How can an entrepreneur survive and thrive in Africa?

(This is a transcript of the podcast posted on Monday, August 2nd 2021. You can listen to the podcast by clicking on this link https://www.buzzsprout.com/1655965/8924559)

ARNOLD SEGAWA:

A warm welcome to this edition of Mansa’s The Weekly Beat. As always we’re joined by Dumi Jere and Maggie Mutesi. How are you doing guys? Let me start with you Dumi.

DUMI JERE:

I’m doing all right my brother.

ARNOLD SEGAWA:

Maggie, how are you?

MAGGIE MUTESI:

I’m doing absolutely good. I’m still waiting for my vaccine though but we keep living and hoping that we will get to Johnson & Johnson. You guys have all our hopes.

ARNOLD SEGAWA:

It’s coming, amen. Some good news about some of them being actually rolled out from Cape Town, close to 400 million. Strive Masiyiwa giving us that news just the other day, so we are crossing our fingers. But away from that a report that is often very popular is the cost of starting a business in Africa. Of course, some of this data is courtesy of The Doing Business reports from the World Bank Group.

It’s such a huge gap. Africa has some of the biggest cost differences when it comes to the cost of starting a business. Rwanda is free, no shocker there. Some extremes, Equatorial Guinea, a whopping $2,321. I think let me start with Dumi on this one because I think I know where Maggie is going to go. Dumi, your thoughts on this particular report.

DUMI JERE:

The old saying says you have to spend money to make money, right? And as a new business person, one would have to shell out money for approvals, licenses, permits and inscriptions and then I jumped this hoop and that hoop has 10, if not 20 procedures just to get your business started. But I found this report interesting and what stood out for me or something that was quite interesting for me was that in Congo, it’s got the highest relative cost of starting a business, not just in Africa but the world because that’s about 25 average monthly paychecks, right?

When you go across the river into DRC, the cost of starting a business it’s just about $80. So I just found that quite interesting that, okay, you guys are separated by something that was drawn in the Berlin Conference and called a border but the costs are so different in just these two countries.

MAGGIE MUTESI:

Yeah. I mean, it’s an interesting report. Rwanda, on the other hand, there’s absolutely no cost, but again the wages and all like you mentioned. So I tried to really compare the global rates for my understanding and how the report was made. It’s still not cheap to start a business anywhere, but Africa really had some of these prices that I would feel like what the hell?

ARNOLD SEGAWA:

It’s interesting to me you do bring in the Congo. Maggie, you’ve actually worked across the border in the Congo Brazzaville as some people actually call it. And I remember someone giving me an example that if you have to fly somewhere, then you get onto a ferry. Is the infrastructure deficiency actually cutting into the cost of doing a business in the Congo? I mean, we already know that the DRC is also the big problem on this front, but clearly this Congo Brazzaville issue is just staggering,

MAGGIE MUTESI:

I mean, definitely infrastructure everywhere across the continent with an exception of maybe South Africa and a few other countries or regions it’s into all of this. From my experience living there, I actually used to struggle finding a flight. At one time I missed a flight and I had to wait for two days to catch another flight to go to Rwanda, but there was a direct flight to Paris on a daily basis. And I missed a flight to Rwanda and I had to wait two days, but there was a direct flight to Paris every day. So some of these things, I don’t really get shocked because I just feel like they somehow cut off a lot of people within the Congo. I mean, it’s not easy for me to just go to Congo and set up a business, but let’s be optimistic.

ARNOLD SEGAWA:

I think for me, one country that sticks out is Eritrea, a country that many people revere as the North Korea of Africa. I’ve personally been to Eritrea. I really loved it there, but the cost there is $174, that is cheaper than Kenya which is $352, Tanzania $322. When we come down south we do have Namibia which is $444. I could go on here citing some examples and even Nigeria $22. And you get the sense that there’s some countries that are just doing, going on about their business, regardless of what some people have to say in a corner office in New York.

