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The 8 biggest business myths about Africa

December 06, 2018

by Prof. Barbara Stöttinger

Many European businesses are reluctant when it comes to making investments in Africa. As a result, they forego huge market opportunities - because the world's second largest continent has enormous potential. Inspired by her recent learning journey to “Silicon Savannah”, Barbara Stöttinger, Dean of the WU Executive Academy, takes a closer look at - and seeks to debunk - some of the biggest myths about Africa.

Picture of a globe focusing on Africa
Africa offers great market opportunities and lucrative investment opportunities - yet foreign companies are hesitant. Photo © CC0 Licence

Africa is not all the same. Africa is poor, rich, agricultural, innovative. Africa has dry steppes and fertile soils. It stands for lethargy and resourceful entrepreneurship, for suppression and empowerment. For slums, for coworking spaces and business centers. During a recent learning journey organized by Africa expert Hans Stoisser, Prof. Barbara Stöttinger, Dean of the WU Executive Academy, has gained firsthand insight into digital Africa, also known as “Silicon Savannah”, urban Africa, slums and the entrepreneurial hubs of Nairobi, Kenya.

“Our perception of this continent is flawed. And so is our perception of the business opportunities there,” says Prof. Stöttinger. The African business community is very open-minded and highly interested in joining forces with Europeans. Resentments because of the colonial past are virtually inexistent. Fostering business relationships on an equal footing can be hugely beneficial for both sides and can give the continent's economic growth a boost.”

China against the rest of the world

The Chinese have for years massively increased their influence in Africa. President Xi has pledged to provide 50 billion dollars in support of sub-Saharan Africa and is investing in megaprojects in the region. With a trading volume totaling 170 billion dollars, China has surpassed the USA and France in Africa. Austrian companies are active mainly in South Africa: Strabag is constructing Africa's highest bridge. Red Bull and KTM do business there as well. As far as other countries are concerned, the commitment is not that comprehensive. And it is not uncommon for businesses from other European countries to be reluctant when it comes to making investments in Africa. Often, this is due to wrong assumptions and clichés ingrained in Western minds. But there is enormous market potential for European businesses in Africa.

Picture of a chinese dragon and an african lion
China is investing massively in the African continent - leaving European countries far behind. Photo © CC0 Licence

In the following, Prof. Barbara Stöttinger seeks to debunk myths about doing business in Africa:

Myth 1: African countries do not have enough economic growth to be of interest to foreign businesses

Internationally speaking, the 49 sub-Saharan countries lag behind in terms of economic performance, but: Since 2001, they have tripled their economic output. More than one billion people live south of the Sahara—so there is a huge market for foreign businesses that can offer cheap products. Demand for Western or exotic products is increasing. Tolaram Africa Foods, a subsidiary of the Singaporean Tolaram group, produces noodle products in Nigeria and Ghana with great success. US muesli maker Kellogg’s established a joint venture with TAF in 2015, and in 2018 it acquired a 460-million-dollar stake in the company in a bid to strengthen its presence on Africa's markets. The new joint facility near Lagos is to produce 10,000 tonnes of cereals a year.

Myth 2: There is no middle class with money to spend

The majority of the people living on the African continent still work in agriculture. Particularly in urban areas, digitization is leading to the establishment of something like a “digital elite” and hence a middle class with money to spend: Founders and employees of software and tech start-ups that are opening up entirely new business segments by pursuing innovative approaches. Business centers frequented not only by foreign businesspeople but to an increasing extent also by African managers and start-up founders are emerging in the neighborhood of slums.

Consumer behavior is rapidly changing as a result of the expansion of the Internet. At present, merely 16% of the one billion people living in Africa regularly connect to the Internet. According to the McKinsey report “Lions Go Digital”, this will rapidly change as the infrastructure is getting better. The report estimates that by 2025 private consumer spending in Africa will be 13 times higher than today, increasing from currently 12 billion US dollars to 154 billion US dollars. If the Internet becomes as accessible in Africa as mobile telephony is today, it may, by 2025, account for up to 10%—or 300 billion dollars—of the gross domestic product of the sub-Saharan countries.

Picture of an African city
Especially in urban spaces, a wealthy middle class is formed. Photo © CC0 Licence

Myth 3: The countries of Africa are decades behind the West as far as innovation is concerned

Often, this is not the case. For some years, innovation and start-up centers have been emerging in the big cities of places such as Nigeria, Kenya and South Africa. And that's not all: “In some fields, the countries of Africa have not only caught up but skipped stages of development,” says Prof. Stöttinger. Experts call this phenomenon “leap frogging”. Over the past ten years, hundreds of millions of Africans—not only in urban areas but also in rural ones—have gained access to mobile telephony. Thanks to M-Pesa, mobile-phone users in a number of countries including Tanzania, Kenya, the Democratic Republic of Congo or Mozambique can use their devices for withdrawing money and making cashless payments at supermarkets, gas stations and shops. By now, it is also possible to take out a microloan via one's mobile. The stage of creating a network of bank branches has been skipped.

Zipline, a US start-up, has launched a project in collaboration with the Rwandan ministry of health: It uses cargo drones to deliver units of blood from its base in the east of Rwanda to the country's hospitals within 30 minutes, compensating for the lack of road and logistics infrastructure. Many households can produce their own electricity by means of small solar panels. Hence, they do not have to wait for the government to put the required infrastructure in place. And Africa is embracing renewable energy: Kenya is home to the continent's largest wind farm.

