Understanding the African business model

Understanding the African business model.

In Africa, there are numerous opportunities to engage and build real businesses around, as there are all over the world. However, the method of doing business in Africa is different from the rest of the world and this makes the business model for Africa to be unique. Before anyone can actually start a business in Africa, a basic understanding of what works and what does not work must be grasped.

For example, there are hundreds of millions of small and medium scale businesses in Africa and they range from roadside hawkers to medium scale service providers. This broad spectrum of businesses require different capitals, strategies and markets. However, some markets are so fused together that it is hard to engage in one product or service without another.

Therefore, starting a business in most places in Africa is quite tricky and needs an in depth study of the structures already in place. Especially the government structure which regulates most of the critical markets. In countries like Nigeria, South Africa, Ghana and Egypt,you are required to obtain a license from the different government structures and agencies before you can actually start some kinds of business. This comes with its difficulties as it takes a long process for the license to be approved and issued. Not only that, the high rate of corrupt practices in the government institutions also pose as a hurdle for start ups and therefore hinders business growth. Although there are moves by most of the governments in Africa to curb this, there is still a long way to go.

On the other hand, Africa has a huge market for any type of business one can think of. with a huge population of 1.11 billion people and a geometric growth rate, there is an ever increasing demand for goods and services. Since the average African society has a consumer orientation, there is a great market for producers of all kinds goods, especially those who produce commodity and agricultural related goods. So, any business hinged around production has the potential to grow very fast.

However, there is a twist to producing in Africa. Due to the fact that almost all countries in Africa are under developed, there are little or no infrastructures which are needed for production. This makes the cost of production to be very high and hampers productivity rate. The presence of poor road networks, reduces the rate of distribution from production points to the markets, where as, low electric power generation and supply plays crucial roles in the low productivity seen across the continent. This has also caused many local and international investors to shy away from building production plants. Instead they explore the raw materials from the continent and then export it to Europe and Americas for refinement, after which the refined goods are imported back to the continent.

In addition to this facts, many people in the continent prefer to buy the imported goods as they believe that they are of better quality when compared to the ones locally produced by indigenous companies. With this trend running for years, most african countries are import dependent as seen in countries like Nigeria, Cameroon,Ghana and other countries. This has prompted the various countries in the continent to propound laws that support local content development especially in sectors with foreigners as major stakeholders.

With most international investors adopting the local content policies, there is a rapid growth in development across the continent as