DUMI JERE:

Yeah. I think that’s a very interesting one where you’re saying that in Eritrea the cost of starting a business day is lower than starting one in Kenya. But when you then look at what kind of opportunities would you be able to realistically start in Eritrea vis-a-vis in Kenya or in the other countries, I think that’s where the question then comes in.

I would rate Kenya ahead of Eritrea in terms of technology. Therefore it would make sense to have the cost much higher in Kenya rather than in Eritrea. And like you’re saying, that is beamed as the North Korea of Africa so not so many people would want to go there anyway, so that counts against them.

When one thinks of, if I were to take a map of East Africa and say, okay, so where do I want to go next to try and set up a business between Ethiopia and Eritrea and Somalia and Tanzania and all those guys, I’ll probably go with the more expensive ones, because at the end of the day, it just makes sense. The infrastructure is better supported. The technology is more in place in those countries. Things would move faster, I suppose. That’s why, according to me, Eritrea would fit in that region vis-a-vis the other folks. Maggie, what do you make of this?

MAGGIE MUTESI:

I mean, it’s an interesting point to think of. The lower the cost, I think it’s a way of attracting investments, calling on people to come to the country because either there’s no cost at all or it’s way smaller or less money in terms of setting up. You’ve literally touched on a very important point. How many businesses would go to Eritrea to set up in terms of investing? And this is where I feel like a lot of businesses or all of these opportunities are settled in smaller countries, in specific countries in Africa, the likes of Nigeria, Ghana, Kenya, Rwanda, and all of that. But which leaves a huge investment gap in some of these small countries, even with the small fees, for example, saying setting up a business is $100 or $120 as an investor, I’d feel like this is where the opportunity is.

There’s not as much settlement in terms of businesses. So it could be ideal to put my money there, but it works out the other way around. I think this is something I would love to understand from you guys in terms of an investment perspective, is it better to set up where it’s already booming? Of course, I know that drivers like infrastructure and all of that, but again, what happens in these small economies isn’t that where the opportunity lies?

DUMI JERE:

Okay. Back in the day, I used to wonder, I would pick up maybe a t-shirt and I would always get fascinated, to this day I still get fascinated when I pick up a piece of clothing and I always check to see where was it made in. So it could be a Nike t-shirt or whatever, or shoe even. And then I see that it says made in Vietnam or made in Bangladesh or made in wherever. And I always used to wonder growing up and all that, why do these things get manufactured in those areas? It’s only now that I realize that is because of the low wages and the cost of labor. So when we juxtapose that with the African perspective that also counts when we look at where it’s cheaper to start a business in Africa, has low wages.

I think we say this in one of the other podcasts, these low wages can also act as a double edged sword. They boom to companies that are in search of manual labor, but they are also a barrier to local entrepreneurs looking to invest in a company of their own. And those barriers now they remain firmly in place. And that’s how others try not to come up with startups to try and circumvent that.

So the low wages they really make it tough for the average entrepreneur to start their own form of business across much of Africa, but they are very attractive to lots of other people that may be looking at countries to say, maybe I should go in and start a business in that particular country. So there’s that element as well. The labor force element that also plays a key role in the costs of starting a business and why an investor would make a decision to say, therefore, I am going to this country, as opposed to this country. I’m going to Lesotho as opposed to South Africa. I’m going to Eswatini as opposed to South Africa.

Those are some of the things that they look at. And I think something also to notice that over time, I think things have improved. Back suppose a decade ago, I don’t think any of these politicians in Africa knew how many days it’s took, how much it costs to start a business, but now they sort of know as you hear them in their manifestos talking about, we want to cut down from 30 days to three days. Yeah. On paper, it will remain three days, but hey, at least they now know that there’s that at the back of their mind an average obstacle that an average entrepreneur would face to start a business.

