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Thriving Sub-Saharan Africa Report

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Using present facts and information, combined with future insights, signals and scenarios, this report suggests possible futures and the related implications for Finnish SMEs interested to doing business in Sub-Saharan Africa. This report concentrate on similarities within Sub-Saharan Africa that are critical for Finnish SMEs that are considering venturing into Sub-Saharan Africa.

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Thriving Sub-Saharan Africa Report

  1. 1. Thriving Sub-Saharan Africa?
  2. 2. Contact information dfasdf Amatka (Pty) Ltd Unit 608, 6th Floor 76 Regent Road (The Point Centre) Sea Point 8060 Cape Town, South Africa www.amatka.com info@amatka.com +27 (0)79 618 6570 Amatka – Insight Africa Services Amatka (Pty) Ltd is a South African company founded and owned by Finnish entrepreneurs based in Cape Town. Amatka provides knowledge and views of business opportunities in Africa with focus on Southern and Eastern Africa. Insight Africa also supports networking in these countries. Tekes – the Finnish Funding Agency for Innovation Tekes is the main public funding organisation for research, development and innovation in Finland. Tekes funds wide-ranging innovation activities in research communities, industry and service sectors and especially promotes cooperative and risk-intensive projects. Tekes’ current strategy puts strong emphasis on growth seeking SMEs.
  3. 3. Contents Introduction...........................................................................................................2 Background .......................................................................................................2 Purpose.............................................................................................................2 Recommended Use and Liability Disclaimer ......................................................2 Overview...............................................................................................................3 Context..............................................................................................................3 Key Indicators....................................................................................................3 Economic Communities .....................................................................................7 Political Economic Climate: Business Point of View...............................................7 Trade and Investment........................................................................................7 Growth: Drivers and Challenges ........................................................................8 Key Sectors of Potential Growth ......................................................................10 Innovation Ecosystems .......................................................................................12 Innovation Hubs...............................................................................................12 Research.........................................................................................................13 Private Companies ..........................................................................................14 Sectors in Focus .................................................................................................15 Energy and Environment .................................................................................15 Healthcare and Wellbeing................................................................................16 Education ........................................................................................................16 ICT, Digitalisation and Mobile Solutions ...........................................................17 Entering the Market.............................................................................................19 Future.................................................................................................................20 SWOT – Sub-Saharan Africa...........................................................................20 Four Scenarios for Future Africa ......................................................................21 SWOT – Finnish Companies in Sub-Saharan Africa.........................................22 Information Sources............................................................................................23
  4. 4. 2 Introduction Background This report provides, in a nutshell, facts about Sub-Saharan Africa and insights into future business opportunities. The report is based on relevant statistics, recent articles and publications, and expert views. The report has been prepared by an international team coordinated by Amatka (Pty) Ltd, a private company owned by Finnish entrepreneurs, based in Cape Town, South Africa. The report is part of Team Finland’s Future Watch Program in Africa, called “Strategic Partners for Innovation Actives Africa Services”, and is coordinated by Tekes, the Finnish Funding Agency for Innovation. The focus of the process is on the four most promising (defined by size, growth and ease of doing business) Sub-Saharan African countries: Kenya, Nigeria, South Africa and Tanzania. Sectors in focus are: ICT, mobile & digitalization, education, health & wellbeing, energy & environment. Elements of Strategic Partners for Innovation Activities Africa Services are: Continent Report Sub-Saharan Africa, Country Reports (Kenya, Nigeria, South Africa, Tanzania), Alerts: arising signals for the future, Updates: frequent summaries of alerts and Contact Database. Purpose The reports, and this service, focuses on issues, facts, signals and insights that are likely to play a role in doing business in, for example, Kenya’s medium term future (2- 5 years). This report DOES NOT provide sales leads or provide a picture of how to establish operations in Africa or any of the countries. Using present facts and information, combined with future insights, signals, and scenarios, the report suggests possible futures and the related implications for Finnish SMEs interested in doing business in sub-Saharan Africa. This report concentrates on similarities within Sub-Saharan Africa that are critical for Finnish SMEs that are considering venturing into Sub-Saharan Africa. Recommended Use and Liability Disclaimer This report is recommended reading before country specific reports. Additionally, it is strongly recommended that the readers always check the latest information; situations in Africa can change overnight. Amatka has made every attempt to ensure the accuracy and reliability of the information provided in this report. However, the information is provided "as is" without warranty of any kind. Amatka does not accept any responsibility or liability for the accuracy, content, completeness, or reliability of the information contained in this report. No warranties, promises and/or representations of any kind, expressed or implied, are given as to the nature, standard, accuracy or otherwise of the information provided in this report nor to the suitability or otherwise of the information to any particular circumstances. Amatka shall not be liable for any loss or damage of whatever nature (direct, indirect, consequential, or other), which may arise as a result the use of this report, or from use of the information in this report.
