African growth increases as CEO’s show open optimism

As we steadily move into 2014, there is a general consensus that the global recovery from the 2009 financial crisis will take centre stage as many global economies find themselves in a fairly stable condition.

In order improve on this and achieve levels similar to those that were found before the onset of the crisis, companies who are geared towards growth will look towards expanding their growth aspirations in an effort to look for new growth areas.

Africa has always been an alluring option for international companies, but many expect that 2014 will be the year that African expansion will take the centre stage.

Beaming with confidence

This has left many African CEO’s openly optimistic about the growth of their markets and the opportunities that come with foreign investment. PriceWaterhouse Coopers, East African Financial Services Leader, Richard Njoroge, says that this can only benefit African countries, which have seen very little growth over the years.

The level of confidence in terms of growth prospects and confidence in economies among African CEOs is consistent with what everyone has been saying about opportunities in Africa.

"Four of the world’s ten fastest-growing economies are in Africa. We are seeing rapid growth in consumer spending and local demand in African countries. This, coupled with an improving macroeconomic climate and governance, will ensure that Africa continues to grow at a faster pace than more developed economies. With the stagnation that we have seen in Europe and the US, investors are looking for new opportunities elsewhere, and it is no wonder that we have seen an increase in the interest shown by private equity funds in Africa,” says Njoroge.

Africa is still not a place for the faint hearted

While there is significant optimism surrounding African growth, one must remember that there are still significant risks associated with this growth.

"Let us not delude ourselves. There are still major challenges to doing business in Africa, and some investors still view Africa as a risky place to do business. There are risks related to infrastructure, which is an issue that companies have to deal with. There are also issues surrounding governance. Not just at the corporate level, but at the national level too, where lack of good governance can contribute to a culture that permeates down to businesses. Although, we are seeing improvement in that area, it is still a challenge for a lot of African countries,” says Njoroge.

Njoroge points out that political and security risks, whether real or perceived, impact business on two levels. Firstly, global investors may think that Africa is too risky a place to invest in, whereas we know that businesses who take the time to analyse and study the situation in Africa understand that specific risks can be mitigated.

Secondly, political and security risks affect businesses that are already here. This may, for example, affect the relationships that banks have with correspondent banks, where correspondent banks seek to limit their exposure because of a perceived money-laundering or terrorist financing risk, or make facilities available, but price them to reflect the perceived risk.

Focused growth is good growth

South Africa has a well-established financial services industry where companies have been serving the market since the industry’s birth. Brokers and advisers are an integral part of the South African system, they follow and abide by long standing business principles which would prove successful in the African landscape.

But growing for the sake of growth is not going to guarantee success. Njoroge points out that those companies need to be focused when it comes to achieving specific goals. This will provide a greater guarantee of success. And finding the right balance between growth and good customer service is a key element of this. An insurer is only as good as the service they provide to policyholders when it comes to claims.

"It’s clear that financial services companies must look at both of these elements if they are to succeed in Africa. There is a lot of potential in the sector. The insurance industry, for example, where there is very low penetration of insurance services among the population in most African countries, presents a huge opportunity for growth. It is a question of raising awareness about the products on offer and their benefits, and at the same time changing some of the perceptions among the population of the insurance industry. The demographic changes we are seeing in Africa, such as greater urbanisation and a growing middle class, will inevitably lead to substantial growth in this sector.

Njoroge adds that if you look at the banking sector, Africa has a huge unbanked population, although some banks may question whether this population is really bankable in the first place, and whether it is possible to service them profitably. Some organisations have been bold enough to penetrate that sector. It is clearly a question of understanding those customers, whose needs are different from more affluent customers or corporate customers, and responding to those needs. If insurers and other industry stakeholders can adopt a similar approach, success will be inevitable.

"Overall, I don’t think that companies within the financial services sector have a lot of options but they have to be innovative in the area of customer service. Customer needs and preferences are changing, and to remain competitive, the industry needs to stay up to date with the products and services that will meet those needs. Progressive organisations spend a lot of time trying to analyse and understand customer needs and respond to them. Sometimes we see multinationals trying to replicate things they’ve done in other countries. This doesn’t always work. However, you’ve got to understand the needs of your particular population, and tailor your products and services accordingly.”

Editor’s Thoughts:
African growth will provide companies, as well as brokers and advisers an opportunity for establishing a new client base, that will generate new business, which is in high demand. But expansion into Africa needs to come off a well thought out strategic plan, because the past has proven that companies who are not properly prepared for African challenges will be doomed for failure. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].

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