By Stephen Watson, Executive Director of video on demand solutions provider, Discover Digital
Expanding your business into pan-Africa is a tempting prospect, with a market of nearly a billion consumers and a greenfields environment just waiting to be tapped into in many sectors. But pan-Africa is not the ideal market for every line of business, and there are quirks and realities businesses should be aware of before they rush into new regions across the continent.
It is important to remember that pan-African business environments vary hugely from country to country, and that most are very different from South Africa. Discover Digital, which is now expanding its reach into Africa, has learnt some key lessons on doing business across Africa.
Regulatory environments and tax
Anyone looking at doing business in Africa must research the regulatory and tax frameworks of the territory they are entering. You have to understand whether your service is regulated, if you require licences, and whether you are allowed to provide that service in dollars or whether it has to be provided in a local currency. If you’re billing from offshore, there will be VAT and withholding tax implications. Some businesses face losing up to 20% in withholding tax – a significant figure, especially in a critical mass business where your margins are small and it’s all about scale. You also have to consider how you’re going to repatriate the funds. In Africa this is no small task and in some countries a process that often requires expert consultants. Do your research so you don’t have the wool pulled over your eyes around restrictions and delayed processes. Time frames must be factored into your cash flow expectations.
It is worth taking advice on from experts on the regulatory and tax environment before entering new markets.
Putting down roots
If you’re going to be deploying resources or even technology into pan-African countries, it is important to determine upfront what this will mean from a taxation point of view, since having assets in-country amounts to having a presence in the country and is the first step toward putting down roots there.
Understand the market
Switching on a service in multiple territories and hoping for traction off the back of some generic marketing simply doesn’t work. It is important to go there, take time to understand the key attributes of each market and how your services will work in that space. For example, while monthly subscriptions work well in South Africa, consumers in many pan-African markets prefer to pay in cash daily. Before launching into a market, you have to understand how consumers think in each market, how they pay, how they transact, where they keep their money, and how and where they buy. Having a local partner is important in understanding and marketing to consumers in-country.
Travel and logistics
Doing business across Africa demands regular travel to target markets. Some countries are challenging to travel to – with onerous visa requirements and even possible risk to staff. We exercise what we consider ‘corporate chivalry’ by making sure top management has travelled to a new country before sending any employees there. It’s important to stay on top of developments in every country and ensure that no employee is put at risk by travelling there for the company.
The logistics of sending hardware and products into Africa raises significant challenges. Businesses will find that they have to build additional time into project plans to allow for potential delays at borders. If your truck loaded with crucial gear is pulled off for inspection at a border post, your driver could be delayed for days. It is important to work with experienced logistics partners who expect this, and build additional time for such delays into your project plans.
In many regions, the additional time, energy and red tape involved make doing business across Africa highly challenging. But for those prepared to take the pain, there is a significant market across the continent.