  5. 5. 3 Overview Context Africa is a vast continent containing 54 countries, of which 48 exist in in Sub-Saharan Africa. Within these countries, the markets can vary considerably and require country specific strategies. At the same time, there are similarities among the countries that are critical to understand and should inform early and continuing business decisions. This report concentrates on those similarities. Still, Sub-Saharan Africa has great diversity among its 48 countries, with a mix of low-income, lower-middle-income, and upper-middle income countries, and several fragile states. Africa is the most heterogeneous continent in the world – linguistically, culturally, and ethnically. There is no “one” African culture or society, as it exists in many people’s mind. Africa is vast, comprised of 54 independent nations. It has more than one billion people, and over 3,000 ethnic groups speaking more than 1,000 indigenous languages – in addition to the six European languages (French, English, Portuguese, German, Spanish, and Italian). Most economic activity in Sub-Saharan Africa still happens in the informal sector, which accounts for more than 50% of GDP and employs more than 80% of the population. As consumer purchasing power increases there is increased spending, particularly on consumer goods. Key Indicators This section provides some key indicators of Sub-Saharan Africa. First, Sub- Saharan’s population size, GDP and size of middle class are presented. Figure 1. Sub-Saharan Africa: Key Indicators
  6. 6. 4 Figures 2-5 illustrate selected key indicators (sources: IMF World Economic Outlook 2015) for all focus countries (Kenya, Nigeria, South Africa and Tanzania), compared with those of Finland’s. Figure 2. Population 2014 and 2020 (source: UN World Population Prospects, Medium Variant) Figure 3. GDP Indicators (IMF World Economic Outlook, April 2015) Growing middle class is one of the factors behind economic growth. However, there are many definitions for middle class and consequently size of Sub-Saharan middle class varies from 1-2% of the population (households with income more than $20,000 per annum) to almost 40% (individual income more than $2 per day). Therefore, one
  7. 7. 5 should be cautious when drawing conclusions based on growth of the African middle class and in any case meaning of African middle class is definitely not the same as in Finland. Figure 4 illustrates number of middle class households (household income $5,000+ p.a.) in all the focus countries (and Finland) in 2014 and 2030. Figure 4. Size of Middle Class (source: Standard Bank 2014, Statistics Finland 2015) Africa is one of the fastest developing regions in the world. Six of the world's ten fastest-growing economies over the previous decade were situated below the Sahara Desert, with the remaining four in East and Central Asia. Between 2011 and 2015, the economic growth rate of the average African nation is expected to surpass that of the average nation in Asia. At $1.3 trillion in 2013, its GDP share was 2.6% of world GDP (while Finland was at 0.4%), which was approximately the same as that for France. The World Bank stated that net foreign direct investment to Sub-Saharan Africa grew by 16% to a near-record $43 billion in 2013, boosted by new oil and gas deposits in some countries. Foreign direct investments fell in 2014, reflecting slower growth in emerging markets and declining commodity prices. However, a 2015 World Bank report stated that Sub-Saharan Africa’s growth is projected to slow down in 2015 to below the 4.4% annual average growth rate of the past two decades. Slower expansion of economic activity largely reflects the fall in oil prices, and other commodities, on the region’s economies, even though net oil importers would see gains. Commodity prices and foreign investment are expected to provide less economic support; subdued demand and economic activity in emerging markets will weigh on the region’s growth as well. The diversity in growth patterns matches the diversity of the continent’s countries. Prospects of oil exporters, such as Nigeria and Angola, are being negatively affected by weaker global prices. Although continued expansion of non-oil sectors, particularly
