Before reading further, please answer the following questions:
Yes, I want to be an entrepreneur and not as a pure investor
I want to be a leader and not an "also ran"
If you answered both questions with "yes", it makes sense for you to read on; otherwise you better use your time for something else. Business with Africa means hard work - but often also exceptional returns.
In the following explanation I will show you five steps that you need to take in order to successfully penetrate the African market. The remarks don’t aim at pure financial investors who wish to participate only through funds or investment companies in the upturn in Africa. The following comments are interesting for bold medium as well as large-scale industry enterprises who want to acquire the new markets in Africa.
These are basics that - if they are not followed - almost inescapably lead to the failure of your business ideas. These are lessons that were collected from the experience of market leaders on the African continent and gathered in many hours of research. It is, without claiming to be complete in itself, a guide on how you can develop a strategy to get a piece of the African cake for your company.
Five simple steps to place your product on the markets. These five steps - once started - can overlap, have to be repeated and must be started for new products and branches again and again. The line with five points develops to a network, which can be placed on another network in several layers. The time units given are approximate and can vary for the individual case.
Step 1: Market and product analysis
Find the right country
First, you have to be clear about in which countries you want to make business. The African continent has 52 countries, so the choice is not easy. One-third of African countries have less population than Singapore (5.2 million). Other countries, like Nigeria, count 162.5 million inhabitants (as of 2013). In 2050 the 15 most populous countries, besides Nigeria, will include the African countries Congo, Ethiopia, Egypt and Uganda. Japan and Germany, however, will drop out of the top 15, according to the Population Reference Bureau.
In Africa, has a market of consumers with over a billion people and growing. The majority of these people are young and dynamic (approximately 97%), while the proportion of the population over 65 years is growing to about 28 per cent in Europe and 21 per cent in North America. The 19 industrialised nations occupy only 13% of the areas of our world, while 87% fall on the emerging markets of the world, according to the World Bank.
With a clever strategy various countries in Africa can be summed up and your business concept can be adapted to these regions. For some time you have heard of terms like NEKS markets (Nigeria, Egypt, Kenya, South Africa). And there is the francophone zone, ECOWAS and other networks. Maybe you can also develop a pan-African strategy (see step 4)?
Find the right buyer group
Attracted by the huge profits from commodity sales that have filled the pockets of the African upper class, German companies want to make business with these 5 - 15% of the population of some African countries in order to sell their high quality products. Note, in all of Africa, this group makes only about 200 million people. A strong upward trend. Do you have in view the growing group of middle class and the people who stand on the threshold of the middle class? The group is estimated at 600 - 700 million Africans. The trend is upward. Please keep in mind that the members of each social class in Africa tend to be younger than in Western markets. Therefore, there are phenomenal market opportunities for education providers (see the box at the end of stage 1).
Adapt your product to the needs of the African markets
One of the biggest challenges to entrepreneurs, but a stage which should be possible with the German inventive spirit. Create slightly cheaper versions of your product, possibly with a loss of quality. Offer products in miniature units for the smaller African purse.
You may need to adjust your product to African needs to be competitive. Some good ideas of which products work on the African continent can be found at http://www.designother90.org (registration required).
Other ideas are to present the operating instructions as a comic book, to appeal to illiterate consumers.
Use the opportunities arising from a partially underdeveloped infrastructure
What sounds like an absolute contradiction, is an opportunity for your company. The major weaknesses of water transport and pumping pressure in many African cities creates a large market that demands for powerful pumps. Power cuts are an opportunity for decentralised products for power generation. Missing sanitary systems are also an interesting market for manufacturers of sanitary needs in all price ranges. As your competitors are too afraid to enter the market because of these weaknesses (so far), they cannot take away any market share. Ask our African partners of the German-African legal adviser network for import restrictions and prohibitions to avoid nasty surprises when entering the market.
Time required: 6 - 8 months (sometimes a year)
Opportunities for education providers
The hunger of the African youth for education is huge. At the same time, there are only a few universities and business schools are on an international standard, like the universities of Cairo, Cape Town and Pretoria. Nowadays private initiatives grow, some with government and public support, which provide amazing educational institutions such as the GEMS Cambridge International School in Kampala (Uganda), where wealthy parents spend a lot of money for the Cambridge degree of their children. We are talking about prices of several hundred dollars, probably ranging up to the 1000 dollar/semester limit.
There is also a lack of adequate schools for the middle class. Here would be an interesting field for German education providers to enter into partnerships with local internet cafes to offer their educational software there by cloud technology, or to reach a broader mass by means such as laptop-sharing.
It should be feasible for Africans to buy individual sections of the course little by little at a low price. Written tests may take place at a central location in major cities at greater distances, but under supervision. The participation fee for the tests could then be higher, if necessary subsidies and charities or government or international funding can be obtained.
With smart promotion activities such as advertising via SMS or Newsletter, young people can be inspired for life-long learning and new courses.
Step 2: Discover and minimise the economic risk
Germans are risk averse in general. The grandsons of the wartime generation have grown up in wealth, have lots of insurance policies and need a social network. Germans want to achieve a high yield, but do not want to bear any risk. The German-African legal adviser network has set itself the task to bridge this balancing act, by showing entrepreneurs legal ways to reduce economic risks:
Large companies have successfully demonstrated how they leased land from African partners and agreed the investments as anticipated lease payments. The landlord got active as a commissioner for their goods to sell in his own name and on his own account. Our African partners know the local regulations for labour and property. They can make you suitable contracts and enforce them, as well as provide the legal framework for your project.
