With smaller companies looking for new post-Brexit markets, many African nations offer interesting opportunities. But Trade Credit expert, Rupert Cutler from Holtarka, says that it’s political and trade uncertainties that can put SMEs off.
West Africa is undergoing something of a mining boom. Pre-pandemic, West African countries increased exports of minerals by more than 20% in 2019. Telecoms infrastructure is a huge growth market across the continent. Infrastructure Investor reports with 3G mobile coverage of Africa’s 1.2 billion people grew from 52 percent to 75 percent in just four years. And according to the World Bank, Sub-Saharan Africa is set to emerge from the COVID-19 recession with a return to 3.3 percent growth in 2021, fuelled by commodities.
If you’re a small to medium sized business with technology or equipment that could feed into these kinds of projects, or you’re a potential importer of commodities like coffee, nuts or fruits, the economic landscape might look attractive. But according to Rupert Cutler, a consultant at Holtarka, the perceived risks can create a barrier some SMEs find it hard to break through.
Why is doing business in Africa more challenging for SMEs?
“The big multinationals have global lines of credit, experts and infrastructure on the ground and a long history of successful trade. They know how things work and they have the balance sheet to absorb any hiccups along the road.
For an SME providing equipment, services or expertise as part of one of these major projects to the tune of anything from £100,000 to £10 million, the size of the risk relative to their own business is far greater. And the territory is likely to be less well understood.”
What might an SME need to consider when doing business in Africa?
“A big potential risk is political instability. In 2021, there were no fewer than 10 presidential elections planned. On average, over the last four decades, there have been around four military coups each year: Sudan, Guinea, Niger and Mali all had coup attempts in 2021. And underneath the national political spectrum, there are of course many local and ethnic political tensions, which can affect business.
"That can make for a challenging backdrop for an SME. Imagine you’re shipping equipment for a dam project and the government suddenly changes. The project could be cancelled. Or delayed. It might even be nationalised. You need to know you’re going to be paid.
"In the other direction, you might be importing coffee to Sweden and political disruption holds up a shipment mid-transit. You may have pre-paid for your product but it’s degrading every day it’s stuck.
"And this can happen virtually anywhere. The riots in South Africa in July 2021 led to small companies losing equipment when warehouses in Durban were burnt to the ground.”
How can SMEs reduce risks?
“Trade and Political Risk insurance can cover SMEs for most of these risks and it can be less costly than many imagine. The problem is accessing it.
Traditionally, this kind of insurance has been focussed on the mega-million dollar deals organised between large international financiers, investors and banks. Many of the insurers, be that Lloyd’s or other international company markets, haven’t had an appetite for smaller deals.
"Now that Holtarka has become an Authorised Representative of Bellwood Prestbury, we are working together to help SMEs organise protection for finance, goods and services – as well as cargo insurance and cover for people and assets, anywhere in Africa.”
What would your advice be for an SME starting out in Africa?
“It’s all about going into any business operation with your eyes wide open. Yes there may be additional risks associated with doing business on the continent. But managed properly, they can all be mitigated, leaving SMEs with exciting new market opportunities.”