Challenges Facing New African Businesses

Editor’s Note: This piece was contributed by Eve Pearce

There has rarely been a better time to start a new business within Africa. With a few exceptions, the economies of Africa’s major nations are on the up. Despite a recent slowdown in the continent’s general economic rise, the future looks rosy. Little wonder that brand new business people are seizing the chance to let their entrepreneurial spirit take the reigns. However, it’s not all smooth sailing. There are still lots of challenges to overcome if your fledgling business is going to make it in the African economy.

Financing

You have to have money in order to make money, as the saying goes. Unfortunately, it’s true. While you can build yourself up from scratch, it helps if at some point during that process you’re able to save up enough money to get yourself to the next level. Hand-to-mouth operations simply don’t progress. Finding the funds to set up or advance a business is a major headache for plenty of African entrepreneurs. Having been in the economic doldrums for some time, many African nations simply don’t have the resources (yet) to offer the kind of monetary grants and fiscal incentives which other nations can throw at new businesses. A lack of funds for new ventures is, therefore, something of a challenge. However, it’s not an insurmountable one. There are funds out there for those who have the time, guts, and tenacity to hunt them down. And, as our economic climb continues, it’s likely that more grants etc will be made available. In the meantime, however, a lack of basic funds throws up all kinds of challenges for new African businesses – particularly when combined with other problems which first-time ventures may encounter. Anything is surmountable with enough money. Unfortunately, enough money is precisely what a lot of new African entrepreneurs do not have.

Risk

Somewhat related to a lack of funds is the presence of great risk for new African ventures. Without a financial cushion or other such provisions to bolster your business, the prospect of financial ruin in the face of trials looms large. Businesses which have the resources to stand firm during the inevitable hard times are at a considerable advantage. Unfortunately, many African start-ups do not have the resources to put funds aside, and may lack the know-how required for effective crisis-management.

Added to this is the fact that insurance is either expensive or unavailable for many new African businesses – and that many African entrepreneurs do not trust either banks or insurance companies. While there may be good reason for this, it does leave them high and dry when disaster strikes. Sure, taking the risk and striking out without a strategy or resources set aside for hard times can pay great dividends. But it can also destroy your business. When the stakes are this high, it’s well worth putting a risk-management strategy in place. Apart from anything else, doing so will reassure potential customers  and investors that you and your business are a safe pair of hands with which to trade.

Infrastructure

Companies starting up in the extensively developed Europe and Americas are generally able to plug themselves with ease into a network of well-established infrastructures. The work of providing communications links, transport connections, energy, and other such vital resources is largely already done for them. Not so in many parts of Africa. The untrammelled, unbeaten, undeveloped nature of the African continent is one of its greatest strengths – but it does present challenges for the fledgling business.

Unless you’re setting up in a major city (or running the kind of business which doesn’t need a lot of infrastructure to operate) then it’s likely you’ll need to splash the cash on a private generator for power, and go to great lengths to transport products, staff, and resources – all of which puts running costs up considerably. Not to mention the immediate issues with sporadic internet access and negligible communications facilities in an age which is seeing businesses rely heavily upon the internet. Again, the infrastructures of many African nations are developing fast, allowing more and more startups access to the communications and resources that they need. However, in the meantime, those without the funds to provide their own infrastructure frequently find themselves struggling.