There are many materials available on the market offering advice on negotiating practices with African partners. Some of these are helpful, but some are also dangerous. The author knows of a text from a German government agency containing the undifferentiated claim that "the clocks tick slower in Africa." Firstly this is physical nonsense; secondly it is too general, because both the interested consumer and the African entrepreneur want to get fast answers to their questions.
Also claims that African business partners are not on time, think in strict hierarchies and have a penchant for large ceremonies may be true in a particular case, but cannot be generalised. These images are false and to some extent anachronistic and racist, taking into view the young generation of Africa, which has broken away from the traditions of their grandfathers, has a modern lifestyle, is very dynamic and flexible.
Our partners of the German-African legal adviser network in the African countries think in legal categories and are therefore a good contact for you as a business owner. They are also prepared to accompany you on business meetings and brief you before the meetings.
Even at this stage you should start a marketing campaign to place your product credibly on the local markets. You can start by the finding of a brand name that has a reference to Africa, or by finding of local multipliers, such as artists or athletes that give the brand a face. Our partners can help you to protect your brand and close the corresponding advertising contracts with the celebrities.
Time required: 3 - 6 months (possibly 1 year)
Step 3: Organise informal markets and establish distribution networks
At latest at this point, many German companies fail, because unlike their Asian or Indian competitors, they have no experience with unorganized markets, which constitute in many African countries a share of more than 30%, some even more than 50% of the national gross domestic product (GDP). African markets are often not precast, but have to be developed by an integral strategy. Steps 4 and 5 can help you by this, and therefore should be intensified gradually from step 3.
The centre of step 3, however, is distribution: In Germany, the sales network is calculated just-in-time. Multimodal transports from truck to train to shipping containers are common. In Africa, you may have to add other means of transport, such as donkeys, wheelbarrows and the bicycles. A challenge for your route planning system. But a hurdle that other companies like The Coca Cola Company or the fast-food giant Africana have also taken.
Direct sales of portion sizes up to the sale of individual glasses of beer from casks – known in Germany only from stadium visits - or payments by phone are concepts that you might consider.
The introduction of mobile phones has catapulted the black continent at a record pace into the age of telephones without having to spend the high cost of land lines. Africa is already a leader in payment processing via the phone, while this market is still in its infancy in Germany. Numerous banking functions can be used on mobile phones in Africa.
South Africa, for example, has one of the best electronic banking networks in the world. The Union Bank of Cameroon offers a payment card with an acoustic chip that emits an audio signal by pressing a button before the user enters the PIN and makes transactions. So there are also opportunities for German companies to learn from Africa. Our African partners will gladly help you to conclude cooperation agreements with African specialists.
Notice: Please also build communication channels via the Internet and ensure that requests from your customers and partners will be answered quickly. The rapidly growing Internet store "Jumia" in Nigeria of two entrepreneurs from Berlin now has subsidiaries in Morocco and Egypt.
Time required: 9 months (phase 3 should be started already in phase 2 after two to three months max.)
Step 4: Brand building
If you know African street markets, you also know that product piracy is a daily occurrence. Much is cheekily copied and then openly sold. One may expect improvements in the future by strengthening the administration on the one hand and efficiency of copyright and trademark rights on the other. But until that happens, entrepreneurs need a clever marketing strategy (keyword: social engagement) as well as a clever corporate philosophy. Enterprises have to win the loyalty of the African consumer with better services (e.g. repair or replacement of defective goods). People need to associate values such as sharing, community and humanity towards others with your company and its products. The days of companies seeking only their quick advantage are coming to an end in Africa. "Umuntu ngumuntu ngabantu" - "A man becomes a person only through other people" - says an old Zulu rule of life.
Television and radio broadcasts via satellite can now reach even small villages, so that your product can easily be made known through the media. There are also more and more local newspapers where you can advertise. After a few days, the old, read-out newspapers reach the suburbs, so that more consumers can be addressed per purchased newspaper.
Step 5: Continue to observe the market
Step 5 and Step 4 actually start at the same time and should already start in Stage 2. The separation into five steps is made for didactic purposes only. Hence the overlapping of phases mentioned above. In stage 3 it is so striking that advanced businessmen will immediately recognize that you can shorten the model to three phases: the analytical phase of the market and product analysis, the contract design phase and the operational phase. The head of an experienced entrepreneur merges all the phases into a total flow, of course: Strategic considerations, identifying new risks and minimising them, placing new products on the market, advertising and further development of own products are the bread and butter of every successful entrepreneur!
The final phase is all about checking whether the company's product has been placed on the market so that it is successful:
- Have you found the right business partner? ->Our lawyers can help you locally in case of termination disputes.
- Does your product need another business concept? ->Should you maybe offer consumer loans in cooperation with local banks?
- Is the high gloss marketing that is so popular in Europe really suitable for African consumers?
- Are you making sufficient use of the technology used by your clients? Do you offer payment systems on the mobile phone?
- Do your consumers use your product as intended or do you need to react to the divergent user behaviour?