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Culture and Doing Business In Africa (3), By Rafiq Raji

by Premium Times
December 27, 2019
3 min read
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Except for South African countries, where there is relatively high state capacity, my framework would not recommend an investment in the African utilities sector; not in the traditional way, at least. Innovative solutions like off-grid, solar and other renewable power solutions are proving to be viable, though. But they tend to be development-oriented and better suited for NGO-type ventures.


As discussed in the first and second parts of this article in the past two weeks, my cultural framework for doing business in Africa relies on culture, doing business ranking, emerging market (EM) status, and soft power ranking, to recommend sectors in Africa that are likely to be successfully tapped by foreign investors. Having already discussed the energy, materials, industrials, consumer discretionary, consumer staples sectors, this week I consider the healthcare, financials, information technology, communication services, utilities, and real estate sectors.

Healthcare

High-end pharma activities are largely not viable in most African countries. Still, when a venture relies on certain local factors for success, it is still feasible. 54gene, a Nigerian healthcare startup, leverages on the local population for Africa-focused genetics research. That is, even as local expertise is scarce. Diaspora expertise fills this gap. And much of its output feeds into ventures abroad. So, this is an example of a high-end innovative venture that uses the advantages of a large population and overcomes the expertise constraint using highly qualified diaspora Africans, who also understand the local culture.

Financials

There are now quite a number of pan-African banks, mostly headquartered in South Africa and Nigeria. Insurance has not been similarly successful across Africa, with West Africa being the continental laggard. Insurance unsurprisingly thrives in South Africa, which scores high on individualism and low on power distance. I would not advise foreign investments in the insurance sector in West and East Africa, for instance. But my framework would certainly recommend one in South Africa.

Information Technology

Only southern Africa comes close to being well-suited for high-end tech hardware and semiconductor production. The latter is virtually non-existent on the continent, in any case. Low-end tech hardware, like the personal computer (PC) assembly, could thrive almost anywhere. But such low-end tech hardware production is already being phased out. A Chinese firm manufactures phones on the continent, though. Software and services, on the other hand, could be viable in most African countries. The success of Nigerian tech talent firm, Andela, is a good example. Call centres would certainly also thrive across the continent, since talking is a favourite pastime.

Communication Services

Collectivism, high power distance scores, etc. support talking as a pastime in most African countries. The huge success of South Africa’s MTN in Nigeria is an ideal case of how an investment decision based on a cultural practice proved to be quite profitable.

Utilities

Except for South African countries, where there is relatively high state capacity, my framework would not recommend an investment in the African utilities sector; not in the traditional way, at least. Innovative solutions like off-grid, solar and other renewable power solutions are proving to be viable, though. But they tend to be development-oriented and better suited for NGO-type ventures.

Real Estate

My framework would not recommend REITS ex-South Africa. There is a culture of direct house ownership for those who can afford it. And for rented real estate, there is a huge informal element in most African countries.

Rafiq Raji, a writer and researcher, is based in Lagos, Nigeria. Twitter: @DrRafiqRaji

References available at https://rafiqraji.com/2019/11/10/culture-doing-business-in-africa/

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