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Analysis > Analysis and Strategy

Sustainable foreign investment demands local understanding and due diligence

Jonty van Zeller, Founder, Alamaya
Sept. 17, 2020, 6:20 p.m.
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Word count: 784

As the UK’s departure from the EU draws nearer, its government is increasingly seeking closer trading relationships with the countries of Africa. In its sights are Nigeria, South Africa and Kenya—the three largest sub-Saharan economies—and already, British Prime Minister Boris Johnson and Kenyan President Uhuru Kenyatta have agreed to begin negotiations on a post-Brexit trade agreement. 

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As the UK’s departure from the EU draws nearer, its government is increasingly seeking closer trading relationships with the countries of Africa. In its sights are Nigeria, South Africa and Kenya—the three largest sub-Saharan economies—and already, British Prime Minister Boris Johnson and Kenyan President Uhuru Kenyatta have agreed to begin negotiations on a post-Brexit trade agreement. 

This follows January’s UK-Africa Investment Summit, which made it plain that there has never been a better time to consider investing in the continent. Indeed, the UK’s Department for International Trade (DfID) is playing a part in guiding private business investment. But though government assistance in this area is a start, gaining a competitive edge in Africa demands on-the-ground experience and an understanding of local laws and regulations. Political knowledge has a part to play too, and countries in Africa have tested the resolve of many an investor: timescales and return models fit for other markets do not always work. Even well-established companies must occasionally change tack. A famous example is Nestlé, who once cut 15% of its workforce across 21 African countries. 

Though it is not without risk, Africa, along with Asia and South America, provide nearly all the remaining opportunities for high-impact investment. But that risk can be mitigated or removed if investors in Africa act global and think local. They must work with local partners who have a history of integrity and who understand the local environment; these are the people who can identify obstacles, such as work permits, tax systems and the need to transfer of skills to local workers. They can also help investors to navigate the complexities of compliance, helping to gain market access and secure a license to operate.  

These partners understand the culture. They can inform investors of the nuances and insights that are needed to cultivate a successful business relationship. A common error is drawing a line between security and community relations when, in actuality, they are indivisible. If the members of a community in which you operate trust you, they will cooperate with you. If they do not, you may have trouble  on your hands: effective partnership management is crucial.  

Understanding cultural and local dynamics can be the difference between successful investment and one which risks a firm’s reputation, costs money and endangers employees. In Kenya, for instance, cultural differences undoubtedly play a major role in politics. Outsiders repeatedly fail to appreciate this and suffer as a result. 

The best time to engage with African governments

No doubt the worry now is that COVID-19 is putting pressure on treasuries, and so African governments will hope extract as much money as they can from foreign investors. But this is an outdated view of how modern African governments operate. Indeed, now is the best time to engage with African governments. Due to restrictions on travel and reduction in expenditure across a large number of companies—especially  those in “high-risk” territories—competition for lucrative government contracts is low. The opportunity, therefore, is vast. 

It would seem that the help of the UK government, from DfID and the British Chamber of Commerce in Nairobi, would be of great use to businesses hoping to secure government contracts. But if investors want a truly competitive advantage, they need local knowledge as well as political knowledge, and this in turn requires investment in due diligence and compliant intermediary partners. Businesses may think that because they speak to ministers and senior officials they have a good sense of what is going on. But this is a mistake. Things are more complex than they seem. Due diligence may cost money, but in an interconnected and volatile world, no investor can afford to ignore its importance and put themselves at risk. 

Due diligence is nothing new. Those organisations far-sighted enough to understand its importance have long enjoyed its benefits. It can provide crucial information around market entry, supply chains, executive hiring, mergers and acquisitions and regulatory compliance. It can help investors to predict outcomes, identify future decision-makers and influencers, anticipate political developments, and thereby make better strategic decisions in the present. But though intelligence is nothing new, and though its value is understood by many, in Africa, it is not just important, it is the key to sustainable, profitable foreign investment. 

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Alamaya is a compliant intermediary solutions provider in Central and Eastern Africa for international corporations and governments. https://www.alamaya.co

Jonty van Zeller is the founder and Director of Alamaya. He has been working in East and Central Africa for over eight years in the security, defence, logistics and humanitarian sectors. His management roles have included working for World Food Programme (WFP), Kellogg Brown and Root (KBR) and Salama Fikira. He is the representative for the International Stability Operations Association (ISOA) in Africa.

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