Opportunity For Mid-Sized Companies

Expanding into African markets provides opportunities for growth and diversification for export-oriented firms...

Multinational corporations are often the frontrunners in emerging African markets. They have extensive experience and often higher risk appetites, substantial teams, and seemingly endless resources. Beyond the oil and gas sector, several large US corporations have been in Africa for decades. It is no surprise that Coca-Cola, the world’s largest soft drink brand, has been operating in Africa since the 1930s and, in more recent years, companies like Microsoft and Walmart have been growing their presence across the continent. But in today’s globalized economy, expansion into emerging markets is not the sole domain of the largest global players.

Rapid growth is occurring in many African countries across a range of sectors, generating opportunities for mid-sized companies as well. The time to access this large and growing market is now, while there is significant latent demand, limited competition.

Though international suppliers have a large overall market with good opportunities for growth and investment, strategically minded firms must always consider how the business environment is evolving and where future growth will come from. In spite of the risks, tapping into international markets can provide new revenue streams that support long-term growth and geographic diversification, which can mitigate the impact of adverse events in one market.

The market in Africa is growing, diversifying, and can support a broad range of market participants. African countries offer opportunities to access a group of markets in burgeoning economies with expanding middle classes. The populations in these countries have diverse and increasing needs. Most countries are developing industries beyond the extractive sectors, ranging from basic consumer goods, manufacturing, and transportation to financial services, telecommunications, and biotechnology.

As African markets continue to diversify and increased capital comes in from multiple channels, a broader range of industries will present new options for investment and expansion. Middle-market companies can leverage their significant expertise and experience in their industry segments to become preferred providers, partners, or investors. In some markets or sectors, a company may be the only business making an investment or supplying a particular product or service.

In others, foreign companies may have advantages in quality and innovation over other competitors or local firms. Getting into a market early also gives a company a significant advantage in tapping the best partners and negotiating exclusive contracts.

Incentive programs to assist companies expanding to Africa won’t last forever. Another advantage of moving early into these markets is that individual African countries are vying with each other for investment and trade. Tailored incentives like lower taxes for export-oriented manufacturing or other strategic sectors; deductions from taxable income for investment in training, research, or product development; and free repatriation of capital and profits are attracting significant foreign interest. Through various agencies, the US government also has a range of programs to assist companies looking to expand abroad and has recently begun programs to promote investment and trade with African countries, including risk-sharing programs.

Recently, ministers from Chad, Mozambique, Uganda, and Djibouti called for an increase in private investment and encouraged legislation to facilitate private sector development. The ministers appealed to domestic and international private investors to partner with their governments and highlighted initiatives for economic diversification and regional integration. Ahmed Osman Ali, governor of the Central Bank of Djibouti, described the country’s strategy to attract investment, “We try to facilitate FDI, working on legislation, on guarantees, and on transparency, and this work that we have been doing for several years is bearing fruit because we are having investments in telecommunication, transportation, construction of harbors, and in the management of our ports.”