Africa — what Russian business should know before starting work on the continent

In which African country is it better to start a business, should you plan localization, where to find local partners? We'll figure it out together with the Chairman of the Russian-Egyptian Business Council, Mikhail Orlov.

The best countries in Africa to start a business

Chairman of the Russian-Egyptian Business Council Mikhail Orlov reminds that African countries are extremely heterogeneous in terms of conditions for starting a business — transparency, comfortable conditions, reasonable risks — recommends paying attention primarily to the three largest economies in Africa:

Nigeria — the largest country in Africa in terms of economy and population, rich in mineral resources and with a fairly developed industry

Egypt— a country with a developed service sector and industry, a key trading partner of Russia in Africa. More than 470 Russian companies operate in the Egyptian market

South Africa — African "first world country". Rich in resources, has a strong economy and business infrastructure (financial institutions, startup ecosystem, digitalization). In terms of wages, South Africa is far ahead of other African countries, except Morocco.

According to the expert, it makes sense to consider other countries only for compelling reasons: “For example, when a business is associated with specific resources: conditionally, you need to work with diamonds in South Africa, Zimbabwe and Botswana. Or when there is an understanding that a small country is ready to adapt its conditions to the incoming big business.”

You can also take a closer look at countries that purposefully attract foreign business: the Seychelles and Mauritius, Rwanda and Djibouti have easier conditions for opening a company. Ethiopia stands apart — the only country in Africa that has never been colonized. “A big problem in African countries— corruption, and only in Ethiopia there is almost no corruption. On the other hand, there is a rather complex bureaucracy there, and there are also problems with logistics, because there is no access to the sea,” — explains Mikhail Orlov.

Language and logistics as criteria

In addition to the obvious measures to prepare for entering a new market — studying demand, legislation, market characteristics, Mikhail Orlov recommends taking into account two more criteria specific to Africa.

First — the presence of a European language, which has dominated a particular country since colonial times. For example, in Nigeria and Kenya it is English, in Congo and Senegal — French. “If you know the second language of the country, it will be much easier to work,” — the expert believes.

Second — logistics. During colonial times, sub-Saharan Africa had a well-functioning logistics infrastructure: transport corridors ran across the continent, connecting the interior regions with ports on the west and east coasts. During the post-colonial civil wars, logistics were disrupted, and new transcontinental corridors and major ports were not yet completed. Therefore, when starting to work in the African market, you need to carefully evaluate the possibilities of delivering your products: complex logistics can significantly affect the final price and competitiveness of goods.

Supply or localization?

As a rule, both the receiving party and the supplier, who receives certain benefits, are interested in localizing production. Therefore, many projects are being discussed to localize production in Africa: KamAZ trucks; in the Congo, fertilizers in Uganda, Segezha Group wood products in Egypt, and the Ministry of Health sees prospects in the localized production of medicines.

But companies of a smaller scale than KamAZ or Segezha, Mikhail Orlov does not advise rushing with localization. The main issue is again related to logistics. “Now it is so complex that supplies from localized production are usually profitable at most within the region. Delivery to another African country may, in terms of logistics costs, be equal to delivery from Russia.” The situation is likely to change for the better once a pan-African logistics network is re-established across the continent.

However, one country differs from others in terms of localization — this is Egypt. It can be looked at as a window for exports to Europe, Latin America and other African countries. “Products whose analogues are produced in Egypt are subject to extremely high customs duties. But raw materials and components for production in Egypt can sometimes be imported with zero duty. And thanks to trade agreements with more than 70 countries, goods made in Egypt are exported on preferential terms. At the same time, the country has inexpensive labor and a fairly high level of personnel training,” — says the expert.

Local partners: why are they so important and where to look for them

In any specific market it is more effective to work through a local partner, and in Africa — especially. “In addition to knowledge of central legislation, in most African countries, success also requires understanding the cultures and customs of many nationalities, establishing relationships with the leaders of numerous tribes and ethnic groups, the boundaries of which do not always coincide with the official ones,” &ldash; Mikhail Orlov shares his experience.

To search for partners, you can contact the relevant Business Council of the Chamber of Commerce and Industry: Russia — Egypt, Russia — Nigeria, Russia — South Africa and others. As a rule, the Soviets organize bilateral visits of delegations and business missions, so through them there is a chance of finding a local partner interested in working with Russia. The Russian trade mission in a specific country can also help with the search.

Africa awaits medium-sized businesses

Currently, the bulk of trade turnover between Russia and African countries is generated by large corporations. “Let’s say, almost half of Russia’s trade turnover with the largest country on the continent, Nigeria, — these are supplies of fertilizers from only one „Uralchem“, — Mikhail Orlov gives an example. Indeed, large companies have more opportunities to overcome the same logistics problems, localize production, and so on.

On the other hand, small and medium-sized businesses are more flexible and can quickly adapt to the needs of a large, new and still poorly saturated market. Therefore, now in Africa there are very good prospects for active and flexible SMEs. “There are almost no Russian medium-sized businesses in Africa, but Africa is really waiting for it,” — the expert concludes.