If there is one thing that the recent Africa Singapore Business Forum (ASBF) reminded me of, it is what a polarising prospect the continent remains.
The global business community - Singapore included - has long seemed divided into two main camps: companies that have committed to Africa, and those still labelling it "too hard", ie, too complex to prioritise. But at the ASBF, I detected a different sentiment - a re-imagining of the prospects for some, and one that underscores Singapore's position as an international business leader.
Singapore is already the largest South-east Asian investor in Africa. As at the end of 2016, Singapore investments into Africa totalled more than S$25 billion, with a compound annual growth rate (CAGR) of 8.5 per cent since 2008. More than 60 local companies already operate in 50-plus African countries.
Some basic numbers indicate why: The continent is home to 1.2 billion people, a number that will grow to 2.5 billion by 2050. Combined gross domestic product (GDP) is already more than US$2 trillion. Africa is unbelievably rich in many resources. In other words, business potential is huge.
The "too hard" side of the African equation also features some big numbers: most of its economies have seen their currencies fall by more than 20 per cent since 2013; a World Bank conference in 2016 heard that 45 per cent of land investments fail in Africa due to community conflicts. In other words, the business concerns are understandable.
So there are still game-changing issues to be addressed. Some are firmly in the continent's hands; some others rest with potential partners and investors.
Africa's full potential as a "single market" can be realised with the ratification of the African Continental Free Trade Agreement (AfCFTA), which will create the largest free trade area since the World Trade Organisation in 1995. Eleven countries are yet to become signatories, but when they do, the African market will open up dramatically.
Current trade barriers means that there is little advantage to Singaporean companies targeting multiple markets from a single African base. In fact, it is arguably easier to conduct pan-African business from within the business infrastructure we have here. But once AfCFTA is implemented, most of the barriers will disappear, inevitable teething issues aside. Additionally, a by-product can be an opportunity for Singapore companies to provide tech expertise and solutions within the AfCFTA business environment.
Ultimately, the case for Africa comes down to dealing with its attendant risks - no different than for any other region, developed or developing - rather than being paralysed by the perception of it. But you can only manage risk if you understand where it lies. Currency and counterparty risk probably top the fear factors but, generally, the "failures" that I have witnessed come down to due diligence issues:
- Inadequate market analysis and an assumption that business models can simply be transplanted across markets. Ghana, for example, is no more like Mozambique than Singapore is like Indonesia. You have to have boots on the ground.
- Failure to secure the right banking and financing support, and counsel. Companies can go out of business quite literally overnight if this is managed poorly.
- Not catering for the "small things". African markets will, for the foreseeable future, continue to present infrastructure and logistical challenges that we are unaccustomed to in Singapore - for example, we do not need backup generators to cater for power outages.
The above is the kind of homework that can be done with the input and insights of organisations such as Enterprise Singapore, the NTU-SBF Centre for African Studies, or consultancy experts such as PwC. There is also the option to partner a strong Singapore partner that already has a firm footprint in Africa.
But these organisations and partners cannot help if you have a myopic view of success. You must put in as much effort to grow IN and WITH Africa as you mean to grow through it. Because you would invariably fail otherwise - if not now, then later. Why would such a high-potential region want to have you, or its people want to work for your interests if they are solely self-serving?
It is imperative then on the company to enact a solid plan that upskills and grooms local talent, implement operations in a sustainable manner, and generate value-add in-country and for communities you work with. A former minister of industry, trade and investment for Nigeria put it best at a Nigeria-Singapore business forum a couple of years back. The country, he said, is looking for "productive", not "extractive" investments. I believe this applies for all of Africa.
In the final analysis, risk and reward are just two sides of the same coin - with a significant upside for the company that gets its strategy and planning right. Africa Rising is never going to be a simple upward journey. The opportunity is vast but, for some, understandably daunting. It demands due diligence, strategic planning and responsible growth. All it takes is some re-imagination.
About the author
The writer is managing director, Africa & Middle East, Olam International. He is also a member of the Advisory Panel of the NTU-SBF Centre for African Studies.
This commentary was published in The Business Times on 12 September 2018.