Aug 10, 2012
Barriers to intra-African tradeBack
Development Bank|Gas|Africa|Nigeria|South Africa|Zimbabwe|Finance|Quate Infrastructure|Trade Finance|Pamela Wadi
© Reuse this
By: Pamela Wadi
Africa’s economic outlook has positively transformed in recent years. Interna- tional organisations such as the African Development Bank are expecting the continent’s average rate of growth to exceed 5.8% in 2012 alone.
However, trade between countries in Africa has not seen a corresponding increase. As a result, there have been various calls by governments, trade organisations and international finance houses to address this issue, which is key to boosting and sustaining economic growth in the region.
A company looking to expand into the rest of Africa needs to adapt its business model to effectively mange the nuances that exist between the 54 differing markets. Some of the challenges to intracontinental trade are well known and include the complex bureaucratic processes in each jurisdiction, a lack of ade- quate infrastructure, regulatory issues and difficulty in accessing trade finance.
However, it is also critical that decision- makers consider important issues such as choos- ing the right route to market, ensuring security of tenure and the social licence to operate, as well as adhering to local-content requirements.
Accessing the right route to market in another African country often exposes companies to political risk issues that are unique to the host country. In many jurisdictions, governments and political actors maintain significant influence over the private business sector. This means that foreign companies often interact with and enter into joint venture partnerships with State-owned entities. At times, these joint venture partnerships are used as vehicles by members of the ruling elite for personal benefit. This can expose foreign companies to allegations of corruption and influence peddling and conflict of interest, which can have serious reputational and legal implications.
Understanding the political climate of the jurisdiction a company chooses to enter is important when a local company forms its strategy to do business in the rest of Africa. Changes in the political scene of the host country can have a dramatic impact on the operating environment for foreign companies. Laws and regulations can change suddenly in the more volatile jurisdictions, which can affect the security of assets on the ground. Concerns around security of tenure serve as a deterrent to investing in neighbouring companies by local companies, particularly in capital- intensive sectors like mining and oil and gas.
Calls for nationali- sation across the continent speak to the depth and breadth of African economic transformation. Increasing indigenisation across the continent, seen, for example, by South Africa’s broad-based black economic-empowerment initiatives, Zimbabwe’s empowerment policies, as well as Nigeria’s local-content requirements, means that foreign companies are increasingly obligated to take on local partners, and choosing the right one represents a further challenge to local companies keen to conduct business in other African jurisdictions.
In this increasingly complex and competitive investment climate, sustainable economic growth across Africa hinges on developing trade between countries in the region. Hence, a full understanding of new markets and the contexts of unfamiliar territories by companies looking to do business in the rest of Africa is invaluable if this is to come to fruition.
Wadi is a senior consultant for global risk consultancy Control Risks.
Edited by: Creamer Media Reporter© Reuse this Comment Guidelines
Other News This Week News
Recent Research Reports
Automotive 2014: A review of South Africa's automotive sector (PDF Report)
The report provides insight into the business environment, the key participants in the sector, local construction demand, geographic diversification, competition within the sector, corporate activity, skills, safety, environmental considerations and the challenges...
Construction 2014: A review of South Africa's construction sector (PDF Report)
Construction data released during 2013 hints at a halt to the decline in the industry during the last few years, with some commentators averring that the industry could be poised for recovery. However, others have urged caution, noting that the prospects for a...
Electricity 2014: A Review of South Africa's Electricity Sector (PDF Report)
This report provides an overview of the state of electricity generation and transmission in South Africa and examines electricity planning, investment in generation capacity, electricity tariffs, the role of independent power producers and demand-focused initiatives,...
Defence 2013: A review of South Africa's defence industry (PDF Report)
Creamer Media’s 2013 Defence Report examines South Africa’s defence industry, with particular focus on the key players in the sector, the innovations that have come out of the defence sector, local and export demand, South Africa’s controversial...
Road and Rail 2013: A review of South Africa's road and rail infrastructure (PDF Report)
Creamer Media’s Road and Rail 2013 Report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move...
Liquid Fuels 2013 (PDF Report)
Creamer Media’s 2013 Liquid Fuels report examines South Africa’s liquid fuels market, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing,...
This Week's Magazine
A structured approach, wherein managers personally engage at each level of the project, is necessary to mitigate delays to the workflow on mega construction projects, says State-owned Eskom Kusile power station projects GM Abram Masango. The 4 800 MW Kusile power...
Construction of transmission lines to evacuate power from a regional hydroelectric project in East Africa, which was hanging on the balance following the withdrawal of financing by key partners, is now back on track. After six months of uncertainty, the African...
Three Memorandums of Understanding (MoUs) were signed between South African and Malaysian companies at the Malaysian High Commission in Pretoria on Friday. These MoUs are part of the indirect offsets programme South Africa is providing in return for Malaysia’s...
The South African new vehicle market may well dip to 640 000 units in 2014, says Toyota South Africa Motors (TSAM) sales and marketing senior VP Calvyn Hamman. This is the first prediction that anticipates a drop in the market. To date economists and industry bodies...
Nissan will re-enter the South African minibus taxi industry in March, when the new NV350 Impendulo goes on sale. The 16-seater has been specifically tailored to meet the terms of government’s Taxi Recapitalisation Programme, which aims to replace South Africa’s...