Business in Africa is hampered by an unstable and immature business environment without a strong prognosis of a strong economic future. According to the Oxford Journal of African Economies, “despite more than a decade of reforms in many African countries, investment and growth rates are still far below the levels required for sustainable development.” This nascent environment presents unique challenges, as well as opportunities for multinationals looking to tap into the potential for unprecedented growth.
The World Bank Group’s “Ease of doing business” rankings does not feature an African nation in its top 50 of 190 countries. Indeed, more African countries are found near the bottom of the list. In fact, the average African ease of doing business ranking is 143. “Ease of doing business,” according to the World Bank, means “means the regulatory environment is more conducive to the starting and operation of a local firm.”
A consideration of the World Bank’s ranking methodology is insurance market rules. Government and risk management regulations are progressing across the African region, according to a study by Ernst and Young. The growth of regulations that is out-of-whack with the overall economic picture is a deterrent for multinational actors. Transnational actors are faced with an evolving regulatory environment that is, at present, not conducive to business and reaching local populations.
Also, African nations continue to suffer widespread poverty that limits their economic attractiveness. African business economic attractiveness is limited but undergoing an evolution that’s improving in the long-term. Africa has been in the throes of political and economic reform since the UN’s Africa recovery program of 1986. They’re modernizing their institutional systems. While there are still barriers to entry, they aren’t insurmountable for multinationals. With a population of 1.2 billion, there are 1.2 billion potential customers for multinationals to sell a product or offer services. Africa is one of the last unexploited economic environments on our planet.
To underscore opportunities for multinationals is an overall African positive reform trend. According to The World Bank, “Thirty-five of 47 economies in Sub-Saharan Africa (74 percent) implemented at least one reform making it easier to do business in the past year, 69 in total—up slightly from the annual average of 67 reforms over the past five years.” African nations are improving credit information availability, and business law are fast becoming harmonized.
While the current economic environment is not attractive and there are many deterrents, there’s a positive long-term outlook. Africa hosts a booming population of 1.2 billion. Africa’s vast natural resources will continue to attract foreign business and keep the pressure on African economic reform efforts. Once incentives for African governments and multinational business are right, the economic picture is set to expand dramatically.
Featured image courtesy of Spice4Life.