In the future, Africa is expected to host the highest population surge with an additional 1.3 billion people. Much of the continent’s population boom will come from Nigeria, currently the world’s 7th most populous country, which is likely to become the world’s third-largest country by population, becoming one of the six nations projected to have a population of over 300 million by 2050. Sub-Saharan Africa is projected to reach a GDP of $29 trillion by 2050. This makes Africa a continent with a wealth of opportunities to do business in and leverage its growth potential. It is the continent of possibilities.
Where to do business in Africa
According to the World Bank’s Doing Business 2018 report, which ranks the ease of doing business globally of 190 countries, Mauritius is in 25th place and is the highest-ranked economy in Sub-Saharan Africa. Other economies in the region that perform well on the ease of doing business rankings are Rwanda (at 41), Kenya (80), Botswana (81) and South Africa (82).
There’s a lot of money to be made for those living on a continent with the world’s fastest-growing population. Here are some clues on where it’s best to invest.
Rwanda ranks among the best globally in the Doing Business areas of Registering Property (with a rank of 2) and Getting Credit (6). In registering property, Rwanda has an efficient land registry where it takes 7 days to transfer property and costs only 0.1% of the property value, the same as in New Zealand.
“The reform effort in sub-Saharan Africa is singularly worth celebrating, as the region is beset with myriad crises, including conflict and violence. We hope to continue recording the region’s successes in enabling entrepreneurship to address the challenge of job creation, particularly for the region’s millions of young women and men,” says Rita Ramalho, Acting Director of the World Bank’s Global Indicators Group.
Mauritius has among the least cumbersome business regulations in two Doing Business areas: Dealing with Construction Permits (with a rank of 9) and Paying Taxes (10). Four economies in sub-Saharan Africa rank in the top 10 in Getting Credit (with an average rank of 115). Zambia ranks 2, just after New Zealand, and Rwanda, Malawi and Nigeria all rank 6. The region underperforms in the areas of Getting Electricity (with an average rank of 148), Trading Across Borders (137) and Registering Property (131). It takes an average of 115 days to obtain a permanent electricity connection to the grid in sub-Saharan Africa, compared to the global average of 92 days.
Entrepreneurs and investors who would like to take advantage of opportunities in the region should take insights from the Doing Business 2018 report in context. There are different methods which different agencies around the world use to measure a country’s attractiveness for investors and entrepreneurs to do business. In its 7th edition, Rand Merchant Bank’s (RMB) Where to Invest in Africa 2018 report, balances economic activity against the relative ease of doing business. The report focuses on the main sources of revenues in Africa which allows it to measure the most important income generators and identify investment opportunities. According to the report, Egypt is Africa’s most attractive investment destination followed by South Africa, with Ethiopia and Rwanda in third and fourth positions respectively.
From a different perspective, the World Bank highlights Ethiopia as the fastest-growing economy in 2017, in its latest edition of Global Economic Prospects. Ethiopia’s GDP is forecast to grow by 8.3% in 2017. By contrast, global growth is projected to be 2.7%. The East African country’s accelerating growth comes on the back of government spending on infrastructure.
For an ordinary entrepreneur, it can be challenging to identify where the real opportunities are and what mechanisms to use in navigating the complex world of doing business in Africa. Paul Mashegoane, founder of G-Technologies, who is a thought leader in doing business in Africa, says that entrepreneurs should look deeper at their next business destination than merely using numbers. “You cannot simply rely on GDP and foreign direct investment as indicators of good business opportunities. In addition, ease of doing business in a specific city or country doesn’t necessarily translate to profitability,” he warns. “Nigeria may be one of the worst places to do business from, in terms of the regulatory framework and high levels of corruption; but it is appetising in terms of the retail-based business model. If you consider MTN, as a South African business that has made significant strides in Nigeria – the opportunities are endless. Today, MTN commands a clientele of 53.1 million subscribers, almost the entire population of South Africa in another country,” says Mashegoane.
