Suresh Kana brings an informed perspective on what it takes to succeed in Africa. In the following interview, he addresses a number of challenges while stressing the importance of "participation and local know-how".
Suresh Kana leads the PwC network of firms in Africa
View: What makes Africa attractive for companies that have never done business there?
SK: Access to high-growth economies with large populations, rising affluence, and the potential for innovation make a presence in African markets essential for many companies.
Africa’s collective GDP was $1.76 trillion in 2010, roughly equal to Brazil’s or Russia’s. Over one billion Africans will be of working age in 2040, and 50 percent of us will live in cities. There will be 128 million households in Africa with discretionary income in 2020. These are big numbers, and they all point to opportunity and growth.
View: What does it take for a company with no experience in Africa to succeed there?
SK: Primarily, success in Africa from a business standpoint is about preparation and local know-how. There’s really no substitute for engaging stakeholders and managing relationships on the ground. Companies from outside need to source reputable, local input to fully flesh out their strategic rationale for investing here.
An important aspect of that local input should be an evaluation of whom to do business with; reputable trading partners are, in the long run, worth far more than some questionable short-term profits.
Very often, companies tap into growth markets through acquisitions—largely because it is faster than a greenfield approach. But they sometimes balk at high valuations or struggle to understand—or trust—the valuation information available. Local know-how is so important, as we discuss in Getting on the Right Side of the Delta: A Deal-Maker’s Guide to Growth Economies.
My colleague, Simon Venables, a PwC Africa Partner and Transactions Specialist, put it best when he said, “Deals are very complex in growth markets. It requires an investment in time, resources, and talent—and a rigorous, consistent approach to get it right. But once right, the rewards are very worthwhile. It is important to establish a long-term outlook and permanent roots.”
View: How has the business environment in Africa changed in recent years?
SK: The operating environment in Africa has undergone tremendous change in the last 10 years. Some of the major developments we’ve seen include: discovery of and access to natural resources, the growth of a large consumer base and middle class, infrastructure development and associated business services and logistics support, low growth expectations in mature Western economies, large pools of foreign sovereign wealth and corporate cash, as well as improved African governance and political stability.
Governments are also more involved than ever before, so companies need to understand government’s motivation in each market in which they are planning to invest. Regulation of industries, competition, tax, and accounting have become increasingly more complex and this has had a significant impact on companies with cross-border operations in Africa.
View: What are some of the biggest opportunities in Africa?
SK: The main factors influencing opportunities in Africa are a growing middle class and urbanization with immediate implications for fast-moving consumer goods, telecommunications, and financial services providers.
Demand, innovation, investment, and government intersect in every industry sector, in every market. Investors must realize that they can get their fingers burned if they don’t have the local know-how to leverage these opportunities effectively.
View: How do companies measure success in Africa?
SK: When we talked to CEOs for our publication, The Africa Business Agenda, several said it is important to measure commercial progress not just in relative terms but also against global benchmarks. It is not enough to say, “X is a really great company by local standards,” because it could soon be eclipsed by global operators who measure success differently and more rigorously.
Competition is fierce and acquisitions are happening all the time in markets that are growing rapidly. A new entrant today can be a major player tomorrow. So I would say that companies in Africa—whether African or foreign-owned—need to measure progress, profitability, talent, sustainability, strategy, and risk management in meaningful ways that make sense outside of the immediate, local context.
View: PwC research found that only a third of companies believe they’ll have the talent they need to keep up with growth. How are companies in Africa coping with the skills gap, especially in middle management?
SK: Companies in Africa are deploying a number of effective strategies to source appropriate, competitive talent. The first is by developing the people they already have through training, secondments, competitive workplace policies, and new technologies. Providing them with attractive career propositions—and living up to those promises—helps with retention. The companies with the best talent strategies do not take their people for granted. They invest in them, support them, and encourage them. But they also cultivate a sense of personal responsibility and pride among their talent.
Hiring top talent may be expensive but it has a follow-on effect; bright people tend to know other bright people, so as an employer when you hire someone special you also gain access to a broader network of high-value people.
This is particularly relevant in the age of social networking and mobile communications, which are such powerful forces in Africa. Tapping into these networks strategically helps to build a corporate culture that rewards and values talent.
View: How do companies engage the regional economic communities (RECs) in Africa?
SK: Generally, I think it is important to engage with individual governments as well as the regional economic communities to build relationships and gain support for meaningful policies that achieve a balance between public- and private-sector priorities. Most of the time, I think the public and private sectors share the same socio-economic development priorities, but they will often have different ideas about how to go about achieving them.
For example, everyone wants to reduce poverty, and we can accomplish this in a number of ways that include both public and private-sector participation: by creating jobs; by implementing tax reforms which are conducive to business growth and job creation; or through fiscal spending on programs like education that help to reduce poverty. These are not new issues, in Africa or anywhere else. The conversation here continues to take place at the regional and the local levels.
I discussed earlier the opportunity that Africa as a whole represents in terms of GDP and discretionary income. If we operated effectively as a region, we would have a lot more leverage in terms of that opportunity.
If you compare our progress in establishing the RECs and making them operational and meaningful, we’ve accomplished a lot more in less time than it took the European Union, for example. I think our RECs are a step towards an African economy that competes with and challenges the larger BRIC economies going forward.