Picture of a windfarm in Africa
Many stages of development have been skipped, and renewable energy has also arrived in Africa. Photo © CC0 Licence

Myth 4: Simmering conflicts and the threat of terror make investments in African countries too risky

Albert Essien, Director of Ecobank, a pan-African banking conglomerate calls it the “BBC effect”: famines, epidemics, bloody conflicts—he says media reports about African countries tend to be very one-sided. The clichés get stuck in people's minds. It is not uncommon for European businesses to be reluctant when it comes to establishing subsidiaries in Africa. They fear political instability, unrest and terror attacks by radical groups. These threats do exist, but it pays to take a closer look: What is the current situation in the country in question? Where is the infrastructure not good enough; what regions are indeed affected by unrest; where is the situation stable? A good strategy is to make contact with local partners and to familiarize oneself with the security situation on the ground. Chambers of commerce provide assistance in putting technological possibilities, cultural customs and practices as well as climatic conditions into the right context. At any rate, it is risky not to tap into business opportunities. “Doing business internationally is always a risk, but currently there are high growth rates and great business opportunities in African countries,” says Barbara Stöttinger, adding that the market potential is particularly high for SMEs. “They are flexible, pragmatic and close to their customers,” she continues.

Myth 5: After decades of suppression, Africans are not used to thinking entrepreneurially

This is a very common prejudice: It is often claimed that living under dictatorial regimes has left Africans blindly obedient and unable to act independently—and that an entrepreneurial mindset is not prized. But there are countless examples to prove the opposite. The emergence of microloans has provided those who used to be economically disadvantaged with a powerful lever for becoming entrepreneurially active—be it in an agricultural, manufacturing or small-scale innovation context. Villagers in rural areas, for instance, can take out microloans to buy small solar panels. The other inhabitants of the village can then charge their mobile phones with these panels for a small fee and use the battery power to light a lamp in the evening.

Portrait Barbara Stöttinger

Prof. Barbara Stöttinger

  • Dean of the WU Executive Academy

I met a man who hires out methane-producing microunits in Nairobi. The droppings of three cows are enough to supply a household with the amount of gas needed for cooking, doing away with the need to buy expensive propane gas. The villagers rent the small units from the man for a per-diem fee. Payment is again made via mobile phone.

Myth 6: There is no digital talent

In countries with 70% or more of agriculture and knowledge societies that offer room for improvement, it seems impossible for digital businesses to find the employees they need. But: The fledgling digital industry in places such as Kenya is full of get-up-and-go: “Africa's first Internet millionaires are investing in innovative projects at the local level,” says Prof. Stöttinger.

In Africa, talent gets discovered. Finding digital professionals is as hard in the countries of Africa as it is elsewhere. Raw talent must first be identified and then turned into skilled talent. Andela, which has been named Nigeria's best employer, runs a three-year program to train software developers. It organizes boot camps attended by thousands of candidates to identify people with communicative talent and good problem-solving skills. The company sees huge advantages in its purpose-built approach to developing young people into software developers. Also, it has established a pan-African community network of technology experts in an effort to come up with solutions to humanitarian and social problems. Facebook and Google, too, are looking for talent in Africa. Among other things, Facebook has launched Afrinolly, a training program for creative entrepreneurs in Nigeria that aims to help them improve their digital self-marketing on social media.

Picture of the globe focusing on Africa
Digital professionals are just as hard to find in African countries as elsewhere. Photo © CC0 Licence

Myth 7: Corruption is thriving, so it is better not to make investments in African countries

According to media reports, Africa loses 148 billion dollars, or almost 120 billion euro, a year because of corruption. This reputedly corresponds to 25% of Africa's mean gross national product—and seriously hampers economic growth in the countries of Africa.

That is not to say, however, that corruption is inevitable. Foreign companies can act as role models with a view to ensuring that business processes are transparent. Moreover, they can join forces with international auditors as well as anti-corruption bodies on the ground and sensitize their employees and local business partners to the importance of ethical business behavior.

Portrait Barbara Stöttinger

Prof. Barbara Stöttinger

  • Dean of the WU Executive Academy

In this context, European businesses could serve as role models. Corruption is becoming less and less of an issue among the younger population. Additional, digitization leads to an increase in media consumption, as a result of which public awareness is growing.

Myth 8: Development aid is the only way to help African countries

It is a fact that in the past few decades a lot of money has flowed to the region in the context of development aid projects. The results have not always been satisfactory, though. Projects based on the more recent notion of development cooperation tend to help African countries help themselves. That said, corrupt regimes continue to be the main beneficiaries of these efforts, writes Volker Seitz, a former German ambassador to many African countries, in his book “Afrika wird armregiert” (roughly: Africa is being governed to poverty). There are also African economists, such as James Shikwati or Dambisa Moyo, who call for an end to development aid. Establishing business relationships between Europe and Africa, realizing the potential of Africa's population as consumers and making investments in African countries is a much better approach to giving the economic development of the African continent a boost.

On 19.12.2018 the Event Africa Breakfast - Entrepreneuership in East Africa will take place, fitting to the topic. More information about this event can be found here.

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