By Gavriel Schneider
Background
As the demand for resources continues globally, many companies are moving into Africa to take advantage of this resource rich and largely still untapped market. Whilst there is a tendency to view Africa as one entity, it is important to understand the diversity of the regions and the people including still existing tribal cultures and rivalry. Each African country has its own distinct flavour and pulse.
Furthermore, within countries, regions differ widely in terms of culture, language and customs – as an example, South Africa has eleven official languages and many different tribes. Whilst it may not be openly stated – There is no doubt that the ‘rush for Africa’ is a reality. When viewed at ground level it seems that the Chinese are leading this rush. I have experienced this first hand on many occasions. Examples include: Chinese run and owned hotels in Sierra Leone, restaurants in Equatorial Guinea and even Chinese neighbourhoods in South Africa.
The Chinese have also been opening up factories and processing plants under the now commonly used acronym BTO (Build to Own) which is a model whereby the factory is built for free with the Chinese getting operating rights for a period (say 20 years) where after the factory will belong to the county it was built in. Aspects like the BTO approach make fair competition very tough. In spite of the Chinese head-start and the increased levels of interest, the opportunities and potential in Africa is vast. An example of this is the continents newest country, Southern Sudan, which, as of now, is largely undeveloped and uncultivated. Even in well developed countries such as South Africa there are still many opportunities available.
There is little doubt that the next few years we will see a greater interest and an even more focused effort by foreign companies to get their ‘piece of Africa’. It would also be fair to say that companies that enter the market with a reasonable and realistic approach, and who also “give back” to the local population, will be welcomed in most parts of the continent. At this stage opportunities abound and whilst it is becoming more competitive, there are many opportunities for foreign involvement in Africa.
Difficulties and key issues of concern
Despite the ‘rush for Africa’ many companies and potential investors are discouraged for various reasons. These reasons are also among the core threats and concerns that many companies operating in any developing market environment must manage. Examples of such issues and concerns are outlined below but are not listed in any order of priority as these are subject to many other variables.
The following are some of the key reasons why companies hesitate when assessing operations in Africa or other third world environments. The list below also outlines the core issues that companies that choose to operate in such environments must manage:
- Political risk and regional instability:
Chief among the issues of concern is probably political unrest and instability. There is little doubt that this is a major concern and a reality of the African environment. Despite this concern, it is only in truly extreme cases and on very rare occasions that well-structured deals and operations are affected by this. Examples of what has occurred in Zimbabwe are very real for many African governments and most are trying to ensure that companies can operate despite political changes.
- Infrastructure issues:
Next in line is probably the concern over infrastructure. This is especially true for resource companies. It is recommended that companies assess the risk versus reward on individual projects on a stage by stage basis (exploration, extractions, etc). Whilst lack of local infrastructure may pose a problem, a long term approach may yield tremendous gains. Improvements in remote-area power supply solutions have also made this a more manageable issue as does comparatively cheap labour in many cases.
- Security and safety of expat staff:
In addition to the concern of political instability, the concern for staff safety in terms of violent crime and potential terrorism is also a critical issue. We only have to look at the kidnapping of oil executives in Nigeria to see how quickly and easily things can go wrong. Whilst not always easy, these issues can be very effectively managed via the use of professional security and risk management strategies and the use of experts in the field. Implementing civil projects/corporate social responsibility initiatives that uplift local communities is also a critical component to reducing many of these risks.
A further point on this issue is the recent modifications to Workplace Health and Safety (WHS) legislation in Australia (so called Harmonisation) which solidifies accountability for companies, managers and owners that do not take ‘reasonably practicable’ measures to protect their staff. It also removes the capability for companies to manage these risks by transferring them to subcontractors and third parties.
- Disease and medical issues:
This is also a major consideration but one that can be managed quite effectively by implementing an integrated medical management plan and response system. Such a plan must factor in a wide range of issues, including basic training, first response, transport of casualties, etc.
- Lack of local skilled labour:
Lack of local skilled labour is another problem. Getting a strong mix of expat and local staff is always a challenge. However, providing training for locals can go a long way, and the comparatively cheap labour costs can make up-skilling and using local labour even more attractive. We have found simple things such as advanced and off-road driver training for local staff to be of great benefit. This includes substantial cost saving benefits in terms of reduced accidents and improved operations.
- Corruption:
Corruption is a reality of operating in Africa. Despite the noble attempts of many African Governments to try and stamp out corrupt practices, it still is, and will probably remain a reality of working in African and other third world environments foreseeably into the future. In terms of best practice, most businesses do ethically strive to avoid these issues but this is not always possible or easy to do. It is important to assess what your company is, and is not willing to do in this regard. It should be noted that without factoring in ‘facilitation fees’ companies may find it very difficult to get things done. There are many ways to achieve things without having to pay out-and-out bribes and breach legislative rulings but ignoring this issue can be the make or break of a business in Africa.
- Local partner ownership and empowerment issues:
Local partner ownership and empowerment is a major issue, often referred to as Black Economic Empowerment (BEE). Some countries are implementing BEE requirements for foreign companies wanting to operate there. These issues are quite complex and can cause much frustration. We recommend the use of external consultants or advisory companies. Such consultants or companies can assist your company in going about this smartly in terms of getting the right partners and deal structures and thereby saving lots of hassle and money.
The above list is by no means fully comprehensive but does show some of the areas of major concern. Most issues are manageable with the implementation of a strategic risk management approach probably best achieved through utilising expert consultants in this area, who whilst being an initial expense, will be worth their weight in gold when the path is made smoother, obstacles managed and benefits gained. We strongly suggest that new and even existing operators in African and other third world environments take cognisance of these issues and try to solve them as early as possible. This is imperative in order to prevent further problems and potentially very costly mistakes occurring later on. It is equally important to ensure that an ongoing and regular review of the on-ground situation, polices and operating documents (including security assessments) occurs. In terms of managing any potentially unstable environment, the key success factors can be summarised in the acronym:
R.M.A.P. & M.C – Implementing realistic Risk Management Assessments & Plans and striving to Mitigate Complacency.
About the Author
Gavriel Schneider is the Director of the Dynamic Alternatives Group (DA Group) in Australia. The company has offices in Australia and South Africa and has operated in over 22 African countries as well as India, Sri Lanka and the Caribbean. The DA Group focuses on providing a wide range of consulting and security risk solutions for Australian companies working in Africa and other third world environments. Gavriel has just completed a PhD in Security Risk management and has over 15 years of experience in Africa, Australia and other countries. He specialises in taking a business approach to providing solutions that meet the best practice methodologies in hostile and complex environments as well as the compliance requirement of multiple jurisdictions.
