A recent study conducted by the Economist Intelligence Unit (EIsU) on the commission of the logistics and transportation industry operator, DHL Express, indicate that international operators in the small and medium scale enterprises (SMEs) sector prefer to trade with other emerging economies than those in Africa, including Nigeria. In the same way as the report also revealed that SMEs expect to generate up to 50 per cent of revenues internationally by 2019.
According to an in-depth study conducted by the Economist Intelligence Unit (EIsU) on behalf of logistics and transportation industry operator, DHL Express, approximately 40 per cent of global SMEs (small and medium-sized enterprises) do not perceive Africa as a growth opportunity, despite the positive economic growth stories and growing middle class in the regions.
The report further reveals that while many multinationals and state-owned companies are actively taking advantage of the opportunities that Africa offers, SMEs still remain apprehensive and are choosing to trade with other emerging markets instead.
Charles Brewer, Managing Director of DHL Express Sub Saharan Africa, says that despite current challenges to attract global SME interest, the findings of the study highlight the untapped potential that still exists in the continent.
“The fact that SMEs expect to generate up to 50 per cent of revenues internationally by 2019 is a massive positive and highlights the vast opportunities for Africa from an investment and job creation perspective.”
Brewer says that according to the study, which surveyed 480 SME executives and experts from business lobbying groups, SMEs are deterred by Africa’s low average consumer spend, cultural and infrastructure challenges, as well as inefficiencies such as corruption and political risk in the region. .
He explains that overcoming different market environments is the biggest hurdle. The quality of a target market´s infrastructure, the stability of its politics, administrative costs for establishing a local presence and cultural differences in doing business were all cited by the executives surveyed as factors that deterred them from entering new markets.
“The unfamiliarity of foreign markets received particular attention, with 84 per cent of respondents describing understanding a target market’s culture or language as important or very important in determining its attractiveness. This also explains why most SMEs often expand into markets that resemble their own.
“This is evident in Africa, as companies looking to expand into the continent, often make use of a ‘one size fits all’ approach. Due to the various cultures, languages and customs on the continent, vast amounts of research need to be done into each region, and the services and products need to be specifically tailored to each country. Africa is not one country,” says Brewer.
In terms of expansion tactics, the survey shows that partnerships are an important consideration for SMEs. The study identified a number of innovative approaches in this area, such as piggybacking on another company’s existing retail network to enter the sub-Saharan market in Africa.
“A number of multinationals and corporates have experienced great success in Africa, DHL being a prime example. And the good news for SMEs is that they have the advantage of being more agile to adapt quickly and exploit the opportunities available. An entrepreneurial spirit is vital for the success of small businesses, we ourselves started out as an SME in 1969, and as they say, the rest is history. We too have focused on partnerships in Africa, and now have a retail presence of over 3500 outlets across Africa.
“We work with thousands and thousands of SMEs across Africa and have witnessed how these businesses are able to successfully establish a presence in the region. With the support of the right partners, a well-designed supply chain, clear understanding of their competitive strengths and the right mindset, SMEs can break through any border and make the world their market,” concludes Brewer.
DHL is the global market leader in the logistics and transportation industry and “The logistics company for the world”.
In a related development, the EnergyNet has concluded plans to welcome a high powered delegation of ministers and officials from utilities and regulatory bodies from Africa starting January 28 to 30, next year welcome to meet with United States private and public sector stakeholders at the Powering Africa: Summit where they will continue the crucial conversation on how to maintain the momentum behind building up Africa’s power sector.
Since its launch in late June 2013, Power Africa has helped facilitate the financial close of private sector transactions which expect to produce over 3,100 Megawatts (MW) of new generation capacity. In addition, Power Africa has already mobilized more than $20 billion in commitments from more than 80 private sector partners. Power Africa has also forged strategic partnerships with the World Bank, the African Development Bank and the Government of Sweden, which together have committed an additional $9 billion.
At the ‘Powering Africa: Summit’ in Washington next month many of the challenges and opportunities will be discussed, with many of the investors in the initiative present including those from the AfDB, World Bank, the United States Government and private sector partners.
Having focused solely on Africa’s power sector and frontier market power generation for 20 years, EnergyNet has had the privilege to witness the passion and long term commitment it takes to ‘turn the lights on in Africa.’ Today there is more enthusiasm and more ‘expectation’ about the potential of Africa’s electricity market, and we’re delighted to play [even] such a small role within such an important and exciting sector.
One of the game change actions has of course been the launch of President Barack Obama’s “Power Africa” initiative designed to increase access to electricity in all of sub-Saharan Africa. Power Africa seeks to strengthen the institutional and human capacity needed to attract investment on a long-term, sustainable basis, and to effectively manage a growing power sector.
Over the last 20 years Energy Net has co-ordinated investor meetings with some of the most reliable and successful power developers operating on the continent of Africa. These are powerful companies with strong balance sheets backed by some of the biggest banks.
Despite all this interest, knowledge and experience, billions of dollars has been spent on development over the last 20 years and many projects have not reached financial closure. Therefore, one key question is how sustainable is the current way of doing things?
How can investors take greater responsibility for the success and speed of the development of long standing projects? Ultimately, African governments and the public sector are the ‘power in Africa’ and it is their responsibility to build power stations and distribute power for the people.
Electrification could lead to increased wealth for all, but equally importantly it could lead to increased stability in order to promote further private sector investment, creating more jobs and even more wealth.