  8. 8. 6 services, in Nigeria is expected to lift growth in 2016 and beyond. Among frontier market countries, growth is expected to increase in Kenya. South Africa is expected to register slow but steady growth, helped in part by gradually increasing net exports, and reforms to alleviate bottlenecks in the energy sector. Growth will remain strong in most low-income countries, owing to infrastructure investment and agriculture expansion, although lower commodity prices will dampen activity in countries that export metals and other key commodities. However, extreme poverty remains high across the region. Fiscal deficits for the region narrowed as several countries took measures in 2014 to control their spending. At the same time, however, the fiscal position deteriorated in many countries. The cause in certain countries (e.g. Kenya and Mozambique) was the result of rising wages. In others (e.g. Mali, Niger, and Uganda), it was due to higher spending on public investment. Elsewhere, higher deficits reflected declining revenues, notably among oil-exporting countries which suffered lower production and oil prices (e.g. Angola). The region’s debt ratio remained moderate thanks to robust growth and concessional interest rates. However, in a few countries, debt increased significantly in 2014, especially in Ghana, Niger, Mozambique and Senegal. The risks to the region’s outlook stem from both domestic and external factors. The Ebola outbreak in West Africa is slowing, but fears remain that it could spread more widely than assumed in the baseline, denting confidence and causing severe disruptions to cross-border trade and supply chains in the region. In various countries, government budgets are under increased pressure from urgent demands for increased spending. Conflicts in South Sudan and Central Africa Republic, and security concerns in northern Nigeria, northern Cameroon, southern Niger and Kenya could deteriorate further with harmful regional spill overs.
  9. 9. 7 Political Economic Climate: Business Point of View Economic Communities The map below shows the various economic communities within Sub-Saharan Africa. While others exist, the main regional economic communities depicted on this map include: COMESA, EAC, ECCAS, ECOWAS, and SADC. Southern African countries also established SACU, a customs union. In 2008, with the intent of building "One Africa", the African Free Trade Zone / Free Trade Area (AFTZ/FTA) was established. However the effects of this free trade zone remain to be seen. Figure 5. Active Regional Economic Communities (Source: Wikipedia) The three most prominent economic communities that are likely influence the future of business in Africa are:  EAC - East African Community (est. 2000)  ECOWAS - Economic Community of West African States (est. 1975)  SADC - Southern African Development Community (est. 1992) Trade and Investment In 2009, China surpassed the US as Africa's largest trading partner. By 2012, China's trade with Sub-Saharan Africa reached $199 billion while US-African trade in 2012 was $100 billion.
  10. 10. 8 Between 2005 and 2013, Africa's merchandise exports have proportionally increased to Asia and other African countries while they declined to Europe and North America. Figure 6 shows these shifts. Figure 6. Africa's Merchandise Partners (source: WTO, International Trade Statistics 2014) According to the World Trade Organisation (WTO), the value of Africa's merchandise exports in 2013 was $602 billion of which fuels were 57%. Percentage share of African merchandise exports in the total world exports in 2013 was 3.2% and share of imports 3.4%. The total value of African merchandise imports in 2013 was $629 billion. In comparison, Statistics Finland reports that Finland's exports to Africa in 2014 was €1.4 billion (2.5% of Finland's total exports) and imports from Africa €0.8 billion (1.4%). Finland's share of Africa's exports is about 0.1%. With regards to foreign investment, the US, UK and France still lead the foray. In 2012 their combined investment held the biggest share of Africa investments totalling $178 billion. The so-called BRICS (Brazil, Russia, India, China and South Africa) collectively held investments valued at $68 billion, of which $28 billion were Chinese. Growth: Drivers and Challenges Africa's rapid urbanization and burgeoning middle class could generate hundreds of millions of consumers. For example, the rising African middle class is attracting investors in the retail sector. This can be seen in how French Carrefour and American Walmart have expanded their operations to Africa. Sub-Sahara Africa has "democratized" to some extent, and violence and armed conflicts have decreased in spite of a few hot spots.
