Foreign Entrepreneurs Need Patience in Africa

Some foreign companies are finding it hard to set up shop or expand in Africa. The main hurdles include a lack of loans and foreign currency to settle invoices, corruption and mismanagement. But opportunities are there.

Klingele Paper & Packaging Group has its branch in the Diamniadio industrial estate of Dakar in Senegal . The German family concern produces high quality boxes and pallets from imported corrugated cardboard.

Business is booming because of the high demand for this type of packaging for fruit and vegetables, according to the company.

That's why it also wants to gain a foothold in Ivory Coast. But are still many uncertainties surrounding the planned expansion.

Lack of foreign currency, high interest rates

Managing Director Jan Klingele hopes to be able to solve specific problems with newly established contacts to local partners and authorities.

The "sometimes difficult administration and handling of taxes" play a role here. "And the difficulty of obtaining foreign currency to settle invoices from abroad for materials and machinery provided," Klingele told DW.

The availability of foreign currency is a major hurdle, according to Barroso da Fonseca of Access Bank in Lagos, Nigeria. Da Fonseca is responsible for European companies at the facility.

"Local and European companies often need to have access to foreign currency," he told DW. "Banks don't have enough currency reserves."

The central banks in African countries operate differently to those in Europe, with no general fiscal policy, he said. "This means great uncertainty for companies and leads to barriers to investment."

In many places, central banks also set high key interest rates, making loans more expensive. For example, in Angola, Ghana, Zambia and Nigeria, rates are between 15 and 25%.

Young and small companies in particular often fail due to the risk premiums and collateral demanded by banks in Africa, says Barroso da Fonseca. Banks often demand collateral of up to 100% of the loan volume.

Capital costs are hardly competitive

Business in Africa is indeed difficult, according to Ghanaian economist Daniel Amaty Anim.

Most financial institutions are not in a position to mobilize funds at a competitive interest rate for companies that need the money for further expansion.

"Exchange rates as well as the cost of capital on the continent make it very difficult for businesses to plan over a longer period of time as the macroeconomic environment is unpredictable," Anim told DW.

For producers in Africa that have competitors in other regions where capital costs are relatively lower, pricing and economic survival are ultimately problematic, according to Anim.

Better policies are needed

In addition to the financial situation, the political environment is also difficult in many regions of Africa. In West Africa, Ghana is considered a promising location yet there are economic policy deficits, according to Anim.

"We have almost all policies or documents to support businesses, including foreign direct investment. The problem is implementation."

There is also a high level of corruption. At every point in a process, you have to "shake someone's hand with an envelope" before the relevant procedure is processed," Anim told DW.

Kudzo Akpabli, a financial analyst in Ghana, confirmed the phenomenon to DW: "The state of corruption and mismanagement means that if foreign companies don't pay bribes, they won't get the support they need to thrive."

German economy: greater challenges than elsewhere

Despite the adversities, successful investments are also possible in Africa. Many German companies have experienced this, says Christoph Kannengießer, Managing Director of the German-African Business Association.

Nevertheless: "They have greater challenges to overcome than in other international locations," Kannengießer told DW.

Kannengießer also counts access to capital among the challenges. "This is closely linked to risk perception and the risk classification of the African continent by financial and financing players, by states and rating agencies. All of this hangs like a block on the leg of many financing and guarantee issues."

Christophe Krug, responsible for business and development at the German company KTI Plersch, is also familiar with these start-up difficulties.

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The company cites the example of a plant in Senegal that produces 10 tons of ice daily, using solar energy. The ice is the type that is essential for a cold chain for fish, for example. A study commissioned by KTI Plersch and the German state development agency GIZ put the additional demand in Senegal at 1,000 tons of ice per day.

Lack of reliability

"Our concepts apply wherever fish is caught, as well as fruit and vegetables. We would save tens of thousands of tons from rotting," Krug told DW.

However, they would need more investment to build larger facilities.

But there is a lack of contacts and support from outside, such as permits. Obtaining an appropriate loan for projects is a challenge, and the interest conditions are too difficult.

The corporate strategist criticizes that many political players are not reliable. He would like the German government to provide more direct funding opportunities as part of its development cooperation.

Isaac Kaledzi in Ghana and Rosalia Romaniec in Senegal contributed to this article.

Edited by: Benita van Eyssen

Foreign Entrepreneurs Need Patience in Africa

Foreign Entrepreneurs Need Patience in Africa

Foreign Entrepreneurs Need Patience in Africa

Foreign Entrepreneurs Need Patience in Africa

Foreign Entrepreneurs Need Patience in Africa