Marchés Emergents

Doing business in Africa – impact of Covid-19

Starting now or not?

On June 30, 2020 the first African Business Club’s Meet&Share took place. Our two guests, Emmanuel Bocquet and Ibrahima Nour Eddine Diagne shared with us their vision of the economic context in Africa in the midst of the covid-19 crisis as well as their keys to do business in Africa. 

Current African context facing covid-19

Although the number of COVID-19 cases and fatalities might still appear comparatively low in Africa than in other world regions, the looming health shock of COVID-19 could have an impact on the continent’s already strained health systems, and could quickly turn into a social and economic emergency. However, the crisis is also an opportunity.

Some countries are « relocating » production and re-nationalizing consumption. What opportunities can this health crisis open up for African entrepreneurship? 
The redefinition of economic models is in itself an opportunity. It highlights the role and place of innovation in services, with the new constraints of social distancing. Digital technology is consolidating its place: old economic models are being disrupted. Today everyone thinks and accepts digital, which was not the case before the crisis. Certain types or business models such as e-commerce are being boosted, and health-related services are developing.

And the place of the informal sector?
The informal sector, that allowed the emergence of a middle class in Senegal, for example, is suffering. People working in the informal sector are the hardest to help because they are not visible by nature. However, these are jobs that provide practical answers to local and everyday problems. They will therefore have less difficulty in bouncing back. On the other hand, the structured sector finds itself strangled (taxes, employees to pay…).

What role for States to play?
African finance ministers agreed in late March that the continent would need a $100 billion stimulus package – including $44 billion in debt service waivers – to deal with the virus. « There is a high probability of recession, » said the head of the UN institution’s Macroeconomics and Governance Division, Bartholomew Armah. Nearly half of the funds could come from foregone interest payments to multilateral institutions.At the same time, governments need to build confidence among economic actors. While measures must initially focus on improving the health situation, they must not neglect economic support to promote recovery.
Donors have already initiated several funding mechanisms to support African economies, but the consideration of startups on the agendas of development assistance actors remains uncertain. Governments and other private organizations are not left behind. Initiatives are beginning to emerge: the International Trade Center, for example, is developing a resource centre dedicated to the impacts of the pandemic on the continent’s startups and SMEs

What about a pan-African collaboration?
UN Under-Secretary-General and Director of the Africa Regional Office of the United Nations Development Programme (UNDP), Ahunna Eziakonwa, affirms that the success of the response will depend on pan-African solidarity. Effective implementation of the African Continental Free Trade Area (AfCFTA) and the African Union’s productive transformation agenda can strengthen regional value chains, reduce vulnerability to external shocks, advance the digital transition, and build economic resilience against future crises. (OECD Report)

Starting now a business in Africa?

Two types of entrepreneurs – and startups – coexist within the African ecosystem:-those that are more resilient and are trying to find solutions to mitigate the crisis-those whose doors are closed and who are waiting for a more favorable economic context 
One of the main difficulties faced by start-ups is cash flow, and the problem is all the more important in times of crisis. Some recent and still fragile startups do not have the necessary funds to survive 6 or 12 months without cash inflow. In fact, in the short term, small and medium-sized enterprises are at greatest risk due to a lack of sufficient funds. However, the importance of VSEs, small traders and micro-enterprises, is one of the specific characteristics of the African continent. In fact, these businesses account for 95% of activity, while at the same time being the continent’s largest employers.

If the effects of the health crisis are not yet all visible, how can we best anticipate those that could deal a fatal blow to African economies?
The first trend is indeed that if the investments in start-ups have, year after year, been higher than in the past, today the funds of private groups are decreasing, with more demanding investors, more worried with the crisis.Some sectors such as tourism are the most strongly impacted, while others, such as utilities or foodtech are focused on more essential needs and do not suffer the crisis in the same way.In all cases, it is a question for companies to review all their evidence, as consumers and their habits have changed considerably since the beginning of the pandemic.

A good time for the diaspora?
The stakes are different for each individual. For those who have nothing to lose, it’s easier to take the next step: the continent is moving, the population is young and dynamic, and there are many opportunities.For those who have already made their mark elsewhere, the dilemma is more complex: sales cycles are 3 to 6 times longer than in Europe, you have to be resilient, which is more complex when you start from an already comfortable situation or when you have specific constraints (children, etc.).

To conclude

In any case, the big learning is, if you have this entrepreneurial spirit and hesitate due to coronavirus, to go now. 
It is important to see each country in a larger community, and move to Africa with a conquering spirit and leverage different and unique economic models. In a post-COVID-19 world, we want a better Africa where young industrialists lead, and the continent turns its demographic dividend into a key enabler of progress.

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