How to understand African business today


By chantelharris, 12 February, 2016

The rise of African business isn’t just important to the continent itself but all who have a vested interest in the business world. Many experts have focused their research on how rapidly the African business scene is growing.

This is particularly the case for the African consumer-facing industries, which McKinsey says “are expected to grow by $400 billion by 2020, representing the continent’s largest business opportunity.” Incredibly, the variety of industries finding a foothold in the African market is what seems to be driving business innovation.

Factors for growth

As VentureBurn notes: “South Africa alone is home to more than 5 000 tech startups.”  What we’re seeing isn’t only the successful outcome of graduating from business schools in Johannesburg or schools in other major business centres. Instead, we’re seeing smart entrepreneurs from all walks of life recognise their situation, skills and how they fit into what their immediate society requires.

McKinsey, in the same report, highlights three important conclusions from their extensive research on consumer-facing industries. The first is that cities are the best places for businesses to take off. They write: “Urban Africa is forecast to contribute nearly 40 percent of GDP growth.” However, some cities might be too competitive. Entrepreneurs trying to find a foothold are sometimes advised to look at smaller cities, as long as they’re cities with a robust centre of business.  

Local focus

Businesses that do well don’t only focus locally but produce locally too. Tailoring products to a specific, local market is guaranteed to be more beneficial. This targeting of the local population is precisely how markets begin. Africans focusing on other Africans leads to an enclosed business system that sustains itself, without needing outside, international input.

Africans entrepreneurs are better suited than anyone to know what the African market needs, in terms of preferences, lifestyles, and viewpoints.     

Another notable aspect to African business has been an ongoing concern of affordability. Since African countries tend to be poorer than most other nations, many companies have realised selling their products at international prices won’t work. As the McKinsey report indicates “companies may have to reengineer products to hit a specific price point. The necessary moves may include offering lower-cost versions, smaller sizes, or alternative payment models.”

This is not unique to the African region, but it is more widespread and part of how businesses can succeed.

By understanding these elements, those interested in African business can do better in sustaining themselves in this rapidly growing region.