Challenges and advantages of doing business in Africa

Some of the world’s fastest-growing economies and consumer markets are found in Africa, and in recent years, household consumption on the continent has surpassed the average GDP growth rate worldwide. 

Africa’s developing economies provide exciting prospects for development in a variety of industries, given the continent’s rising levels of prosperity, population growth, urbanization, and the quick spread of mobile phone and Internet connectivity. Doing business in Africa may be difficult, however, due to the continent’s distinct business environment, which can provide difficulties that are almost exclusive to the continent. 

In this article, I will discuss both the challenges and opportunities of doing business in Africa.

Challenges of doing business in Africa

Businesses must develop innovative business models and strong, target-market-specific strategies to take advantage of Africa’s substantial economic prospects. Businesses need to understand the possible problems and obstacles so that they can include them in their company plans. The problems that can be encountered while doing business in Africa will differ among the 54 nations that make up the continent.

However, certain problems are common among African nations and serve as a major obstacle to doing business in Africa. Some of them include:  

1. Poverty 

The typical African consumer’s buying power is still relatively low, with an average GDP per capita of $2,392.9 in 2024. This is far lower than the global average GDP per capita of $13,138.

This severely limits the amount of profit a business can make. Businesses will have to devote more resources to marketing to reach a limited number of customers who can afford their goods.

The lack of market data, knowledge, and technological tools to help businesses find and comprehend their African clientele makes this issue worse. Companies must spend more money to get the data and market insights they need to better service their customer base in order to overcome these obstacles.

2. Locating competent workers

In Africa’s labor market, there is still a significant skills gap. Finding qualified personnel is a significant obstacle for businesses aiming to expand, despite the continent’s enormous youth population.

There are clear flaws in the higher education institutions that do not match skills with the labor market, as well as a mismatch in training and education programs in many African nations. Budgets for education are not prioritized, and schools sometimes prioritize theoretical knowledge over practical skills, which is not a good fit in the workplace. Because of this, Africa has a youthful, highly educated, and motivated populace that, with the correct instruction and direction, can excel at any work or profession that is given to them.

Numerous prosperous African businesses have realized that they may get a competitive edge by concentrating on satisfying the labor and skill needs of their respective industries and sectors by providing their staff with on-the-job training and assistance.

By creating initiatives to transfer information and expertise across generations, some companies are also actively working to modify and enhance their current internal knowledge base. One strategy for smaller African firms would be to help and encourage employees to acquire skills that the company anticipates to be in high demand in the near future. 

3. Electricity 

Another significant obstacle for companies in Africa is the lack of access to uninterrupted power. The quality of living, public service delivery, and contemporary economic activity are all hampered by this irregular availability of power.

There are notable regional and national differences in access to electricity within Africa, and the continent as a whole lags well behind the rest of the globe in this regard. The average electricity availability rate in Africa is now 43%, which is half of the worldwide average of 87%.

Businesses that sometimes need to create self-sufficient solutions to remain open may find that their operating costs are greatly increased by an inadequate supply of power.

4. Supply chain difficulties

It might be difficult to move about in Africa. One of the main causes of supply chain disruptions for businesses is inadequate infrastructure and the many difficulties associated with international relocation.

In an area where in-person encounters are valued for establishing confidence, it might be difficult not only to get items to the final consumer effectively but also for individuals to meet up to execute commercial transactions and negotiations.

5. Government regulations 

Because of the continent’s constantly shifting and difficult regulatory environment, African nations account for 62.5% of the bottom quartile of the World Bank’s Ease of Doing Business Index. Starting a company, enforcing contracts, registering new property, obtaining regulatory permissions, and safeguarding investors may be very difficult across the continent. Even though African nations have made great strides in facilitating economic transactions, more can be done to increase Africa’s competitiveness in the world market.

Advantages of doing business in Africa

Africa’s potential as a corporate growth market is still undervalued and misunderstood. There are several opportunities in Africa for business; entrepreneurs just need to know how to utilize them to their advantage. Instead of focusing on the many challenges of doing business in Africa, let’s shift our focus on the many great opportunities unique to the continent. 

1. Rapidly growing population

By 2030, Africa’s present population of around 1.2 billion is expected to grow to 1.7 billion. Africa is the world’s fastest-urbanizing continent, with over 80 percent of its population increase expected to take place in urban areas over the next decades. Simultaneously, earnings are increasing throughout a large portion of the continent, creating new consumer market business prospects.

Businesses looking to invest in Africa will find the continent’s youthful and expanding labor force ideal. Africa is the continent with the greatest rate of population increase, and it will be the only area experiencing population growth by the turn of the century. 

It is also the youngest continent, with over 60% of its inhabitants under 25. Some workers need and seek employment. In contrast to other regions of the globe, Africa is an employer market rather than a candidate market, which means that businesses will face less competition when finding employees.  

2. Industrialization of the continent

Manufacturers in Africa are increasing the output of everything from cars to processed foods, sparking an industrial revolution. Manufacturing is expected to account for three-quarters of the development to fulfill growing local demand and replace imports. 

As businesses move from China to less expensive locations, there is also a significant chance to increase manufacturing exports and establish Africa as the next major manufacturing hub. 

3. Africa is working to bridge the infrastructural gap

One of the main obstacles to investment and development in Africa is inadequate infrastructure. Nearly 600 million Africans, for instance, do not have access to electricity. Significant progress has been achieved, but Africa’s infrastructure still trails behind that of other emerging nations. 

However, since the turn of the century, the continent has quadrupled its annual infrastructure expenditure to almost $80 billion. Investors and creative businesses have a great chance to contribute to the resolution of Africa’s infrastructure problems. This will greatly reduce the obstacles entrepreneurs face while conducting business in Africa. 

4. Abundant natural and agricultural resources

Africa has long been recognized for its wealth of mineral and agricultural resources. However, Africa has so far had difficulty converting these riches into shared prosperity and long-term economic growth.

That image may be altered by new investments and technologies, which would also open up tremendous corporate development prospects. For instance, the newly opened Dangote Refinery means that Oil and Gas can be refined in the continent without the need to involve other developed nations outside the country. 

5. Rapid urbanization and digitalization

Between 2008 and 2015, Africa witnessed the fastest pace of new broadband connections worldwide, and between 2017 and 2022, mobile data traffic in Africa is predicted to climb sevenfold. More than 120 million mobile money accounts are active in Africa, accounting for more than half of all accounts worldwide. 

Rapid digitalization has opened up opportunities in the Fintech industry in Africa and has made access to information much easier on the continent.

6. High Return On Foreign Direct Investment

Africa has the best return on foreign direct investment (FDI) worldwide, according to the Overseas Private Investment Corporation (OPIC). The UN Conference on Trade and Development reports that between 2006 and 2011, Africa’s return on foreign investment was 11.4%, which is far higher than the global average of 7.1%. 

Egypt, the Republic of the Congo, and South Africa were the top three African recipients of foreign direct investment in 2020. With 54 African nations joining, the African Continental Free Trade Area became the biggest free-trade area in the world on January 1, 2021. In essence, this agreement unifies marketplaces, making it easier for foreign companies to access previously unreachable areas.  

Conclusion

Despite all the challenges that may be faced while doing business in Africa, it is a continent full of opportunities. Africa, which has the world’s fastest-growing population and urbanization, might be a fortunate location for firms looking to invest. 

In Africa, doing business is not like conducting business anyplace else. If you tackle the matter from an American or European point of view, you are unlikely to succeed. If you can adjust and have a patient approach, there are great opportunities you can benefit from.