Why Expanding Your Business Into Africa Is a Wise Move

Part 1: What Does the Market Look Like?

Deciding to expand a business internationally isn’t always the easiest decision. It requires due diligence that must include market research, supply chain considerations, and of course, a sound expansion plan—and that's just when expanding domestically.

International expansion plans increase this process tenfold in terms of both research and intensity. However, the benefits of pursuing economic opportunities in international markets outweigh the challenges of planning—if planned wisely. And that begins with identifying advantageous target markets. For an increasing number of organizations, that means expanding into one or more of Africa’s 50+ countries.

Africa’s unique emerging market offers excellent growth opportunities and an able and skilled workforce spanning much of the continent. As the world’s most central continent, it’s the perfect hub to reach the rest of the world. It's also considered one of the most profitable regions in the world, as it’s home to some of the most profitable businesses, making it a top choice for short- and long-term expansion projects.

Companies like Sonatrach and MTN Group are some of the top-performing companies in Africa and, as the economy keeps growing, these companies will enjoy a continuous upward curve in revenue.

As of 2023, Africa has experienced GDP growth from 3.8% to 4% and is still showing great potential for further growth. When including all countries across the continent, the total GDP currently stands at an estimated $3.1 trillion, and upward trends indicate an expected growth of approximately $2.1 trillion. However, as Africa includes 50+ economically, politically, and culturally diverse countries that offer different expansion opportunities and challenges, wise organizations will explore different countries and regions before committing to the continent.

Despite the booming economy, expanding into Africa doesn’t come without its challenges; the African business market remains underestimated and misunderstood by many. But if managed well, investing in Africa will yield high returns. Whether or not a business expands into Africa will depend greatly on the sector and the organization’s growth plans. No matter the industry, it’s essential to perform proper due diligence before making the move. The following sections will focus on the pros and cons of expanding into Africa, the challenges expansion may impart, and a proven solution to mitigate risks and capitalize on unique opportunities across the world’s most promising market.

The World's Second Largest Continent Is Expanding Its Economy

By landmass, Africa is the second-largest continent and home to 1.43 billion people, rich with culture and unique opportunities for foreign businesses, depending on the country. Countries like Nigeria are relatively easy to enter because they don’t impose strict regulations regarding foreign investment. On the other hand, countries like Libya offer more lucrative deals but take much longer to get into due to complex entry procedures and high-risk factors.

In other words, many investors worldwide realize African markets’ collective potential, and it’s not just because it’s an often-untapped market: it’s because there’s real opportunity here. Countries throughout the continent have also made significant efforts to overhaul their technological infrastructure. In an age when ecommerce and mobile technology reign supreme, the importance of this milestone cannot be overstated.

For example, South Africa is one of the largest information and communications technology (ICT) markets in Africa. There are now nearly 50 million internet and cell phone service hotspots, making it easier for businesses to reach potential customers. Technological advancements have made it easier for South Africans to connect with the world and have improved productivity, notably in the financial sphere.

Perhaps the most exciting development in the broader African marketplace is that consumers are becoming energized. They want to become part of the broader global economy and gain access to the world of ecommerce and online buying that has developed in other regions around the world.

These factors indicate access to a motivated and robust customer base ready to see what a business offers—and businesses are offering more than ever before.

More than 400 companies in Africa earn annual revenues of more than $1 billion and, on average, experience accelerated growth, proving more profitable than their global peers.

Partially due to sluggish global GDP growth, Africa’s economic acceleration presents more lucrative opportunities for businesses. Africa is a truly untapped market and, subsequently, the opportunities for financial gain are vast. Investing in Africa opens more avenues for growth due to:

Unfulfilled demand for goods and services.
Needs for closing the gaps in infrastructure.
Job creation and poverty reduction potential.

It’s a win-win situation: by investing in Africa, businesses can grow and simultaneously contribute to the African economy’s acceleration.

What Does It All Mean for You?

A common misconception about Africa is that it’s too underdeveloped for global business, but the truth is, Africa is rich in resources, and the technology, education system, and economy have grown significantly. For business leaders, the African marketplace provides a fresh and invigorating opportunity—one that could potentially benefit a company for years to come.

Currently, the three largest economies in Africa are Nigeria—with the highest GDP at approximately $442 billion—and South Africa and Egypt following at second and third, respectively. The most notable factors contributing to the economies of these countries include population size, natural resources, and level of economic development. Libya is currently experiencing the highest growth rate.

What makes it difficult for African businesses to grow is the lack of access to capital. This is why getting foreign investors involved can be a highly lucrative venture. Through international investment, African companies can expand, create jobs, and fight poverty.

