Going into Africa as a small business

Trading across borders is a risky business, but the potential returns are high. That said, having a successful business in South Africa is not in itself a good enough reason to consider exporting it. The first leg of the biannual My Business Expo, held at Gallagher Convention Centre in Midrand on Thursday, treated delegates to panel discussions on how to go about getting their businesses ready for cross-border trade, among other things.

The key focus of those discussions, was expanding into Africa, where the risks are particularly high because of the poor interconnectedness between countries within the region, meaning every country had its own set of rules and regulations, which entrepreneurs had to be well acquainted with if they are looking to go into a particular jurisdiction.

First National Bank head of global business development Zak Sivalingum, said South African entrepreneurs were perceived as arrogant in other parts of the continent, because they often assumed that, because their business had been successful in South Africa, that should necessarily be the case in those other African countries. He said delegates needed to take time to understand a market, know its culture and be open to learning the way those people do things instead of trying to impose their model for success.

“You can go to the Department of Trade and Industry, who deal a lot with getting companies export ready,” said Sivaligum. “But you can also go to your bank.  All of the big-four banks have a private advisory firm that they consult with, which has extensive knowledge of most of the markets on the African continent.”

Ashlin Perumall, senior associate at law firm Adams & Adams, said no two African countries were the same and, as such, entrepreneurs had to thoroughly investigate the prospects of the market, not only in terms of whether their product/service would do well there but, more importantly, what the regulatory framework for that sector was in that country.

“You have to find out what it takes to register a business,” said Permuall. “In most cases, you will have to register a company in that jurisdiction, so you have to find out what compliance procedures you have to follow. You might, for example, need a specific licence in order to open a particular kind of business.”

Permull adds that one also needs to know what kind of exchange controls are in place to understand the restriction that government may put on money that goes into the business, as that would determine how much of your profits you would be able to repatriate. Similarly, tax regimes vary between countries so you would have to become acquainted with that as well.

Said Perumall: “It’s an expensive undertaking to be able to make sure that your bases are covered, and that’s why larger corporations are better able to enter other markets. But entrepreneurs have to try to be resourceful and do the best with what they have at their disposal. For example, when they go to a law firm (in order to get the legal paperwork done, the entrepreneur should tell them to prioritise the most critical aspects of getting the business ready for cross-border trade).”

Logistics

Fatima Sullivan, vice president of customer services for DHL Express sub-Saharan Africa, said logistics where a crucial part of the process, particularly because of the lack of infrastructure that remains in many parts of continent.

“If you get that wrong, your business will have a fundamental flaw, because you can’t deliver product to your customer,” said Sullivan. “So it is important to ensure that the logistics partner you’re dealing with has a track record of operating in the region you want to go into.”

Nevertheless, she said going into Africa, as daunting as it may seem, was becoming easier with every technological advancement.

“You could start a business right now, and by virtue of having a good website, and having the right systems in place, you could trade across borders from day one.”

Only for the strong

David Sanni, business development director of Damars Group, said there were ample opportunities for small business on the African continent, but that one needed to be resilient.

“For example, in most of the African countries, you can’t register a business unless ownership is shared between (yourself) and two people who are citizens of that country,” said Sanni. “It’s not like in South Africa where, even as a foreigner, you can start your own business and be the only director.”

Another stumbling block, according to Sanni, is corruption. He says it is often very difficult to overcome red tape involved in doing business without paying bribes or engaging in some or other form of corruption, and this is s stumbling block for many people.

“You’ll find that many business have acquired funding in order to access these markets but that cost was not factored in. So they refuse to engage in corruption, and this often delays the process by a much longer time, and in some cases it has led to businesses failing…However, if companies can stick it through and find a way to make it work, the rewards of being in those markets can be very big.”

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