Different Africa: why it is interesting for Russian entrepreneurs

Alexander Bespalov is a co-founder of the investment and consulting group Afroinvest and the Russian-African International Business Club. Alexander spoke about the nuances of doing business in Africa, finding a partner to enter the market and the reasons why the continent is a Klondike for any entrepreneur.

Economic and political features of the region

Many developed countries are now stagnating or under pressure from counter-sanctions. Africa is geopolitically neutral, although the interests of developed countries intersect there: India, China, the USA and European countries.

The region lags significantly behind developing countries in technological and financial processes. That is, it develops from a “low base” — at this level of economic development, business can grow rapidly.

Also Africa — one of the points of demographic growth, which in the next 30 years, according to Alexander, will be the leader in fertility.

It is worth considering the colonial past, because of which many African countries dislike some developed countries, for example, Great Britain, France, Spain and Portugal. Unrest continues in some regions to weaken the influence of Europe and strengthen the position of China, India or the United States.

Africans are quite friendly towards Russia: since the times of the USSR they have been given full support — humanitarian, economic, social. But now less funds are allocated for this direction. However, African countries are ready to offer political and administrative resources to Russian business.

There are many Chinese and Indian investors in Africa. China views the continent as a strategically important region — they are expansionists. It is difficult for Russian entrepreneurs in the region to come to an agreement with European or American investors, but Chinese ones are ready to cooperate. But Africans understand that it is easier for Russia, since our founders are not committed to the economic expansion of an entire continent.

But Russian business in Africa lacks PR. Little is said about successful companies on this continent.

Klondike of possibilities

There are 54 states in Africa. There are developed economies: Egypt, Kenya, Nigeria and South Africa. They have free economic zones, accelerators, and investment funds. However, Alexander does not advise going to Africa for investment.

Fintech

Africa — This is a Klondike. For example, in countries there is no such developed online bank as Tinkoff. In general, there are not many fintech projects, although they are showing rapid growth, allowing them to enter international exchanges.

Digitalization, automation, information support — Africa has a shortage of all these technologies. At the same time, there is a rapid influx of Internet users, mobile applications and games — some countries even surpass Russia in terms of audience size.

In Kenya there are banks and microcredit organizations with Russian capital, they have more than 1 million users. Among the founders of such projects, for example, Mikhail Lyapin — founder of Exotic.vc.

But digital currencies have not taken hold in Africa. There was a project in Kenya that closed after a few days. Now the trend is to introduce it in Zimbabwe, but there are few prospects: a small country and a poorly developed economy. For some time the state did not have its own currency and they paid in dollars.

Africa is interested in alternative instruments for cross-border payments. For example, there is the African Union, which includes most countries in the region. They have the ability to transfer money between banks in these countries, but this is clearly not enough for the entire region.

Other areas

«Afroinvest» launches investment funds in Mauritius, develops conservative investments in real estate in South Africa. Some areas of Cape Town are showing an increase in price per square meter. An investor can receive up to 20% per annum in dollars.

Engineering technologies are especially in demand — energy and mining industry. Energy infrastructure and its maintenance — in priority. For example, a Russian entrepreneur can now start a gold mine in Zimbabwe.

Agriculture is developed in the region. In Zimbabwe, for example, there is good beef without additives, but there is a ban on its export. However, Russia actively trades with African countries in fruits and wines, as well as other food products.

Africa does not yet have the infrastructure for venture capital, but the prospects may be interesting. South Africa is promising — as a BRICS country it has increased its influence. Given the growing number of external investors, the possibility of a new Silicon Valley emerging is in South Africa.

Features of entering Africa

To establish work with the region, there are political and business structures from Russia and Africa. They provide little support, but help to participate in business and diplomatic missions, as well as conferences.

Know your partners by sight

For example, the Russian-African International Business Club. Ambassadors of the republics participate in the meetings; they share recommendations with entrepreneurs from different niches and can help with finding partners. Club members can connect you with local companies and lawyers, and this way you can gradually enter the market. Alexander advises staying within communities and associations: they will help you not get confused in the complex world of Africa.

Business delegations are useful, within the framework of which not only conferences are held, but also meetings with partners. A track is developed for each participant, after which he meets with members of business communities and elder leaders. Their position can be compared with Russian municipal employees.

It is impossible to enter the market remotely in Africa. Of course, sometimes you can call each other online, but local partners won’t trust people they don’t know personally.

Take into account the interests of local

The interests of the local community are important. For example, if you are building something, make a school nearby.

Each country has its own laws. Some states require that 51% of the company be owned by a local co-founder. But in some cases, you can use a trick: draw up an agreement formally fixing this percentage, but sign an agreement with your partner on a different share. Lawyers will help with this.

It is still better to do business with a local partner and co-founder— It will be easier to negotiate with other companies from the region.

Also in Africa, you will often have to take care of the infrastructure of your enterprises yourself. For example, there may be no electricity near the future plant — and the entrepreneur himself will have to build the power plant. It's the same with water. Even in South Africa there are blackouts, and in general this is the norm for African countries. 

It is important to understand the specifics of governance in African countries. Like in Japan, there is clanism and family. Some regions are led by the military, they have their own interests that need to be taken into account, especially if you go into raw materials projects.

If you do business in the Congo or Sierra Leone, you may need a small army. Otherwise, production will change hands, and you will have to drive an armored car.