Foreign investments in Africa are on the rise and new investors are coming to the table to make investments in several African countries. African countries are showing a steady growth rate and are among the top fastest-growing economies in the world. New technologies are introduced into the continent and every month there is a new event held across the continent.
As the number of foreign and local investors is increasing in the continent, there are several mistakes that are being made by these investors due to which they end up facing huge losses. Today, we will be taking a look at some of the top mistakes made by investors in Africa and how we can learn from them. Let’s have a look.
Setting Unrealistic Expectations
The first mistake that investors in Africa are making is having unrealistic and unachievable expectations. Many a time investors want to come into a place, make a quick win, and then leave but in Africa that is not the case. The African market is unique from other markets out there and it requires time and overcoming the challenges along the way.
In the African market, it takes time to develop professional relationships, build a network and get partners that are required for the business development process. Investors make the mistake of setting unrealistic expectations for the African markets which aren’t achievable. There are also certain challenges such as power disruption, internet penetration, etc that also need to be overcome and investors should have a realistic time frame to make revenue out of the African market.
Lack Of Prior Research
Not every African country is alike. Just like Solitaire is different from the rest of the card games, every African country is different from others. For instance, Zimbabwe is quite different from South Africa and Nigeria & Ethiopia aren’t comparable at all. Africa has about 55 countries and each country has a different business environment.
Investing in one country is completely different from investing in another country. Each country has its own business terms, regulations, tax regime, and restrictions that are different from the rest of the countries on the continent. Most of the time, investors make the mistake of investing in several countries without any prior knowledge or research.
This lack of research costs them big time. Before making an investment in any target market, research needs to be conducted to find out the current trends of that market and consumer behavior. Along with this, other things like a minimum capital requirement, tax systems, business legal stations, etc should be found out. Investors don’t do proper research and jump straight into the market due to which they end up facing losses.
As mentioned, every African country is different and besides differences in business terms & regulations, there are cultural differences and gaps among countries. For instance, citizens of some countries of Africa like Nigeria are interested in board games like Scrabble, Crosswords, Klondike Solitaire, etc while those of others aren’t. These gaps are always going to stay there because every country has its own unique culture.
Many investors overlook these cultural differences and gaps & when they find out about these later on then they realize that they have gone wrong. Most of the time, an investor has never been to a country and still considers investing in that country because of the vision presented by the entrepreneur. Understanding and appreciating cultural differences instead of overlooking them is a preventive measure that is going to prevent losses in the future.
In certain African countries, it is required by law to have local shareholders, directors, and a percentage of staff in a business. These are important requirements that need to be met with proper consultation and care but most of the time, investors try to bypass these requirements and don’t involve any local shareholders or ownership in their companies, only to realize later on that they have made a mistake.
Having local ownership or local shareholders in the company is critical for foreign investors. Investors who bypass this requirement end up paying a lot in damages.
Unaware Of Financial Regulations
When there is no prior research then investors can end up making mistakes in different aspects. If an investor does his research then he will be aware of things like minimum share capital, business tax, taxation rates, and other things. If there is no proper research then the investor may not be aware of simple things like minimum share capital which may be a significant amount and might be even more than the scheduled investment.
These were some of the top mistakes that are made by investors in Africa. If these mistakes are taken care of then investors would be able to avoid facing huge losses.