  11. 11. 9 Figure 7. Key Growth Drivers and Challenges Investment in resources and infrastructure are widely seen as factors that will help Sub-Saharan Africa stay on a remarkable growth course. But, political uncertainties could destabilize those economies. Also domestic risks associated with social and political unrest form a major threat to economic prosperity in the region. Other challenges include bureaucratic red tape, infrastructure issues like poor roads and unstable power supplies, a low availability of skilled and suitably trained staff, cultural differences, language barriers and corruption. These problems, although not insurmountable, add to the cost and effort needed to do business. Contextual considerations affect business in Sub-Saharan Africa. These include widespread poverty, inadequate educational attainment, major health challenges, deepening socio-economic inequalities, conflicts over limited resources and border disputes, the rise of 'African Taliban' in the Horn, Sahel and Maghreb regions as well as an apparent decline in social cohesion. Despite these themes getting wide exposure in international media, African prospects for achieving sustained economic growth are, however, perhaps better than ever. The Ease of Doing Business Index also implies that the majority of the Sub-Saharan countries are among the more difficult countries in the world in which to do business. Of the focus countries, South Africa scored best being 43 rd out of 189 in 2014. Scores of other focus countries in 2014 were: Tanzania 131st , Kenya 136th and Nigeria 170th .
  12. 12. 10 Figure 8. Ease of Doing Business (Source: World Bank, Doing Business 2012) Key Sectors of Potential Growth The following sectors demonstrate Sub Sahara Africa's key areas of potential growth: Banking. Foreign investors are now innovating to focus on urban centres with a high potential for consumer spending. Moreover, portfolio investments in equity markets, domestic bond markets, and Eurobond markets are increasing and private equity firms are increasingly investing in the region. Another industry seeing significant growth is the banking sector, which has grown extensively over the last decade and has become a substantial player in emerging-market banking. Infrastructure. Large infrastructure projects in Africa need foreign partners. Infrastructure spending in Africa is estimated to reach $93 billion per year, and tax revenues and other domestic resources will not be enough to fill the financing gap for infrastructure projects. Information, telecommunication/communications technology and digitalization. This sector's needs remain high in spite of the rapid growth in mobile phones and mobile banking. Major companies, including Facebook, Google, Microsoft, Huawei and GE, are betting on the continent and investing in research and development. Agriculture. One still largely untapped area is agriculture for major investment. This is Africa's largest economic sector representing 15% of the continent's total GDP and more than $100 billion per year. It is estimated that more than 60% of the globe's available and vacant land is situated in Sub-Saharan Africa. The continent needs an economic transformation that taps into Africa's other riches: its fertile land, its extensive fisheries and forests, and the energy and its people. Agriculture will likely be at the heart of economic transformation. Diversification in manufacturing. In order to find a sustainable growth path, Africa needs economic diversification, especially with manufacturing companies (or other industries requiring relatively low level of skills) to ensure the critical growth of middle class.
  13. 13. 11 Business-to-consumer. Retail. The continent as a whole has suffered from undeveloped traditional forms of retail (physical). New shopping malls are mushrooming all over African megacities. E-commerce (bolstered by financial inclusion) can replace traditional retail shops, offering a new shopping experience in terms of choice, quality and cost.
  14. 14. 12 Innovation Ecosystems Innovation ecosystems are relevant for Finnish companies as at their best these ecosystems provide vital networks, potential co-operation partners as well as insight into local market dynamics. Often these key stakeholders and influencers in the ecosystems are also important entry points to new markets. In general, the African innovation ecosystems differ compared to European counterparts, such as the larger role played by individuals and mentors as well as that of international donors. This section illustrates what potential role different types of organisations and institutions play in the larger innovation environment. Figure 9. Framework: Innovation Ecosystem in Sub-Saharan Africa Innovation Hubs The creation of technology hubs is increasingly becoming a popular policy goal in Sub-Saharan African countries. Start-up and tech hub hype and innovation clusters often are seen as giving rise to increased employment, income, and tax revenues. Sub-Saharan economies looking to diversify from natural resource exports and take advantage of the continent's mobile revolution are, for better or worse, looking to innovation/technology hubs as the solution. Kenya has already broken ground on the continent's most ambitious tech hub- building effort: an entirely-new $10-15 billion Konza city just south of the capital which is already attracting attention from tech giants such as Microsoft and Apple. Nairobi itself may have by now earned its moniker of "Silicon Savannah." A less supportive policy environment exists in Nigeria, but is made up for with massive market size, low mobile penetration, and perhaps a more entrepreneurial-minded culture. Indeed, in