Given the current state of the market, it shouldn’t be too difficult to understand exactly where things stand across the continent—and it’s clear to see that expanding into Africa would undoubtedly be a wise move.

3 Reasons Why Expanding Into Africa is a Good Idea

Africa is rich in resources

For those investing in resources such as crude oil and precious metals, Africa offers sustainable growth by mitigating the need to import them. The main reason Africa isn’t capitalizing on its resources is a lack of funding and infrastructure, and foreign investment can alleviate this.

In 2022, Nigeria’s crude oil exports accounted for 96% of its revenue, while Egypt’s export revenue is generated by its export of precious metals. Investing in Africa can facilitate exponential growth because of how deep its resources run.
Continuous workforce growth

The African workforce is young, growing, and eager to work. However, some countries’ economic struggles, relative to non-African nations’ economic stability, push many skilled workers to seek work outside of the continent.

With the right investments, however, companies can capitalize on skilled African workers and contribute to economic growth. Currently, the African population sits at 1.43 billion, offering a myriad of skilled workers.

Expanding to Africa means that companies can take advantage of a young, growing workforce, of which approximately 60% of the population is under the age of 25.
High demand for foreign investors

Africans are high technology adopters and embrace new ideas and business ventures, making it an innovative investment destination. Due to the high demand for development to expand infrastructures, sound investment opportunities exist that would be lucrative for virtually any business.

Although Africa is rich in resources, technologically advancing rapidly, and has a young and able workforce, it lacks capital to boost the economy, which is why demand for foreign investment is so high. To reach its full economic potential, Africa can expand its economy with the help of international investors. Expanding into Africa would mean a spike in its infrastructure development and, in turn, accelerated economic growth.

Pros and Cons of Expanding Into Africa

Investment comes with risk, and expanding into Africa is no exception. Although the pros outweigh the cons, it’s important to be cognizant of them to ensure risk mitigation.

Pros

Profitability potential: Africa is one of the most profitable regions in the world.
Untapped growth: Its economic growth prospects are among the globe’s highest, due to a confluence of economic, social, and technological factors.
A young, eager workforce: It’s a formidable market due to the growing youthful population amidst other regions’ aging populations.
Strong value chains: A large deposit of natural resources promises better development of value chains.
Sustainability opportunities: Africa can lead in sustainable development, as it is still generally an untapped market.

Cons

High perception of corruption: Sub-Saharan Africa has some of the world’s highest corruption levels, which can discourage investors. However, this remains a country-specific issue, mitigated by due diligence.
Poor public infrastructure: Relative to the cultural West, much of Africa operates on poor public infrastructure. However, this opens new avenues of opportunities for investment growth.
Difficulties in understanding local dynamics: As with any country, investors must work to understand local paradigms to ensure a proper business fit.
Political uncertainty: Like corruption concerns, country-specific political situations remain a risk. Investors must understand their target market’s political environment before operating in-market.
Security challenges: Employee safety and data security are important aspects of expansion and due to the lack of infrastructure and capital in Africa security challenges arise.

The key to risk management when expanding into Africa is to get a clear understanding of the landscape, politically and culturally. Although it may seem like Africa is an insecure investment opportunity, decision-makers should bear in mind that the problems they face aren’t that different from other economies. As with any other country, investors need to work with local partners to manage challenges and expectations.

Top Industries to Consider for Investment

Africa offers unique investment opportunities in different industries due to demographics and natural resources. The growth prospects differ from country to country and industry to industry. Below are just some of the fastest growing industries in Africa to consider when weighing expanding onto the continent.

Banking and finance

The banking sector has become more established in the African economy over the years and now offers lucrative investment opportunities. It’s an important source of employment for many Africans and is a sound business decision with mitigated risk. The added level of mobile and internet connectivity has made it easier for Africans explore mobile banking opportunities and essentially change the way they do local and international banking.

Telecommunication and information technology

The adoption of technology in Africa has been impressive considering the lacking infrastructure. Over the past few years Africa has experienced a technology boom making them more connected through wireless internet, The evolution of the internet in Africa makes it a contender with more connected economies for seamless integration and connectivity. As technology continues to develop the opportunities to invest in Africa increase.

Transport and logistics

Although Africa’s transport infrastructure isn’t as developed as the West’s, it’s seen immense growth and continues to present opportunities for investment. There are many international and local logistics business opportunities to take advantage of.

Mining

Africa boasts bountiful natural resources, and mining forms an integral part of the African economy. Within Africa there are resources such as iron ore, gold reserve, and a range of rare-earth minerals such as lead, zinc, copper, diamonds, niobium, and titanium.