ARNOLD SEGAWA:

Okay. Maggie, that question that you had addressed I think the best example is around the late 80’s and 90’s, a lot of manufacturers they were moving towards Eastern Europe, moving their plants there to the Bulgaria’s of this world and it just going east cheap labor, just to touch on what Dumi said. And eventually that’s now morphed into China. Everyone was producing cheaper in China. Now the next frontier is actually on the African continent, the young population the cheap labor. So it can give them a good head start to come at least until 2050. So I guess that touches that, but also some of these countries have, in my view away from the cheap labor, there is fx challenges, foreign exchange.

We saw the other day when we touched on Nigeria just having a back and forth all the time with the South African companies. How do you pull out money from a country? So these are some of the other things that you’re thinking about. At the end of the day, if your bottom line is looking good, how are you going to repatriate some of your receipts back home to wherever you are and the tax regime?

The other thing that Rwanda prides itself on is double taxation agreements, one with Singapore, one with Jersey, so many every other day. I remember when we just used to go for these agreements being signed. So some of these things you actually do sit down and you think about as an entrepreneur, just to answer your question from the entrepreneur’s perspective. I love that South Africa is very, very low on this agenda. A country like Kenya, a country like Nigeria, you would have really thought otherwise. Maybe you guys can wrap this up as we do go for the commercial break. Maggie?

MAGGIE MUTESI:

A country like Kenya and Nigeria like you’ve mentioned, it should be easier because these countries already have the infrastructure in place. They already have all these things set up. I mean, setting up a business, even running a business should be easier, but it’s always otherwise. For me, I still believe in smaller economies. And honestly, this is where I feel like the investment opportunities lie. And I just feel like you cannot say you’re only going to set up in the bigger economies.

I mean, Africa is so huge. If I even asked somebody to name for me 20 countries in Africa, it will be a struggle Arnold, it will be a proper struggle. And then we wonder, what about the other 35 countries? What happens there? Countries that absolutely have nothing. They would love to have the infrastructure in place. They would love to have people setting up, but we have a look and look at the bigger countries like Nigeria and Kenya. I just thought I would end it on that about the opportunity in investment on the continent for me lies in the smaller economies, because I feel like they have so much to offer. They are all big. They’re the reason as to why they even have low, low, low costs for setting up businesses, because they want people to set up, they want something to be done in their countries. And this is a huge continent.

ARNOLD SEGAWA:

Dumi?

DUMI JERE:

The future of Africa is bigger than Johannesburg, Cairo, Nairobi, or Lagos. I think it lies in every geographical part of the continent. This is the big hope of mine. And again, the key word is hope that the AfCFTA will hopefully in time break down some of these barriers to entry in some of these economies. It’s a hope of mine that over time things will almost become standardized like in European Union you can relatively expect things to be in the same range. It’s my hope that forcefully and earnestly following up with this trade agreement across all these countries that have ratified, it is my hope that the barriers to doing business in some of these countries will eventually come down until we hopefully find some more of a standardized operating number. If we’re able to make sure that technology-wise we’re all on par, infrastructure wise we’re all on par, then that will obviously see the cost reducing in all these other smaller countries therefore enabling business to be done regardless of where you are. But again, it’s a hope. I’m sure we are now in Vision 2063. We’re always changing these things. Vision 2020, 2030, I think we’re now in vision 2063. Hopefully we will still be alive to witness it. Who knows?

ARNOLD SEGAWA:

Let’s end there. Let’s wrap it up ending this edition on a very hopeful note from Obi-Wan Dumi. Many thanks for joining us, Dumi Jere and Maggie Mutesi joining us for this one, I’m Arnold Segawa. Remember as always, if you missed anything in the course of the week, just visit the website mansamedia.africa. On Twitter we’re @mansa_media. From me and the entire hopeful gang, a lovely week.

The Weekly Beat by Mansa with your hosts Arnold Segawa and Maggie Mutesi and Dumi Jere, giving you all the info on Africa’s big finance and economic stories, The Weekly Beat by Mansa.

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