US business in Africa: What you need to know

Next week, more than 45 African heads of state will converge on Washington, D.C. for the U.S.-Africa Leaders Summit — and in a refreshing twist, business is topping the agenda.

A full day of the three-day event is the U.S.-Africa Business Forum featuring hundreds of CEOs, and the Corporate Council on Africa is holding a week of side events on investment opportunities in the continent.

While this kind of high-level, multilateral summit about Africa is relatively new for the United States, it’s actually an old hat for other countries. In recent years, China, India, Japan and Europe have all held their own African summits with multiple African countries. China alone has held five such summits since 2000.

As U.S. businesses explore opportunities at the upcoming summit, here are a few recommendations for them based on the current business climate, our firm’s experience and that of China, one of America’s biggest competitors in Africa:

1. Accept a little risk for a lot of reward

Yes, there are security concerns. Yes, there is policy uncertainty. But risk can be managed surprisingly well in Africa — if you have the right partners and the right strategy.

Pockets of insecurity in places like Kenya don’t mean the country as a whole is a risky place to invest. This was underscored dramatically last month when Kenya raised $2 billion in foreign investment — $500 million more than expected — just a day after 48 people died in an armed attack in the coastal town of Mpeketoni.

The wisdom of crowds — even in the face of adversity — is pointing toward investment in Africa.

As the chief investment officer of a major asset management firm told the Financial Times last year, Africa is “one of the few places left where there is the potential for ‘hockey stick’ returns” (the shape of a rapidly rising graph).

At the same time, the U.S. government is now stepping up. The new Power Africa initiative provides unprecedented government support for companies working to electrify the continent. Entities like the Export-Import Bank, the Overseas Private Investment Corp. and the U.S. Agency for International Development’s Development Credit Authority all provide financing and technical assistance to corporations looking to invest in places like Africa.

2. See the FCPA as a friend, not a foe

U.S. companies often cite the Foreign Corrupt Practices Act, which prohibits U.S. firms from paying bribes abroad, as a challenge to doing business in Africa. If businesses from other countries can compete for business using shady practices, they argue, why should American companies even bother?

But while corruption certainly is a challenge to business on the continent, the fact is that most business dealings in Africa are transparent and growing more so. As noted in a recent Wall Street Journal interview, 19 African countries rank higher than India in Transparency International’s latest index for perceived national levels of corruption, and 31 rank higher than Russia. And the continent’s legal, accounting and technical infrastructures are improving every year.

Moreover, the dynamics of corruption are changing. As the long-term possibilities are coming into focus, firms are realizing how transparent practices can mitigate risk — and bring much greater returns down the road.

Chinese firms have learned this the hard way. In 2012, Algeria banned two Chinese companies from participating in contract bids due to corruption allegations. That same year, South Sudan expelled the head of Chinese oil firm Petrodar on charges of oil theft worth $815 million.

Meanwhile, companies like Tullow Oil and Statoil have voluntarily agreed to publish their payments to governments on a project-level basis, recognizing the benefits to ethics-based leadership in an industry often criticized for lack of transparency.

3. Remember — the real customers are not African governments, but African citizens

Many firms — especially in the construction and extractive industries — have focused on winning over heads of state, rather than heads of households, when it comes to doing business in Africa. This certainly makes sense — governments hold the keys to many lucrative contracts. But winning the bid is just the start. The majority of a company’s work will be on the ground, in communities, working with and for the local population.

This is where American firms really shine, unlike many of their Chinese and other counterparts. Training and employing locals, conducting community outreach, and implementing corporate social responsibility programs are all hallmarks of the most successful American firms in Africa. Just look at Coca-Cola or General Electric, which have operated for decades on the continent. Companies like those recognize that administrations may come and go and that broad-based community support is crucial to long-term success.

For firms that don’t rely mainly on government for business, the consumer truly is king. With more than a third of the population in the middle class, and a growing appetite for goods and services, businesses ignore African consumers at their peril.

4. Think of capacity building as a two-way street

Too often we think about this development buzzword in the wrong way, as if outside companies, especially from the U.S. and Western Europe, need to teach Africans how to do business — in Africa. There’s no question that companies frequently have to train local staff in key job skills, and there are many ways in which knowledge and technology transfer can help Africa. This is also an area where American firms can distinguish themselves from Chinese competitors, who frequently bring in labor from their home country.

But Africans have a lot of capacity building to offer us: from the logistics of local supply chains to the tastes and preferences of local consumers to dealing with shortages and roadblocks you don’t often find in the United States. Smart firms will recognize that this important knowledge transfer goes both ways, and that they should take full advantage.

In the end, American companies already have a lot in the “win” column when it comes to doing business in Africa: great management skills, superior technology and an approach to consumers and communities that more often than not takes local needs seriously. But to get to the next level with Africa — one of the fastest-growing markets in the world — U.S. firms can do more to re-think risk management, community relations and staking out a competitive advantage in an increasingly crowded field.

Here’s hoping the upcoming U.S.-Africa summit will just be the start.

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