Agriculture

Agriculture is one of the leading sectors in Africa and offers many investment opportunities. Various African countries export agricultural goods across the globe, generating remarkable growth potential. It’s one of the main stimulants of the African economy and continues to grow.

Part 2: The Potentialities of Expansion

While countries throughout the continent have made a concerted effort to modernize, expand, and further develop their technological infrastructure, businesses around the world have been standing by, waiting for the right moment to move into the region with sound expansion plans.

So far, technology and technological expansion has been the central focus for many African countries, ultimately ensuring that businesses and consumers have access to high-speed internet and mobile technology. This development has spurred a new, connected consumer base, giving buyers the ability to connect with businesses on the web, search for products, and engage with the brands they enjoy.

This is a considerable development for international businesses because, in today’s world, every business leader knows just how critical a web presence is to their success. It might even be fair to say that internet connectivity is an absolute must for businesses considering international expansion. Hence, the fact that this has become a significant focus in Africa is undoubtedly a good thing. Here’s why.

Population Growth

By 2050, 40% of the global population growth will come from Africa—which is an astonishing number. Moreover, by 2040, there will be more than 1 billion Africans between the ages of 18 and 24, providing a young, energetic, and connected population and potential workforce, which is precisely what businesses should look for when planning an expansion, especially those considering a long-term presence abroad.

Connectivity

Africa is increasingly becoming more connected in terms of internet access and cellphone use. Businesses considering expanding in Africa can take advantage of this next-level connectivity to market their goods and services to a younger population that is energized and motivated to take advantage of the internet and mobile technology.

Connectivity will also make it possible for ecommerce businesses to break into the market. As more Africans gain access to mobile technology and the internet, they will gain access to banks, credit cards, and other forms of digital payment, which is essential for ecommerce.

It’s clear that Africa isn’t merely some pipe dream for expansion; the opportunity is there, and the potential for success is real, just as long as a company knows how to put the right international expansion plan in place. This is proven by the expected growth of $400 billion in consumer-facing industries (such as retail/wholesale, banking, telecommunication, and tourism), with apparel, consumer goods, and food accounting for $185 billion.

Furthermore, Africans are adopting technological innovation at a higher rate, making Africa more connected than ever. Across the continent, there’s a steady spread of networks, sensors, artificial intelligence (AI), and automation. Technologies such as CCTV with facial recognition, drones, robots, and smart cities are being utilized, and digital advancements such as the metaverse have reached many businesses. Emerging technology in Africa is addressing many investment downfalls, meaning that Africa is becoming a more alluring investment market.

Part 3: The Challenges of Expansion

It's safe to say that African countries have recently made significant strides to take their rightful place on the international stage. With technological development and internet connectivity at the forefront of these efforts, the continent is undoubtedly giving something for businesses and investors to think about moving forward.

And while all of these potential benefits should provide a company with the push it needs to begin considering business expansion into Africa, some challenges are certainly worth considering as it moves forward with due diligence and market research.

Language and Cultural Barriers Are Real

Africa is comprised of several distinct countries without a common language tying them together. With an estimated 2,000 different languages spoken across the continent, the language barriers in Africa can be substantial. With that in mind, working with a translator could be a good place to start.

According to Tomedes.com, a translation services company:

“Reaching African markets in upcoming years will require a great deal of effort on the part of medium-sized businesses to international corporations alike . . . There have been numerous examples of mistranslations and embarrassing mistakes made by international brand companies in European or Asian cultures and markets. So, it's a statement of the obvious to point out how much more risk is involved with African language and market localization, for which far fewer resources are available."

This is a crucial point to consider because one wrong move could tarnish a company’s reputation before it establishes itself. And while the price of working with a translator can add up, it's money well spent.

Along with language barriers, some substantial cultural barriers exist as well. Many Africans share different points of view. Some countries may be more closely aligned with Middle Eastern culture, while others might be more aligned with traditional African culture, or Western culture. A company must be aware of the countries’ cultural considerations and barriers because they will need to navigate them and align with the norms of the new target audience.

Successfully understanding and empathizing with a target audience and providing it with the services or products it requires means promising potential for a long-term presence in Africa.

Overcoming These Challenges With a Trusted Employer of Record Partner

One of the easiest and most cost-effective ways to navigate African expansion challenges is by working with an experienced Employer of Record (EOR) like Global Expansion. By partnering with Global Expansion, companies can hire, onboard, pay, and manage employees in Africa without setting up an entity—all while benefiting from award-winning tech and unrivaled support.

Global Expansion is more than just Employer of Record software: We’re the global employment extension of your team. Discover how simple expanding into Africa can (and should) be at GlobalExpansion.com.