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Into Africa

Doing business in Africa isn't for the faint of heart--but it could offer big rewards.

For small-business owners, sub-Saharan Africa (SSA) presents the classic capitalist proposition: If you're willing to take huge risks, you could reap huge rewards.

According to the U.S. Department of Commerce, direct investment in this region by U.S. companies generated a 31 percent return in 1996. That compares to a 12 percent return in both Latin America and Europe.

According to Aquatics Unlimited Inc. president Thomas J. McNabb, those numbers are right on target. The Martinez, California, company, which restores natural aquatic habitats throughout the world, is working on a project that McNabb expects will produce $5 million in annual sales for the next 10 years.

McNabb isn't the only person who sees big dollar signs in the region. President Clinton visited the area in March, and since then, the administration and Congress have pushed for new legislation to promote the business growth and self-reliance of sub-Saharan nations committed to economic and political reform.

Why the sudden attention on the region? The 40-plus countries of SSA feature numerous dynamic and developing markets. In the export category alone, U.S. businesses pulled in $6.2 billion last year, according to U.S. Census data. About 30 of this region's countries have implemented economic reform in the past decade to replace state-centralized systems, meaning their free markets are ripe for the picking.

Getting in on the action, however, isn't easy. "Africa is a very tough place to do business," warns Jerry Feldman, deputy director of the African office of the Department of Commerce's International Trade Administration. "It's easy to get sucked into something you can't handle."

Experts say the companies most likely to succeed are ones that concentrate on niche markets. Aquatics Unlimited, for example, is developing an environmentally safe plan to eradicate a menacing weed that's clogging up Lake Victoria.

Feldman says another key strategy is to take a regional approach. Companies should try to focus on a group of neighboring nations because only a relatively small percentage of the various populations are located in cash economies. The exception is South Africa, which accounts for nearly half of all U.S. exports to SSA.

What are the hottest sectors? U.S. trade officials say these fields offer strong growth potential: telecommunications, information technology, software, agribusiness, power generation, health care, financial services, environmental technologies and general infrastructure.

Despite the cornucopia of opportunities, Africa isn't a region entrepreneurs should pick for their first attempts at going global, says Judy Carson, a coordinator for Africa and the Near East at the Department of Commerce's Trade Information Center. "To be successful there," she says, "you have to already be viable and have a serious plan."

Nor is it a region for entrepreneurs who are afraid to bet big. "There are a lot of opportunities for large returns," she says, "but Africa definitely isn't for the weak of heart."


Christopher D. Lancette is a freelance journalist in Atlanta who specializes in international topics.

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This article was originally published in the November 1998 print edition of Entrepreneur with the headline: Into Africa.

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