Why A Recent Business Exodus From Africa Should Be A Wake-up Call For Multinationals
- Africa is full of opportunities for international businesses ready to adapt and innovate.
- But simply transplanting models from other regions won’t help companies operate in Africa’s highly diverse and complex economic environment.
- As the continent’s population becomes the core of the global workforce, companies that do not adapt to African markets risk missing out on important opportunities.
Over the past decade, Africa has attracted businesses with the promise of huge opportunities. The continent’s rapidly growing young population, vibrant cultural scene and abundant natural resources have attracted strong interest from businesses around the world. So, with all signs pointing to growth in the number of businesses entering this market, why are so many big companies now leaving the continent?
Unilever to close its manufacturing operations Launched in Nigeria in March 2023 in an attempt to maintain profitability. Nestlé too Stop production Last year, one of its brands, Nesquik, was phased out in South Africa due to falling demand. Diageo is selling its majority stake in Guinness Nigeria – once hailed as a success story In that market – due to Deteriorating economic conditions and currency devaluation.
The recent exits of these and other companies from African markets repeat a familiar pattern; foreign companies operating in Africa often struggle to cope with local conditions and idiosyncrasies – from corporate governance to foreign policy and domestic infrastructure. In addition to causing domestic job losses, this departure will also affect investor confidence. This leads to more tentative local and foreign investment, which may perpetuate a cycle of economic stagnation and foreign dependence.
The continent is expected to be home to a quarter of the world’s population by 2050Multinational companies must rethink how they currently do business and operate in Africa to help the region’s economic growth match its potential.
Western models don’t fit
Insufficient policy, infrastructure or demand are often cited as reasons for companies leaving Africa, but this also indicates a failure to consider local market conditions.
Countries in Africa vary greatly, with different customs, languages, currencies and market philosophies. Even regions within countries can be diametrically opposed—both ghana and nigeria There was a North-South divide, differences along religious, racial, political and economic lines. The continent’s markets are not as formalized or regulated as those in the West, and they Mainly small and medium-sized enterprises. Its labor force is largely informal And there’s a heavy bias toward early talent.
Therefore, blindly importing successful strategies from other regions is unlikely to be effective in Africa. Western models of talent identification, development and compensation are unlikely to be suitable in such an environment: 83% of Africans For example, working in the informal sector. In fact, many business leaders view addressing talent complexity as biggest challenge (But also opportunity) African market.
Furthermore, Africa’s vast informal economy and stratified markets cater to a region that: 429 million people Living expenses are less than $2.15 a day. This is a very different business and investment environment from high-end consumption regions such as Europe. Even so, global investors continue to direct funds Enter startups targeting high-income customer segments.
These strategies ignore areas more ripe for innovation, such as health care and education, which are fundamental pillars of social development and have broad applications across the region. By prioritizing short-term gains over long-term investments in these fundamental areas, investors and businesses risk stifling sustainable growth and transformative impact across Africa.
Chart different growth routes
These challenges should not deter companies from doing business in Africa; rather, they should force a rethink of strategy.
Western business models often emphasize large-scale manufacturing and centralized operations. Asian models tend to focus on export-driven growth. But Africa’s limited formal transportation networks, cash-dependent economies, and language differences all point to the potential for innovation around localization and massive fragmentation.
Furthermore, it is not enough to simply assess the number of end consumers and potential demand. Companies must ensure the viability of the entire industry value chain. They must see themselves as market makers, enabling suppliers to supply and consumers to spend so that everyone benefits from a growing economy. Specifically, companies such as Unilever, Diageo and GlaxoSmithKline should consider changing their Africa strategies to become strategic investment companies and drivers of large-scale integration of fragmented locally optimized businesses – think Avon vs. L’Oréal.
Western multinational corporations In Nigeria, these companies have been replaced by Asian companies that have succeeded by localizing costs and adapting to the country’s unique challenges. Likewise, Movemeback has partnered with Uber to help it Expanding in Africa since 2015. In Africa’s cash-reliant economies, Uber must pivot, accepting cash payments and partnering with local car providers to close the affordability gap for taxi drivers.
Finding the right talent to do business in Africa
Talent is the key to success, especially for companies operating in Africa. Western companies should not hire unconnected expatriate leaders who manage remotely and encourage a centralized and converged management approach across subregions. This challenge is exacerbated by a lack of strong middle managers. Companies must adopt integrated learning and development solutions and embrace local talent who understand the nuances of the market.
Policymakers also have a responsibility to support these Afro-centric business models – both for the greater good of the people and to influence multinational corporations to accept medium-term pain in order to deliver long-term benefits to shareholders as the market matures.
Rwanda has adopted a private sector partnership-friendly approach under its framework Rwanda Vision 2020 The plan sets clear expectations for private industry in exchange for creating a conducive environment for experimentation and pursuing regional scale. Investment in ICT infrastructure has transformed it into Regional Technology Centerattract massive foreign investment Align infrastructure with local needs.
Africa has long since moved beyond the myth that it needs to be “rescued” – the region has ample opportunities from which businesses can profit and grow. But there is still untapped potential.
The recent withdrawal of some major companies from Africa should be a wake-up call to multinational companies, reminding them to face up to the current situation in Africa. Those who hope to succeed will abandon the idea of simply transplanting Western models and instead think about localization: local talent and leadership, local government, local investment and local value chains. In a loose reference to Darwinian evolution, the directive for companies hoping to prosper in Africa is clear: Adapt or fail.
This article was originally published on: world economic forum
