South Africa’s coastline is also a passageway for major shipping lanes, making it easier to import or export products.
Aside from South Africa, the full and busy streets of Morocco also provide entrepreneurs with a strategic location for businesses. Its developments of road and port infrastructures, have made going in and out of Morocco more efficient. In fact, dubbed Morocco has been dubbed the gateway to Africa because it gives European nations access to to the African markets.
4. Enaction of reforms
Business reforms provide a favourable regulatory environment for entrepreneurs; thus, strengthening local and national economies. Being one of the countries in Africa that carried out the most reforms, Rwanda has become a place that is evidence of a fast-growing economy.
Rwanda’s reforms paved the way to:
- Efficient business registration processes
- Eliminating the notarization requirement
- Simplification of company registration procedures
Other countries in the continent have also reduced their tariff rates and simplified their common tariff structure. With these changes, it will be easier for business owners to establish a company in Africa.
5. Modern transportation infrastructure
While some countries in Africa have significant deficit in transport infrastructure, and need to construct highways, waterways, airways, and railways, South Africa takes pride in their up-to-date and well-developed transportation infrastructure. The country has in place air and rail networks as well as ports that serve as a stopover for shipping to and from different continents.
6. Emergence of domestic developments
Africa has improved its macroeconomic prudence to achieve macroeconomic balance, leading to the reduction of budget deficits and decrease of inflation rates.
Additionally, governments across the continent have been implementing excellent initiatives and programs focusing on housing, water services, and power generation.
7. Availability of information and communication technologies
In this day and age, access to information and communication technologies is essential. Essentially, success is easier to attain when you have the required information for decision-making since you will know what steps you should take and what steps you shouldn’t. Communication technologies in particular facilitate the flow of information, and enable you to connect and collaborate with the rest of the world. These types of technology are present in the African continent, paving the way for innovative business practices.
1. Challenges in logistics
Some countries in Africa, such as South Africa, have a modern transportation infrastructure. However, efforts to improve Africa’s public transportation is still underway. Whilst several modes of public transportation exist, the safety and reliability can be questionable at times.
2. Social unrest
Crime and theft are prevalent across the continent. South Africa has the third-highest crime rate (77.29%) in the world as of 2021. Namibia is also twelfth on the list with a 66.12% crime rate, followed by Angola with 65.74%. Several factors are responsible for this high crime rate, including high poverty levels, inequality, social exclusion, and unemployment.
In some cases, people hold mass protests when they are dissatisfied with the services provided - especially when it comes to the slow development of their community. Social tensions can also exist among the underprivileged, sometimes resulting in sporadic incidents of violence.
That said, the safety and security of your business in Africa is not guaranteed and should be factored into business practices.
3. The lack of skilled labourers
Although Africa holds much of the world’s population, the continent is facing a shortage of skilled labourers. This issue is attributed to the slow pace of the educational system.
Some African countries also have health issues amongst the populace, which has negatively impacted the number of skilled workers in the continent - since it decreases workforce productivity and life expectancy of the labourers.
Despite all of these challenges, Africa still has a high potential for labour-intensive industrialization. In particular, when the government and the people work hand-in-hand to mitigate these problems, the majority of the population can contribute to an abundance in the supply of labour.
4. Mandatory taxes
Although there are reforms in the tariff systems of some countries, business owners are still required to pay particular taxes to the government. For example, South Africa requires up to nine different tax payments which could take up to 200 hours annually to complete and process.
Some examples of complex taxes an entrepreneur could be required to file include corporate income tax and unemployment insurance. Aside from their complex nature to process, these payments are also costly on the part of the business owners.
5. Problems with electricity
Most businesses, if not all, need access to electricity to operate. Electrical power helps workers to perform their tasks, and assists in the automation of particular business processes. However, power generation is an issue in some parts of Africa. That is why electricity has been one of the challenges a business owner in Africa may face.
It is also important to note that in the rural areas of countries such as Malawi, Niger, and Chad, approximately 98% of the population lack access to electrical power.
Furthermore, in areas where there is electricity, businesses may have to undergo a lengthy procedure to get approval for an electricity connection.
The Decision Is Yours
Irrespective of your location, establishing a business always has its pros and cons. Notwithstanding, you have to make sure that the opportunities presented will outweigh the threats you may face.
There will always be challenges. But if you just follow the regulations and find ways to mitigate the risks you will face, then ease of doing business in Africa is guaranteed.
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