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AFRICA: Doing Business in Africa - Research Essential Before Doing Trade Deals


Recent Gauteng Business News

Africa’s agro-ecological potential is much larger than its current output and so are its food requirements. While more than one-quarter of the world’s arable land lies in this continent, it generates only 10 percent of global agricultural output. This means there is huge potential for growth in a sector now expanding only moderately at a rate of 2 to 5 percent a year. A number of challenges inhibit the faster growth of agricultural output in Africa.

Almost 50 percent of the growth of Africa’s largest banks came from portfolio momentum, the market’s natural increase, compared with only about 17 percent from inorganic (or M and A-driven) sources. Underpinning this portfolio momentum is strong overall market expansion where the financial sector is outgrowing GDP in most of the continent’s main markets.

Between 2000 and 2008, for example, Kenya’s GDP grew by 4.4 percent annually, its financial sector by 8.5 percent. The only significant exception is Egypt, where regulatory restrictions have limited the sector’s growth to only 2.3 percent annually, compared with 4.8 percent for GDP.

The growth trend in African infrastructure is far from over, and several countries have already announced significant additional spending. South Africa, for example, invested $44 billion in transport, fuel, water and energy infrastructure from 2009 to 2011, a 73 percent increase in annual spending from the levels of 2007 to 2008. Since infrastructure investments also offer a high stimulus multiple in times of economic slowdown, Angola, Kenya, Mozambique, Nigeria and Senegal have announced essentially similar programmes, though on a much smaller scale.

In terms of obstacles, payment default is considered the main problem and as a result a majority of the trade in these African countries is done on a cash basis.

Another issue is communication and cultural diversity. The lack of financials and legislative infrastructure is slowly, however surely, being addressed and becoming less of a burden.

But the question arises - How reliable are the stats coming from African countries outside of South Africa. African statistics are known to lag behind developed country statistics and may not be as comprehensive.

Regarding trading partners in doing business, companies need to do their research before trade agreements are established. There are dedicated companies that can assist with corporate information on entities in Africa. Coface can also assist with information in this regard

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