Category Retirement
SUB CATEGORIES General |  Savings & Investments |  Annuties | 

In Africa

17 August 2004 Angelo Coppola

Alexander Forbes’ recent decision to acquire a controlling interest in an Ugandan Insurance Brokerage has increased their presence to twelve countries on the African Continent, underpinning their position as the largest company of their kind in Africa.

Michael Duncan, an executive director of Alexander Forbes Risk Services with specific responsibility for AfriNet (their African network) said the Ugandan acquisition demonstrates the company’s optimism about future growth prospects for the rest of Africa, particularly in the light of Nepad (the New Partnership for Africa’s Development).

Duncan said that in addition to adverse economic conditions, doing business in certain African countries has distinctive challenges and problems, including.

  • Restrictive regulations and / or excessive bureaucracy, is one such challenge that is often encountered, whether this be in the licensing process or where an Insurance Regulator insists on vetting all new policy wordings.
  • Limitations in respect of foreign ownership poses another challenge.  In Kenya, for example, a foreign investor may own a maximum of 40% in an insurance brokerage.
  • Corruption in both the public and private sectors can expose South African companies to often unanticipated risks. Although some African countries, such as Kenya, have introduced anti-corruption policies, issues of bribery and corruption still remain a major problem with tenders often awarded for reasons other than merit.  
  • “Bribery is often considered ‘part and parcel’ of the business culture, whether the approach be explicit or covert,” said Duncan. 
  • “South African companies operating in Africa need to be cognisant that a code of ethics is not always adhered to as part of normal business practise in certain African countries. However, accepting or paying bribes of any nature will jeopardize a company’s reputation,” he cautioned. 

“To avoid the risk of irreparable damage to their brand, South African companies operating elsewhere in Africa must ensure transparency in all of their dealings, as bribery can be covert and presented in an apparently legitimate manner. 

“Clearly, refraining from doing business with a company where there is a suggestion that some form of bribery or corruption may be involved is the most prudent approach.” 

He further said that, in general, corporate governance principles are often not imposed or adhered to as diligently in other African countries as they are in South Africa. 

Inconvertibility of currencies and / or inability to repatriate dividends is yet another challenge. The most obvious example is the Zimbabwean dollar, where the unofficial exchange rate is in the region of 1000 to the Rand, causing many foreign-owned companies to ring-fence the results of their local subsidiaries and associates.

In Malawi, remittance of dividends and other payments is often delayed by the Central Bank (due to a lack of forex), meaning that payment for services provided for from South Africa, such as IT and other services is often problematic.

Infrastructural limitations such as poor internal transport or postal service in certain African countries can hinder business operations.  Communications can be unreliable because telecommunications networks are not as established or advanced as in South Africa. 

“Postal services in certain countries such as Mozambique, are unreliable, consequently documentation needs to be hand delivered or collected rather than posted and the cost thereof needs to be factored into business expenses.

“Internal airlines and the road infrastructures in many countries are not what South Africans are accustomed to, making internal transportation problematic and time consuming,” commented Duncan.

In addition, rental, technology, communications, travel, entertainment and other operating expenses are often higher than we tend to expect in South Africa.

A culture of late or non-payment is prevalent in many African countries , which, if not well managed, can result in potential cash flow problems and exposure to bad debts.

“Other challenges include the increasing difficulty in obtaining work permits for ex-pats and the lack of suitably qualified and experienced nationals, punitive labour relations legislation and the high cost involved in retrenching people and the problems associated with managing from a distance,” said Duncan, “ which are best overcome by appointing a strong local management team,” he added.

Furthermore, certain business practices are unique to certain countries and cultures, and failure to understand and address these cultural sensitivities can make doing business in Africa difficult. 

By way of example, many countries (such as Mozambique) adopt a more formal approach to transacting business than is the case in South Africa, in terms of which there is an implicit requirement that interaction between organisations should take place at the equivalent level of seniority.

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