“Another fascinating development is that Cape Town and Nairobi are the tech capitals of the continent. The most thriving tech entrepreneurs in Africa are based in Cape Town and Nairobi. In 2016, according to Vodafone, M-Pesa was used in six billion transactions. M-Pesa is undoubtedly the world’s largest mobile money network and has enabled millions of Africans to gain access to safe and secure banking solutions,” he adds. “Cape Town’s tech ecosystem is one of the most well established in the continent, having been around for more than 20 years. The city boosts 60% Internet penetration and has one of the largest open access fibre obtic networks on the continent with 275 free public Wi-Fi hotspots,” says Mashegoane, adding that, “60% of South Africa’s tech start-ups are based in Cape Town as the city offers access to funding, and talent, with a high level of innovation from fintech to gaming and travel tech.”
Four key economies for doing business in Africa
- Starting a Business: Mauritius made starting a business easier by exempting trade fees for licenses below MUR 5 000 and introducing the electronic certificate of incorporation. It takes seven days to start a business.
- Dealing with Construction Permits: Mauritius made dealing with construction permits faster by outsourcing the design and construction of sewerage connection works.
- Registering Property: Mauritius made it easier to transfer property by eliminating the transfer tax and registration duty, implementing a complaint mechanism and publishing service standards.
- Trading across Borders: Mauritius made trading across borders easier by improving the Cargo Community System, introducing advanced electronic document submission and updating the risk-based inspection system.
- Starting a Business: It takes four days to start a business in Rwanda.
- Dealing with Construction Permits: Rwanda increased quality control during construction by introducing risk-based inspections. It takes four days to start a business.
- Registering Property: Rwanda made registering property easier by implementing online services to facilitate the registration of property transfers.
- Protecting Minority Investors: Rwanda strengthened minority investor protections by making it easier to sue directors, clarifying ownership and control structures and requiring greater corporate transparency.
- Paying Taxes: Rwanda made paying taxes easier by establishing an online system for filing and paying taxes.
- Enforcing Contracts: Rwanda made enforcing contracts easier by making judgements rendered at all levels in commercial cases available to the general public through publication on the judiciary’s website.
- Starting a Business: Kenya made starting a business easier by merging procedures required to start up and formally operate a business. It takes 22 days to start a business.
- Dealing with Construction Permits: Kenya made dealing with construction permits less expensive by eliminating fees for clearances from the National Environment Management Authority (NEMA) and the National Construction Authority.
- Getting Electricity: Kenya improved the reliability of electricity by investing in its distribution lines and transformers and by setting up a specialised squad to restore power when outages occur.
- Getting Credit: Kenya improved access to credit information by starting to distribute data from two utility companies.
- Paying Taxes: Kenya made paying taxes easier by implementing an online platform, iTax, for filing and paying corporate income tax and the standards levy.
- Trading across Borders: Kenya reduced the time for import documentary compliance by utilising its single window system, which allows for electronic submission of customs entries.
- Starting a Business: Nigeria made starting a business faster by allowing electronic stamping of registration documents. This reform applies to both Kano and Lagos. It takes 25 days to start a business in Nigeria.
- Dealing with Construction Permits: Nigeria (Kano) increased transparency by publishing all relevant regulations, fee schedules and pre-application requirements online.
- Registering Property: Nigeria, Lagos made transferring property easier and more transparent by removing the sworn affidavit for certified copies of the land ownership records, introducing a specific and independent complaint mechanism, and by publishing statistics on land transfers. Nigeria, Kano made transferring property more transparent by publishing the list documents, fee schedule and service standards for property transactions.
- Getting Credit: Nigeria improved access to credit information by guaranteeing borrowers the legal right to inspect their credit data from the credit bureau and by starting to provide credit scores to banks, financial institutions and borrowers. Nigeria also strengthened access to credit by adopting a new law on secured transactions and establishing a modern collateral registry. These changes apply to both Kano and Lagos.
- Paying Taxes: Nigeria made paying taxes easier by introducing new channels for payment of taxes and mandating taxpayers to file tax returns at the nearest Federal Inland Revenue Service (FIRS) office. This reform applies to both Kano and Lagos.
Source: World Bank, Doing Business 2018 report.