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Culture and doing business in Africa (2)

As discussed in the first part of the paper last week, my cultural framework for doing business in Africa relies on culture, doing business ranking, EM status, & soft power ranking to recommend sectors in Africa that are likely to be successfully tapped by foreign investors. Having already discussed the energy sector, this week I consider the materials, industrials, consumer discretionary, and consumer staples sectors.

Materials sector

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A good example in this regard is cement manufacturing, which with increased automation, no longer requires as much manpower as in the past. And with automation comes requirements for new skillsets and know-how, most of which are scarce on the African continent and take time and resources to acquire locally. Top-tier management talent is also in short supply. The pan-African success of Nigeria’s Dangote Industries, which relies a great deal on Indian expatriates, who are world-renowned for their work ethic, to fill the skills gap bears lessons in this regard. So even when an investment decision on a materials venture on the continent relies on where the key raw material is located, disadvantages related to skilled labour and capital could easily be overcome with foreign alternatives.

The success of the Chinese in illegal Ghanaian gold mining, which continues unabated despite government action, is also a case in point. Chinese entrenchment in Ghana’s mining sector is on the back of a pervasive local culture of artisanal-type but illegal “galamsey” small-scale mining practice. With many poor Ghanaians dependent on galamsey for their livelihoods, and the Chinese now major players, it has become very difficult for the government to clean up the sector. The illegality is not at all endorsed here. But the cultural element as a factor in the success of the Chinese in the Ghanaian gold mining industry is noteworthy.

Industrials sector

Aerospace & defence, machinery and transportation industry groups thrive in innovative cultures. Southern African countries are ideal. They score highest for individualism and other relevant cultural dimensions. Incidentally, these industry groups already thrive in South Africa. Would they do similarly well in the identified countries in East and West Africa? The low scoring for individualism and high-power distance rankings do not recommend them well for such investments.

The success of the Chinese in illegal Ghanaian gold mining, which continues unabated despite government action, is also a case in point

Consumer discretionary sector

Downstream automobile production is enjoying a resurgence in Africa. Foreign brands have set up bases (or plan to) in Rwanda, Kenya, Nigeria and Ghana. Unsurprisingly, much more advanced upstream activities (e.g. design) take place in South Africa, which already has a thriving automobile industry. There is easily a cultural explanation for why the labour-intensive but less innovative downstream activities (e.g. assembly) are more viable in East and West Africa while a broader spectrum of the value chain thrives in South Africa. On the consumption side, however, almost every African country qualifies.

Retailing (apparel, etc.) is also more lucrative in South Africa, where a mall culture is already entrenched. The case of South African retailer Woolworths is instructive. When it expanded to West & East Africa, it failed. Still, its business continues to thrive in South Africa. Incidentally, relatively small-scale local retailers, who import apparels etc., thrive in these same West & East African countries.

Consumer staples sector

Food & staple retailing has been found to be successful in almost all African countries. South African retailer Shoprite’s success in its African ventures is a good example; albeit it is reportedly enduring some challenges lately. And while largely a low-cost retailer, this has not been primarily the source of its competitive edge in its operations outside South Africa. A local culture of projecting success in Nigeria, say, means a visit by the average shopper to Shoprite during the weekend is more than just about shopping. In general, food, beverage & tobacco investments have been similarly successful across the continent. Still, foreign and local firms involved in the industry have had to rely on robust market research on local cultures to succeed.

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