Trade in Africa is burgeoning, and venturing across South Africa’s borders to engage with and hopefully profit from this activity is a magnetic pursuit for many individuals and companies looking for novel and lucrative business opportunities away from home. However exciting doing business in Africa can be, it can also be uniquely challenging at times. Werner Slabbert, Managing Director of Eco Log Homes, luxury timber frame and log construction company based in South Africa, weighs in on doing business in this market as a timber frame builder and offers transferrable advice on maximising on trade endeavours into Africa.
According to Alex Gray, writing for the World Economic Forum, “Emerging-market and developing economies are anticipated to grow 4.1% in 2017 – far faster than advanced economies.”1 Supporting this, earlier this year, the World Bank published its latest biannual Global Outlook report, which measures economic growth in nearly 200 countries by calculating year-on-year percentage change in gross domestic profit (GDP) and provides growth forecasts for 2017, 2018 and 2019; not surprisingly, two African countries have claimed second and third positions in this this growth forecast report, namely Ethiopia and Ghana, respectively. 2 It is thus no surprise that many are eager to make headway into this market.
However, it is not uncommon to learn of business ventures into Africa deviating entirely from plan and ending in disappointment and severe financial losses, instead of making the kind of profits originally anticipated.
Having been involved in luxury timber construction for the past 17 years, Eco Log Homes builds across South Africa and further abroad into Africa, where log construction for lodges and holiday resorts is both a popular and fitting choice for investors looking to offer their visitors luxury accommodation in the heart of Africa’s wildlife.
“But things have not always gone to plan,” says Slabbert, explaining, “While we have successfully completed many projects in Africa outside of South Africa’s borders, we’ve learned some hard lessons along the road, which are well worth sharing with anyone looking to conduct business in Africa.”
Don’t be greedy
There is a popular misconception that enormous profits are to be made when venturing into a landscape of perceived high risk. “High risk does not automatically equate to high rewards. Be humble and courteous in your venture, but be smart and protect yourself against currency fluctuations,” says Slabbert. “We like to keep our projects ZAR based so that we don’t have to worry about this risk and we always engage the services of a company like Credit Guarantee, for example, who offer products that can protect you and your venture specifically against the risks of doing business in Africa,” he adds.
Get to know your client
Once you are well prepared to do business in Africa and have a prospective client looking to engage your services or invest in your product, meet with them at your offices in South Africa first. “We always insist on this initial meeting taking place at our premises, not only to demonstrate our legitimacy and dedication to the project, but because this is also a good litmus test to gauge how serious the client is about investing the right supplier. You may also have to work with agents who source suppliers for their clients; in both instances, make sure they are serious about doing business with you,” Slabbert notes.
“Get as much information as you can about the prospective client, their agent and the project they have in mind upfront and always insist on trade references. As much as a legitimate company would want to check your references, you need to do the same. In our experience, once all the basics have been covered, a legitimate company will have no problem flying you to the construction site/s and covering all your travel expenses,” he says.
Contracts & logistics
Be sure to cover all bases and legitimise your business dealings with contractual agreements. This applies to doing business anywhere in the world, not just in Africa and is good practice in general. “Set up your contract to state that your client is to take the risk for any out-of-country expenses and from a construction perspective, have them arrange all material transport, visas, food, accommodation and travel; they will know the local laws and have local connections, which positions them as being able to make these arrangements far easier, more accurately and cost-effectively than you can,” says Slabbert.
When doing construction work abroad in Africa, it may seem obvious, but it is essential to send more material than is necessary, because it is not always possible to find the materials or tools required at a local hardware store or outlet. Some countries do have the convenience of having a Builders Warehouse, but they may not necessarily always carry the same stock as their South African branches.
“Remember, if you use shipping containers, you need to calculate the volume and weights so that you don’t overload the containers. The containers also need to be balanced, with weight distributed as evenly as possible, so that there isn’t too much weight applied to one wheel of the truck carrying the load, for example. Keep in mind, your material is at risk of being damaged should the need arise for the shipping company to repack everything,” Slabbert cautions.
Risk cover
Before sending any staff to site, ensure air evacuation cover is in place for all company staff. Find out what vaccinations will be necessary for the trip and how long in advance these need to be administered to take full effect.
Another difficult issue that can come with doing business in Africa is bribery. Eco Log Homes has a zero-tolerance approach to this and has found creative ways in which to continue conducting business without having to resort to such activities. Bribery in Africa is often concentrated at border posts, making access to the destination, especially with materials, a challenge if one is not prepared to pay up. By involving the client in the local logistics of the project, the problem of bribery can be bypassed and both supplier or contractor and the client can rest easy in the knowledge of having conducted their business above board.
Top tips for doing business in Africa
- Meet your client in South Africa first, research them and conduct thorough trade reference checks.
- Travel to see the proposed project site at the client’s expense.
- Do not invest in a client that does not have the budget to afford your product or services.
- Protect yourself against currency fluctuations and work in ZAR where possible.
- Enlist the services of Credit Guarantee or similar to protect your project financially.
- Always let the client take risk for any out-of-country expenses.
- Have the client arrange local transport and logistics.
- Always send more material than necessary on a construction project.
- Make sure you have air evacuation cover for your staff.
- Vaccinate appropriately and timeously.
- Be aware of requirements of shipping and take necessary precautions to guard against risk.
- Do not engage in bribery; there is always an alternative.
“While our advice for conducting business in Africa is particular to our business of timber and log construction, it can be applied to conducting any type of business in Africa. The continent and its people have so much to offer and it is a great pleasure for us to be able to make our mark – profitably – outside of South Africa’s borders. Anyone with a great business or business idea from which the African market can benefit can do much the same,” Slabbert concludes.
References:
- Gray, A. ‘These are the world’s fastest-growing economies in 2017.’ World Economic Forum. https://www.weforum.org/agenda/2017/06/these-are-the-world-s-fastest-growing-economies-in-2017-2/ Posted: 9 June 2017. Accessed 24 August 2017.
- Stannard, J. The world’s five fastest-growing economies. World Finance. https://www.worldfinance.com/markets/the-worlds-five-fastest-growing-economies Posted: 7 April 2017. Accesses: 24 August 2017.
About Eco Log Homes:
Eco Log Homes is a multiple award-winning construction company based in Johannesburg. With a wealth of experience and attention to detail, it has been delivering beautifully hand-crafted timber homes to both national and international markets for 17 years. Eco Log Homes specialises in turnkey developments, hotels, B&Bs, game lodges, residential and holiday homes.
Article originally published in Hardware Africa 2017.