Africa the Country: The Prejudice that is Hurting a Continent and Investors

Many people from the US and Europe tend to group the different countries of Africa into one generalized nation of Africa

by David Matthew Breazzano, MBA ’16, EMI Fellow

In the second day of classes on exchange in Cape Town, the lecturer of Markets in Emerging Countries asked the class their thoughts on doing business in Africa. The responses were clichéd, such as one must be mindful of extreme corruption, extreme poverty and political instability. The lecturer smiled and responded that these are the typical generalizations that afflict the African continent. He then went on to talk about how one of the biggest challenges facing African businesses is that they get labeled as African companies and not a Zambian or Ghanaian company.

He went on to talk about how Africa is a large continent with 54 different countries. These countries have different governments, cultures and economies. However, many people from the US and Europe tend to group the different countries of Africa into one generalized nation of Africa. So, if people hear of violence in the DRC or hyperinflation in Zimbabwe, many will attribute those dilemmas to all African countries.

A recent example is that tourism in countries such as Tanzania that are thousands of kilometers away from where the Ebola outbreak was taking place were being negatively affected due to foreigners’ misperception[1]. These misconceptions have a large impact as investors not only add a country risk to an African company but they also add a continent risk. This causes many African nations to struggle to get capital from investors.

When talking to several entrepreneurs in Botswana and Namibia, it was learned that the biggest challenge that their countries are facing is the lack of capital. They stated that investors see too much risk dealing with an African company, which makes investors too wary to lend loans to companies. When asked what concerns investors have with lending to Botswanan or Namibian projects, the entrepreneurs said the main concern is corruption. The interesting thing is that both of these countries are relatively not corrupt. According to the World Democracy Audit both nations are in the top 40 least corrupt countries ahead of the G7 country Italy[2].

In a Strategic Brand Building class at UCT, a marketing executive for Bos, a South African ice tea company, told the class that the company avoids marketing the company and product as South African. The reason being that he had seen many investors get turned off from investing if South Africa was prominent in the marketing strategy. Investors believed that consumers would be turned off and think the quality was worse just because the consumers thought it was from an African company. The misconceived notion that all African countries are the same and that dealing with a company from Nigeria is the same as dealing with a company from Mozambique is detrimental to the growth of African businesses.

It also holds investors back from potentially profitable investments. By now most people have heard the claim that seven of the ten fastest economies are from Africa. Looking at them individually, one can see some of the growth that these nations have achieved despite lack of access to capital. According to the CIA World Factbook, Rwanda has had consecutive years of over 6.5% real GDP growth, Tanzania has seen three years of close to 7% real GDP growth and Ethiopia has seen three years over 8% real GDP growth[3]. So, to avoid missing out on the potential growth opportunities that many African countries can provide, investors need to get rid of the prejudice against African companies. Instead of overestimating the risk of an investment because it is in the “country of Africa,” investors would be better served using professor Karolyi’s country risk assessment.

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[1] (n.d.). Retrieved March 16, 2016, from http://edition.cnn.com/2014/10/17/travel/africa-safaris-ebola/index.html

[2] World Audit Corruption. (n.d.). Retrieved March 30, 2016, from http://www.worldaudit.org/corruption.htm

[3] Africa :: Ethiopia. (2016). Retrieved March 30, 2016, from https://www.cia.gov/library/publications/the-world-factbook/geos/et.html