The new frontier has risen. Thirty years ago, global trade was all about an emerging China. Twenty years ago, India took the stage. Today, all eyes are on Africa: a continent with a rapidly growing, youthful population, a collective GDP of more than $1.6 trillion and a collective economy which has grown by five percent every year this decade. But the real reason to look to Africa? "One billion consumers," says Greg Hull, Austrade’s Senior Trade Commissioner in Africa. "Unfulfilled demand. The third reason is Australians are relatively new, untainted and generally have a very positive image on the continent." There’s never been a better time. The flow of foreign direct investment into Africa has risen from just $9 billion in 2000 to $62 billion in 2008 (McKinsey), and it is projected to reach $150 billion by 2015 (Ernst & Young). The return on foreign investment is higher in Africa than anywhere else in the developing world. The emergence of a 300 million-strong middle class is a huge opportunity for Australian exporters, according to Amadou Diallo, CEO of Africa and South Asia Pacific for DHL Global Forwarding. The spending power of the consumer class is growing at more than double the rate of annual GDP growth. Africa already has more middle class households than India, and by 2030, Africa’s top 18 cities will have a combined spending power of $1.3 trillion. "You’re starting to see more educated people conscious of the new Africa, conscious of the awakening, conscious that the economies are on the move and therefore creating that consumer demand," Hull says. A big opportunity... Due to the relatively low competition Australian companies face in Africa (compared to Europe or Asia), there is a first-to-market advantage on the continent, and significant partnership opportunities. But significantly, Hull warns businesses should not look to Africa as their primary market. It’s also not a place for new players to test their offerings. "It’s an extension market. A significant extension market." Diallo is less measured in his assessment of the opportunity. "Africa’s 300 million middle income earners all need basic goods, healthcare (Australia seems to be very well organised in that area), cars, any appliances people need in their houses, they need to have telecommunication tools." Beyond that, there are countless opportunities for Australian expertise to assist African countries to develop better governance, health and education policies and facilities, he says. Most countries are still looking for energy providers, Diallo explains. "We have roughly 700 million people using mobile phones, most of the households in Southern Africa now have TVs, which use a lot of energy." There is significant unmet demand for renewable energy. While Hull says you can forget entering the fast moving consumer goods (FMCG) or telecommunications markets in Africa ("the mobile telecommunications market as a model is probably one of the most fiercely competitive in the world"), there are plenty of areas in which Australian companies have expertise or products that Africa needs. Firstly, as Africa develops, governments are catching up in terms of infrastructure development. Therefore, Australian expertise in terms of railways, ports and roads infrastructure and supporting services could be valuable. Secondly, Australia could play a major role in the development of Africa’s agribusiness. All facets of agriculture that improve productivity, efficiency and the dimensions of production are areas where Australia excels and Africa needs assistance, Hull says. Australian companies are already working in the education services sector, with Monash and Curtin present in Africa and other universities coming through seeking full-fee paying students and longer-term partnership development, Hull says. "It’s a good time to look at universities in Ghana, Nigeria or Tanzania, not just in South Africa." There are a range of opportunities in the financial services sector for fund management, infrastructure funds and small boutique investment funding. "We’re not talking big banks so much as those smaller professional Australian companies that are in the financial services sector, may have already gone to Hong Kong and should now look to Africa." Africa’s wealth of resources is well known and a ripe opportunity for Australians who specialise in mining and resources trading, Diallo says. "We have 88 percent of the world’s platinum, 40 percent of the gold, and to date 10 percent of the oil consumed around the globe comes from Africa." Australians have proven themselves good at exploiting resources through mining and offering opportunities to local people, he adds. Australia is already well represented in the mining sphere, with 200 companies operating 600 projects across 42 African countries, as of January 2011.