  15. 15. 13 spite of slow internet speeds and frequent power outages, a lively start-up scene has developed in Lagos. These two examples, however, have been largely software-focused. There have been very few home-grown hardware successes. Manufacturing the "silicon" in Silicon Valley seems to be much more difficult. Initial investments and red tape (reinforced by tariffs) result in larger barriers to entry for firms, which mean that the higher gains in employment and agglomeration that come with value-added production have not been realized. Research There are a number of private and public research institutions across the continent. Of the TOP 20 Universities 12 are located in South Africa. Figure 10. Figure 10. TOP 20 Sub-Saharan Universities (source: Webometrics Ranking of World Universities)
  16. 16. 14 Private Companies Global giants are increasing their involvement in Africa: Apple is considering building a bigger operation in South Africa, Uber is spreading its tentacles, and the likes of Facebook and Google are making a play for Africa's unconnected. Increasingly, however, major players are turning to the continent's start-ups in a bid to offer support and ensure access for themselves to the next wave of innovative products to spring from the continent. Mobile operators such as Millicom, Safaricom, Airtel, Vodacom and Orange are making investments in African start-ups, and Samsung has gone one step deeper by pledging to get involved in start-ups' planning and development. Of the private companies in Sub-Saharan Africa, South African companies hold 17 of the first 20 places. A vast majority of Sub-Saharan largest (in terms of market value) companies operate in one of the following sectors:  Finance and insurance  Mining  Telecom In terms of innovative new companies Sub-Saharan Africa isn't an empty canvas. Figure 11 illustrates "The Top 10 Most Innovative Companies of 2015 in Africa" according to Fast Company. Figure 11. The 10 Most Innovative Companies of 2015 in Africa (source: Fast Company)
  17. 17. 15 Sectors in Focus Energy and Environment It is estimated that one in three Africans has no access to electricity. Neither do some 10 million SMEs. Those homes and businesses fortunate enough to have power pay three times as much as those in the US and Europe. Routine power outages cost countries from one to four percent in lost GDP every year. Sub-Saharan Africa has some of the world's largest hydropower and geothermal resources, bountiful solar and wind resources, as well as significant natural gas reserves. However, total power generation capacity in Africa is about 80,000 MW (including South Africa's 40,000 MW), roughly the same as that of Spain or South Korea. Strikingly, Sub-Saharan Africa is using just eight percent of it hydropower potential. As Africa's GDP grows, the continent needs more electric power. Specifically, Africa needs to add 7,000 MW of generation capacity each year to meet the projected growth in demand, yet it has achieved only 1,000 MW of additional power generation annually. "A better functioning energy sector is vital to ensuring that the citizens of sub- Saharan Africa can fulfil their aspirations," said IEA Executive Director Maria van der Hoeven. "The energy sector is acting as a brake on development, but this can be overcome and the benefits of success are huge." (IAEA) It is estimated the continent needs $288bn of investment in energy to fuel development. The US, EU, and China are investing heavily in Sub-Saharan Africa's energy sector, raising hopes and sometimes concerns. China has promised over $20 billion in infrastructure, farming and business loans. EU member states have pledged to provide energy access for 500 million people by 2030. In June 2013, US President Barack Obama unveiled "Power Africa", a largely private sector effort to increase generation capacity, improve access for 20 million new households, and give $7 billion in energy financing over five years. Considrations for Finnish companies:  Businesses have to consider building their own power plants.  Middle and upper class people are interested in secure energy solutions independent from parastatals.  Having reliable and affordable energy is more important than nature of energy (i.e. "green" isn't really a sales argument).  Selling to governments requires understanding local hierarchies and ways of doing business (i.e. often including what one can interpret as corruption) - local partners are a must.  "Ecological" isn't really a sales argument, either (e.g. in South Africa poor people take compost toilets as an offence since only flush toilets are considered "proper") .  Environmental innovations have huge potential if they can deliver visible advantages in terms of economic and social development.
