Businessmen go to Africa with hopes of profitable investment opportunities, but often they forget the level of diversity present among African countries. “You can’t treat Africa as one single market. So choosing where to play and where you will get the best return is the critical question,” said Michael Wood, the co-founder and director of consulting firm Aperio.
Many companies target the continent’s biggest economies, such as Nigeria, South Africa and Kenya; because they think these markets have mature economic structures. However, Wood suggests that companies new to the African market should first enter a smaller country. A small market usually provides investors with a lower risk of failure, less competition, and more approachable customers.
Large markets are normally more complex and the cost of failure is often higher than smaller markets. In the smaller markets, the businesses often focus on a single economic resource. For instance, more than 80% of African countries live on agriculture and a majority of farms operate at a smaller scale. Starting a business in small scale farming requires less capital investment with the a relatively large profit opportunity as African farms export agricultural products to other countries all around the world.
Additionally, small markets have less competition in real estate than larger markets. According to Business Daily, latest market data reveals that there has been a significant increase in new housing developments in Kisumu, Mombasa, Naivasha and Nakuru, which are mid-tier cities in Africa. Investors can acquire real-estate at a lower cost in these markets. The most important issue for foreign investors to consider in Africa is consumer preferences. Without considering these cultural differences, investors will have difficulty targeting their products to the right market. In terms of brand and marketing strategy, Wood showed that consumer tastes should be the driving force in decisions by investors. Small markets grant access to the customs and traditions of local consumers so that companies know how to tailor their products according to the locals’ buying behaviors.
According to Wood, most of the growth in the next 20 years in Africa will come from smaller countries. Foreign investors should consider high-profile small countries when they start businesses in Africa. I think a good business strategy for people investing in Africa is to first start in smaller countries, learn how to operate within the African environment, and then expand your operations into the larger markets.