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Home Opinions Insight & Analysis 4 Biggest Business Challenges in Africa that governments Choose to Ignore 
Insight & Analysis - January 28, 2022

4 Biggest Business Challenges in Africa that governments Choose to Ignore 

Africa is burdened with some issues making ease of business and return on investment almost unattainable.

Understandably, business challenges are not exclusive to Africa, it is a global phenomenon. However, many of such business challenges in Africa are man-made, needless and intrinsically a failure of integrity and competence by successive African governments. As a result, Africa is burdened with several institutional, economic, commercial, political, and social issues making ease of business and return on investment almost unattainable.

These difficulties and challenges in some African countries are interconnected. For instance, poor leadership and governance foster conflict and difficult post-conflict healing. Also, where bad leadership persists, unemployment and poverty are inevitable, limiting business opportunities.

Here is a list of the business challenges in Africa that its leaders continue to ignore at the expense of investors and its citizenry.

Ease of doing business

The costs of starting and conducting a business in Africa is rather expensive. This is due to the lengthy process of registration and launching the business that’s characterized by unethical conduct by government officials.

In Sub-Saharan Africa, starting a business is time-consuming, which might consume a large percentage of one’s per capita income. However, these business challenges in Africa can be resolved through improved institutional structures and sound policy and formulation. And digitising the government’s modus operandi and enhancing its accountability mechanisms is germaine to the solutions. 

Poor Electricity

Electricity is critical to socio-economic development as it creates many options for Micro, Small, and Medium Enterprises (MSMEs) to grow. However, most people in Africa are still living in darkness. Of the overall population in the world, 75% population that lacks electricity are in Sub-Saharan Africa. This expanded from 556 million people in 2010 to 570 million people in 2019. 

Marginalisation of Africa from the global economy

This is one of the biggest challenges affecting businesses on the continent. Africans are perceived and treated as insignificant in the global market. This, in turn, makes it difficult for businesses to be profitable at scale. Although, with the advent of vibrant tech companies on the continent, the global outlook is better, as foreign businesses and investors continue to forge mutually beneficial partnerships with African tech startups.

So far, the global governance architecture has been based on a single method: economic size. The size of a country’s economy determines its representation. This thus favours the ancient economies like Europe and North America. It shows that global governance is tilting towards elite multilateralism in which powerful economies make significant decisions.

As a result, representative bodies, such as the United Nations and its related organisations, are becoming marginalised. Hence, big African economies such as South Africa, Nigeria, Algeria, and Egypt need to leverage their leadership roles and support a single African voice in the international arena.

This would enable the continent to develop larger regional markets, raise Africa’s profile, and build capacity to initiate African solutions to Africa’s economic and political problems.

 

 

 

High taxes and low cross-border trade

This is another significant business challenge in Africa. According to Simplice Asongu, in Africa, almost all fiscal systems impose a high tax on capital flows that are leaving the nation. This contrasts with Western countries, which limit interest taxes, royalties, and dividends at the source.

While weak infrastructure and limited economic integration have severely hindered cross-border commerce in Africa in recent decades, the Continental Free Trade Area (CFTA) is projected to enhance cross-border trade. In March 2018, 44 of the African Union’s 55 member nations signed the pact in Kigali, Rwanda.

Poor cross-border commerce can sometimes be linked to difficulties with product diversification. This happens when products from neighbouring are similar. In this case, there is less motivation to trade across borders unless the underlying items are scarce, expensive, or of low quality.

Lack of Financial Access

In Africa, some businesses find it difficult to finance and sustain their company. Some financial companies are also making this difficult and access to grants takes time and a rigorous process. This can be attributed to factors such as information asymmetry between lenders and borrowers. To address this, the institution of information sharing offices or credit reporting organizations was recommended to solve and minimize the underlying asymmetric information.

READ ALSO: 3 Biggest Challenges Facing African Small Business in 2021

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