  18. 18. 16 Healthcare and Wellbeing Healthcare outcomes in Africa and associated investment opportunities have improved drastically over the past decade. HIV and child mortality rates are falling, government health expenditures are rising, and new healthcare delivery models are bridging the gap between urban and rural quality of care. The private sector and investor community have taken notice of these trends and are increasing their presence in the healthcare sector on the continent. There are now multiple health-focused private equity funds investing between $70-100 million solely in Africa. Reports issued by consultancies such as McKinsey expect the Sub-Saharan African healthcare market to grow to $35 billion by 2016. This means that there will be a number of opportunities for investors across the healthcare landscape who understand what types of solutions can be most effectively employed to address the current challenges on the continent. Considerations for Finnish companies:  Population is aging even in Africa.  Increasing demand for simple online healthcare solutions (private sector).  Limited market for well-being solutions (mainly western expats, some local upper middle class) with the exemption of South Africa.  Private sector will play bigger role also in the future in organising healthcare services. Education Education and skills development are the biggest challenges facing Africa in 2015, followed by building sustainable governance systems and the delivery of hard infrastructure. While UNESCO predicts that Africa will soon be home to 50% of the world's illiterate population, Maria Ramos, Chief Executive of Barclays Africa Group, points to the focus of governments and businesses on creating real improvements through training programmes and scholarships. Africa's rapid increase in mobile phone users indicates that technology will play a fundamental role. Sub-Saharan Africa is home to 43% of the world's out-of-school children, levels of learning achievement are very low, gender disparities are still large, and the learning needs of young children, adolescents and adults continue to suffer from widespread neglect. After much progress in increasing government investment in education, the financial crisis has reduced education spending in some countries and jeopardized the growth of education trends in others. However, in most Sub-Saharan countries effective and affordable literacy policies and programmes exist. Participation in tertiary education is modest. In an increasingly knowledge-based global economy, higher education systems play a vital role in skills development. In Sub-Saharan Africa, 4.5 million students were enrolled in tertiary education in 2008, twice the number in 1999. However, the region's tertiary GER remained very low at 6%, far below the world average of 26%. And the gap between Sub-Saharan Africa and other regions in terms of tertiary enrolment has widened. Considerations for Finnish companies:
  19. 19. 17  Increasing demand for affordable private schools as quality of public schools is in many countries extremely poor.  Business opportunities in infrastructure, knowledge transfer and technology (e.g. e-learning solutions). Adjustment to local cultures us required.  Plenty of local and international players competing/operating in this field. ICT, Digitalisation and Mobile Solutions According to McKinsey & Co "Lions Go Digital" report (November 2013) Africa "going digital" is as complex as it is exciting. The emergence of a growing African middle class in the cities, is arguably a pivotal phenomenon in the shift towards the embracing of the digital technology. In 2013 internet penetration within the continent stood at 16%, by 2025 this is expected to have risen to 50%. This increase in access translates into a rise in internet users from 167 million in 2013 to an estimated 600 million. To put that into perspective, the online consumer market will roughly quadruple in size over the next 12 years. In some African countries, digital growth will be driven almost exclusively, in the short term at least, by private consumption, whilst in others the main catalyst will be Business Process Operations (BPO's). The key drivers of the digital technology transition in Africa are:  Africa is the world's most youthful continent with 200 million people aged between 15-25. These demographic data are widely recognized as correlating with early adopters of technology.  It is expected that within a decade, incomes for 128 million households will exceed $5,000. It is at that point that households begin to spend half of their income on items other than food - i.e., the beginning of disposable income.  There is the entrepreneurial culture. This has emerged as a driving force for innovation and also fuels economic development. Thus, the expansion of the Internet has become a launch pad for entrepreneurs and their new innovations.  E-government market starting to evolve from planning to execution. Effects of digitalization will no doubt be profound with particular benefits to be felt in many sectors such as: Finance. The growing penetration of Internet & technology will have an unprecedented effect on financial inclusion, given that in sub-Saharan Africa three quarters of the adult population are without bank accounts. Digitalization will apply a downward pressure on transaction costs, encouraging micro trades and stimulating growth. If forecasts are realized and technological advances continue at the current trend, by 2025, 60 % of Africans could have access to banking services and more than 90% could be using e-wallets for daily transactions. Financial inclusion will be a driving force behind economic development and could facilitate a boom in e- commerce on the continent.
  20. 20. 18 Education. Digitalization will make education more accessible by removing physical barriers (such as distance). Digital tools will also empower users to take charge of their own educational needs, thereby delivering instant access to educational resources, enhancement of teacher training and enhanced learning outcomes. Health. The sheer size of the continent and nations within it have often been cited as hindering effective delivery of health services. With only 1.1 doctors per 1000 patients and 2.7 nurses per 1000 patients, (aggregate across the continent) health provision is an immense problem. It is envisaged that technology will allow users to interact with healthcare service providers online, so that centralized services become more efficient and effective in their delivery. Retail. The continent as a whole has suffered from undeveloped traditional forms of retail (physical). E-commerce (bolstered by financial inclusion) can replace traditional retail shops, offering a new shopping experience in terms of choice, quality and cost. Agriculture. Digital tools will provide this industry with the necessary data to drive growth, efficiencies and economies of scale. The Internet will provide access to data on weather, crop selection and pest control and enable users to make informed decisions on land management. Furthermore, it is likely to lead to access to new markets and reduce food prices within the continent. The African Development Bank Group has calculated that growth in the agricultural sector is twice as effective at reducing poverty, than growth in any other sector. Considerations for Finnish companies:  There are plenty of local solutions available. Instead of trying reseller model, partnership model with local partners might be a better option.  Connections are still often very slow.  Internet connections are expensive and often charged by megabyte.  Technology doesn't sell. Simplicity and affordability sells.
