While Africa offers tremendous opportunities to U.S. businesses, it’s often the last frontier for expansion efforts.
It is time for companies to start seriously considering entering the African market. Some may view Africa as a high-risk, high-reward scenario, and that may be true. There are significant opportunities for Illinois companies, particularly those in the agriculture, construction and mining industry sectors. Africa also has its fair share of challenges, such as infrastructure, bureaucracy and fraud. However, resources are available from the federal and state governments that can proactively assist firms in addressing these opportunities and challenges.
Why Africa? (Opportunities)
The signing of the Africa Growth Opportunity Act (AGOA) by President Bill Clinton on May 18, 2000, significantly changed the regulatory environment, resulting in regional economic growth. The Act offers tangible incentives for African countries to continue their efforts to open their economies and build free markets. According to the Office of the United States Trade Representative, 41 African nations are now eligible to receive AGOA benefits, and “in 2013, U.S. goods imports from sub-Saharan Africa under AGOA and the related GSP program totaled $26.8 billion, more than three times the amount in 2001, the first full-year of AGOA trade.”
Which industry sectors offer the best growth opportunities in Africa? Several are solid matches for central Illinois companies, including infrastructure, power and energy, and agriculture. Upon returning from the U.S.-Africa Business Forum in August, Caterpillar CEO Doug Oberhelman announced an $11-million investment through the Caterpillar Foundation to assist water and energy projects in Africa. In addition, President Obama increased the goal of the Power Africa Initiative to bring electricity to more than 60 million homes and businesses, resulting in a commitment to the program exceeding $26 billion. Indeed, infrastructure development is critical to the future success of the continent.
The agriculture sector also plays a significant role in the Africa economy. In May 2014, I led a trade delegation to the NAMPO Harvest Days show in South Africa, where my colleagues and I recruited 11 Midwest companies to participate in the USA Pavilion. A number of Illinois companies had a presence at the show, including Grain Systems Inc. (GSI), Tee-Jet Technologies and Precision Planting of Tremont. U.S. companies have a competitive advantage with the latest technologies to increase African farmers’ profitability.
Why Not Africa? (Challenges)
As previously mentioned, infrastructure is a top industry-sector prospect for U.S. companies. That being said, it’s also a challenge that can make doing business in Africa particularly difficult. While the urban areas may mirror what you see in the U.S., the rural and remote areas are vastly different, and the transportation of goods throughout the continent can be challenging.
According to the World Bank’s “Ease of Doing Business” rankings, the top sub-Saharan Africa countries in which to conduct business are: Mauritius (20th), Rwanda (32nd), South Africa (41st), Botswana (56th) and Ghana (67th). Indicators used to determine the rankings include: starting a business, getting credit, trading across borders, enforcing contracts and resolving insolvency. The bureaucracies involved in these markets can present significant barriers, so it’s best to pack patience—and it may take more time than anticipated to establish your presence in the African marketplace.
In addition, fraudulent activities are rampant in several Africa markets. All of us have received those unsolicited emails from “long-lost relatives” looking to wire us our inheritance as long as we provide them with a few key pieces of information. Do not respond to these requests! The old adage, “If something sounds too good to be true, it probably is,” definitely applies here.
So what can you do to protect your business from these types of activities and bad actors? It’s simple: know your customer. Conduct background checks on your potential customers and partners prior to signing any agreements with them. Numerous entities offer due diligence services, including Coface, Duns & Bradstreet, and Hoovers, and our agency offers a service called an International Company Profile, an in-depth background check on a foreign company to make sure they are a viable partner.
Africa is a continent with abundant opportunity and challenges, and there are local resources available that can assist your company with global expansion. The question is, where in Africa do you want to start? iBi