Challenges of Doing Business in Africa

Challenges of Doing Business in Africa

DOI: 10.4018/978-1-4666-4570-7.ch009
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Abstract

This chapter enumerates and discusses fully the challenges of doing business in Africa. Other scholars (Ortiz, 2010) have described these challenges or environmental factors as a framework consisting of Social, Legal, Economic, Political, and Technological (SLEPT) conditions of a country for investment purposes. This framework, when combined with an appropriate granular measures model, proves useful to multinational companies, governments, individuals, and international organizations at the time to assist them in making strategic decisions and establishing investment priorities in Africa. Moreover, this chapter goes into the micro-level and looks at specific environmental factors that create challenges to the exploitation of African business opportunities. From that point of view, it reviews and explains concrete strategies to create business pathways in Africa.
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1. Introduction

Challenges of doing business in Africa are a global reality but the African governments are reforming the influencing elements, in their business environments, in creating these challenges. Therefore, there are many institutional, economic, business, political, and social challenges that face Africa today. These challenges also include marginalization of Africa from the global economy, scarce development finance, healthcare, poor infrastructure, climate change, poor leadership, and weak governance. Poor leadership and weak governance persist in virtually all African countries today.

The other specific and direct categories of the investment climate factors that present challenges in Africa, already discussed above, include: Starting a business, Dealing with licenses, Hiring and firing workers, Registering property, Getting credit, Protecting investors, Paying taxes, Trading across borders, Enforcing contracts, and Closing a business. But, many African countries continue to vigorously reform many of these elements today to create an attractive business climate.

Conflict and post-conflict reconstruction challenges prevail in many African countries, although in a lower scale today than before, hampering development efforts. Unemployment, chronic hunger, and endemic poverty stand out as major long-term development issues and problems for the continent to address. These problems persist despite the continent having large tracks of arable land and being well endowed with other environmental resources including a large amount of underground water (ERA 2010).

In most countries, these issues and challenges are interrelated and strongly interacting with each other. Poor leadership and weak governance, for example, breed conflict and make post-conflict recovery difficult. Unemployment and poverty—thus limited purchasing power as a business opportunity—become more entrenched where conflict, poor leadership, and weak governance persist (ERA 2010).

Furthermore, achieving economic growth and running a business in Africa has been some of the most daunting challenges in the last several decades. Since the 1980s, growth on the continent had been elusive, with economic stagnation and retardation becoming the defining characteristics for most African countries (Kempe, 1997). Concerted efforts by international development financiers, donors, and non-governmental organizations, including Multilateral Financial Institutions (MFIs), did not make significant headway in reviving African economies. This is despite the experimentation of several development models and paradigms, most of which emphasized structural reforms and were foreign designed and therefore alien to Africans (UNCTAD, 2003). These foreign designed programs increased poverty in Africa, particularly in the 1980s and 1990s. These were the decades of IMF and World Bank led structural adjustment programs that starkly failed to revive the African economies (Moyo, 2009).

The late 1990s, however, saw a significant shift in Africa’s development paradigm. This led to increasing attention being given to Africa’s participation in its own development planning. Increased ownership of its own development initiatives, strategies, capacity building of African professionals, knowledge management, and improved governance, among other development issues, became the hallmark of change in Africa (ERA, 2010).

At last, since the turn of the new millennium, Africa has generally started recording impressive economic growth—at fairly high growth rates—on a fairly consistent basis, especially over the last ten years, slightly interrupted by the 2008 world financial and economic meltdown (Kamara, et al., 2008). For example, the African Development Bank estimates that African GDP will, on average, grow at more than 7.5% in 2010 and beyond (Benoni 2010).

Despite Africa being able to see light at the end of the tunnel regarding the continent’s economic development and in presenting business opportunities, there still continues to exist many challenges in ensuring sustainable growth and promotion of business in Africa. In the scheme and process of doing business in Africa, challenges should be surmountable. They are short-term impediments that are present in the African business environment—as discussed above—that can be overcome mostly by attitude, policy, and institutional reforms. And changes are inevitable if Africa hopes to prosper to improve the living standards of its growing population.

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