  21. 21. 19 Entering the Market Many companies from the developed world are setting their sights on Africa as a new frontier for business. Finnish SME's interest should be growing based on the improved political environments, above-average GDP growth rates and the promise of rich opportunities in a continent where many opportunities still needs to be developed from scratch. However, sub Saharan Africa like any other emerging economy, is a tricky terrain to enter. Figure 12 provides a summary of key thoughts derived from talks with local entrepreneurs and business people from western companies established in the continent. Figure 12. Key Considerations for Entering Sub-Saharan Africa Each area also has its own key entry points. For example, in the tech sector partnering with organizations that have expertise in bringing health innovations to market in frontier economies, focusing on agricultural ventures (agriculture employs 65% of Sub-Sahara African labour force), and serving underserved populations - especially female entrepreneurs, are all potential ways forward. Finally, Finnish SME's should consider additional cultural nuances, such as:  Long term is much shorter than in Finland (3-6 months).  Offering should be simple and at least some results visible in a matter of months.  At the same time local partners expect companies entering the market need to have a long term plan. "Fly-by-night" western companies are a common phenomenon in Africa.  Years of inflow of foreign aid has taught many actors to "play the aid game".
  22. 22. 20 Future SWOT – Sub-Saharan Africa This SWOT matrix provides an investors’ viewpoint of Sub-Saharan Africa. Strengths Weaknesses  Growing middle class: It is expected that within a decade, incomes for 128 million households will exceed $5,000. It is at that point that households begin to spend half of their income on items other than food - i.e., the beginning of disposable income.  Growing, youthful population.  Natural resources from land to hydro power that are still not fully exploited.  Plenty of room in many sectors and markets: versatile group of countries create huge amount of opportunities in many sectors.  Diversification of economies is very low, usually economies are dependent on a few industries.  History of colonialism and more recently bad governance combined with aid dependency have had a negative impact on people’s ability and willingness to take responsibility for their own future.  Lack of good governance, corruption and red tape.  Poor infrastructure from energy to roads.  Poor quality of education, unskilled labour force. Opportunities Threats  Africans - based on their own work and achievements - become role models (i.e. culture of “hard work pays” develops).  China: Chinese firms are able to deliver quickly and work in close coordination with their financial and other national partners. Speed is a big comparative advantage as the continent has large infrastructure needs and policymakers are under pressure to deliver.  Developing a stronger manufacturing sector.  Economic growth continues creating larger middle class with emerging purchasing power.  End of the global commodities super cycle: Over the past decade, the rise in commodity demand and prices has often masked structural issues in many of these nations and delayed much-needed reforms and industry diversification.  Foreign aid driven initiatives are managed to turn into healthy and sound business co-operation that benefit local economies.  “Invest in Africa” boom disappears if there are opportunities yielding higher potential profits at less risk.  Disease outbreaks.  Extremist (terrorist) movements.  Increasing political and social unrest. Negative impact of expansion of social media usage: easy and quick way to mobilize riots.  Infrastructure investments made by China/India have a hefty price: natural resources will be outsourced for very little.  Over-stressed urban environments. About 40% of African people live in urban environments. By 2030, the number will exceed 50% and some cities will swell up to 85% of their current size.
  23. 23. 21 Four Scenarios for Future Africa Figure 13 illustrates four scenarios for Sub-Saharan Africa 2020. These scenarios are based on various available sources of information and market signals. The scenarios have two main components:  Level of economic diversification  Openness of the economy Sub-Saharan Africa is at a crossroad; any of the scenarios, or combinations of the scenarios, could come true. Much depends on local government policies and actions of international players. Figure 13. Scenario framework Each scenario is shortly described in more detail in Figure 14.