...With some obstacles It might seem obvious, but many businesses forget you can’t say Africa like you say India or China, Hull says. "Sub-Saharan Africa is 48 different markets. You have to know each market is different. You have to devote resources: time, dollars and people to Africa." That said, only a few countries are developed enough to be sufficient as a single market. Yet there hasn’t been the groundswell of confidence on the benefits of economic integration like in Asia or Europe, he says. It is best in East Africa (the East African Community), fairly mixed in Southern Africa (Southern African Development Community), and developing in West Africa and Central Africa (Economic Community of West and Central African States, respectively). "They are real borders with real people to fill out and customs people and payments," Hull explains. "Behind the border trade borders are still quite an issue in Africa." With more than 1,000 languages, Africa might seem a challenging place to do business. But Diallo says throughout Africa people speak French, English, Portuguese or Arabic. "These are languages that Australians deal with on a day-to-day basis." And while the environment feels foreign, Australians should remember most African countries are former colonies of France, Britain or European countries, and primarily retain their legislative structures, which are familiar to Australians. Diallo contends that Africa is a much easier market for Australians to access compared with parts of Asia and India. Diallo even suggests Africa is not as dangerous as Westerners believe it is (comparing it to the perception that Australia is filled with kangaroos). Hull disagrees. "It’s unpredictable. You could go and live in Tanzania for 10 years and nothing will happen to you, or you could walk off the plane in South Africa and be mugged." It is improving, he qualifies, but security of goods and personal safety are paramount when trading in Africa. "Theft of goods in transit or from a warehouse is very real, often inside jobs, so you do need extra physical security on your products." Violent crime is not an us-versus-them institution. "All your staff can get mugged or done over in a taxi, whether they’re Australian or Botswanan." Put in place appropriate security measures, choose staff carefully, and lastly, know where you’re going, how you’re getting there, and what the stability situation there is like on the ground. "It is important to take a forewarned, forearmed sort of approach. But the perception is a bit overplayed. It’s not as safe as the Middle East, but parts of Asia or Latin America are just as dangerous," Hull advises. Some of the perception issues boil down to a lack of education, Diallo says. "The African market is doing a poor job of selling the opportunities into the Australian market. By the same token, Australian investors have been not-so-curious in terms of going and discovering what other opportunities are there outside of mining." He would like to see Government-led Australian trade missions on the scale of those regularly undertaken to Asia and Europe. The biggest issue businesses will face is low level bureaucratic corruption, Hull says. It usually rears its head when dealing with red tape like trying to get your goods cleared through customs or getting through a police roadblock. It is illegal under Australian law to bribe a foreign official, although if you take the moral high ground you need to advertise your company position so your clients are aware of the consequences. "There are companies that don’t care if their truck sits at the border for two weeks, they will not pay a bribe to get it through." But governance at the top is improving, particularly in Botswana, Mauritius, Namibia, and Zambia. "They’re all seeing that to attract foreign investment, to have a good economy, they need to be clean at the top," Hull says. "They’re starting to wake up. The internet has done that, social media has done that, media has done that. It’s slow, but it’s happening."
An Asian advantage Africa is on the move. Over the next decade, Hull believes the value perception of Africa will expand beyond minerals, and there will be a genuine move to FMCG in the middle class, improvement in services and infrastructure. "The issue is whether it will all move at the same pace or whether certain countries will lapse back. South Africa is one of those countries hanging in the balance at the moment." Africa will depend less on aid, which Hull puts down mostly to the work of China. "The World Bank and the like are being bypassed. This is an issue because Western standards are being sidelined for the Chinese business model, which does have downsides." Chinese development companies will put up an airport anywhere, quickly, in exchange for coal. "This is where Australia can add tremendous value in terms of our resourcefulness and care for the training and development of staff." Australians can introduce a care for safety and the environment into the development sector. "Africa doesn’t want to miss the benefits of some aspects of the Western market economy and business prospects," Hull says. But China’s extensive involvement in Asia is an advantage for Australian exporters. Last year, trade between Africa and Asia reached US $100 billion, presenting lucrative partnership opportunities. "Australia is in a good position because we’re used to dealing with China and we’re used to dealing with Asians," Hull explains. "We can work quickly with that sort of third market cooperation." Diallo says Africa is a large continent, with ample opportunity for any Australian entrepreneur willing to take their chance. "Don’t just leave it to the Chinese, the Americans and the French!" Hull advises Australians approach the market seriously, consciously and with patience. "They call it Africa time. They need to know what that means. If the internet fails, it’s not the end of the world. If the taxi hasn’t arrived, don’t worry, another one’s coming."