  24. 24. 22 Figure 14. Four Scenarios for Africa SWOT – Finnish Companies in Sub-Saharan Africa Below, as a summary, is presented a SWOT matrix for Finnish SMEs planning to do business in Sub-Saharan Africa. Strengths Weaknesses  Has managed to create smart society that nurtures good country perception; healthcare and education systems as examples.  Neutral country of origin.  Persistence and “not give up” attitude that is needed in order to do business with Africans.  Some companies already present (Nokia, Suunto, Polar, Kone)  Technologically advanced solutions in general e.g. digital banking (not so much mobile, though)  B-to-b orientation (Africa’s growth is largely based on public spending or consumer consumption).  Corruption considered a stop sign, not an obstacle.  Lack of flagship companies/brands/products.  Lack of patience that is needed in cultures where time often isn’t money and building trust takes time.  Lack of solutions for private sector (especially consumers).  Negative stereotypes and the misconception that “Africa is a country”.  Poor understanding of the importance of networks/local partners with whom to operate – Finnish straightforward way of doing business isn’t going to work out in Africa.  Solutions are too complex/technology oriented.
  25. 25. 23 Opportunities Threats  Clear focus in go-to-market activities at all levels: 1) country, 2) customers, 3) offering.  Creating good value propositions for local markets that are backed by well- resourced local sales activities.  Developing products for private sector.  Finding a niche with local/existing NGOs.  Focus first on small and down-to-earth solutions that create mutual monetised advantages in short term.  Looking for partnerships with local companies instead of resellers.  Sharing risks and working together with other companies.  Understanding that Africans want to do business and make deals with short term interest in mind – offering needs to serve this purpose.  “Teacher-like” approach.  Lack of courage: Africa is not for sissies.  Lack of understanding about requirements and resources needed (especially marketing, sales and networks).  Lack of understanding the local business: culture becomes a show stopper.  Misinterpreting the market and their business partners: big picture first and details later is preferred.  Missing the boat – in order to success in the future one has to be there now.
  26. 26. 24 Information Sources Publications: African Development Bank: Tracking Africa’s Progress in Figure 2014 African Development Bank, Development Centre of the Organisation for Economic Co- Operation and Development, United Nations Development Programme: African Economic Outlook 2014, Global Value Chains and Africa’s Industrialisation International Energy Agency: Africa Energy Outlook 2014 The Economist: Africa is the horizon 2015, African Business Outlook Survey McKinsey Global Institute: Lions on the move: The progress and potential of African economies 2010 McKinsey & Co: Lions Go Digital 2013 World Bank: World Development Report 2015 World Trade Organization: International Trade Statistics 2014 Internet: http://en.wikipedia.org/wiki/African_Economic_Community http://worldpopulationreview.com (based on UN World Population Prospects) http://www.africaprogresspanel.org/publications/policy-papers/2014-africa-progress- report/?gclid=CPfN6ID-hMUCFYnKtAodRk4AGw http://www.dw.de/sub-saharan-africa-on-solid-growth-course-survey-claims/a-17549181 http://www.fastcompany.com/3041821/most-innovative-companies-2015/the-worlds-top-10- most-innovative-companies-of-2015-in-africa http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/EXTPUBREP/EXTS TATINAFR/0,,contentMDK:21106218~menuPK:3094759~pagePK:64168445~piPK:64168309~ theSitePK:824043,00.html http://www.fin24.com/Entrepreneurs/News/Doing-business-in-sub-Sahara-Africa-20140915 http://www.forbes.com/sites/iese/2014/07/31/doing-business-in-sub-saharan-africa-six- aspects-to-consider http://africanbrains.net/2015/03/17/auc-school-of-business-partners-with-top-five-business- schools-in-africa-to-enhance-entrepreneurship/ http://www.gemconsortium.org/National-Teams http://www.howwemadeitinafrica.com/uncharted-african-regions-and-sectors-offer-growth- opportunities-for-smes/48283/ http://www.ifc.org/wps/wcm/connect/region__ext_content/regions/sub-saharan+africa http://www.stat.fi/til/tavu/index.html http://www.tekes.fi/en/programmes-and-services/grow-and-go-global/team-finland-future- watch/ http://www.worldbank.org/en/region/afr/overview https://agenda.weforum.org/2014/11/whats-biggest-challenge-africa-2015/

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