Expanding into Africa: a best practice guide for UK businesses

Taking a business international is difficult. Really difficult. It doesn’t matter if you’re expanding into neighbouring territories or setting up in a different continent, either way you’re going to meet challenges that will test your skills at every turn.

And there are few bigger challenges than expanding into Africa.

Currently, the continent is projected to remain the second-fastest growing region after Asia, according to the African Development Bank’s Macroeconomic Performance and Outlook (MEO) report. The same report forecasts Africa’s real GDP to average around 3.8% this year and 4.2% next – exceeding the projected global averages of 2.9% and 3.2%, respectively.

It’s not surprising then that UK businesses are increasingly tapping into African markets, especially when some more developed regions have struggled to bounce back following the pandemic.

But of course, it’s far from straightforward.

In my experience there are a number of areas that continue to trip companies up when expanding into Africa. These range from failing to understand the distinct economic and political cultures of the 50-plus countries on the continent to not doing enough market research or strategic planning before taking the plunge.

Then there’s the issue of cross-border payments and currency risks, which can massively impact a business’s bottom line when not handled correctly.

So I’m going to give you some pointers on how to move into Africa successfully, looking at all these factors – and more – in turn.

Navigating the regulatory frameworks

If you’re in the early days of potential expansion into Africa, here’s a general rule: you can never do enough prior research.

Each country on the continent has its own set of business laws, customs and regulations, so you need to know them inside out before laying down business roots. You should be fully aware of foreign-ownership laws, intellectual-property rights, taxation, and local labour laws. In fact, you’d be well advised to hire local legal experts who can guide you through the nuances of local laws.

It pays to have a comprehensive understanding of both UK and international trade laws as well so your business remains compliant with customs laws, export control regulations, and anti-bribery and corruption laws.

And the same goes for data protection laws, such as South Africa’s Protection of Personal Information Act (POPIA). Under these laws, you’ll need to take measures to protect personal data, as non-compliance can result in hefty penalties.

Avoiding losses on cross-border payments

One of the major challenges I’ve seen UK businesses face in Africa is the high costs of cross-border transactions. You only have to look at the average 5-7% cross-border fees rates charged by traditional banks in the region for currency conversion and international transfers. The same often goes for the FX rates offered by traditional banks – around 2-5% higher than market rates – leading to big losses in currency conversion.

That’s a lot of money, leaving you and your business with less to reinvest.

But with a bit of research, you can find cross-border platforms that offer a range of exotic currencies, faster settlement times, and real-time transaction visibility, making things easier and more cost effective. And by using a fintech that can integrate with your existing business systems, you can also streamline operations and improve efficiency.

Keeping an eye on African currencies

Whether you’re moving into Nigeria or Namibia, South Africa or Senegal, expanding into new markets always involves risk. So identify what those risks are early and design strategies to mitigate them.

Take currency risk, or exchange rate risk, for example. When you’re operating internationally, these fluctuations in exchange rate can have major repercussions – and lead to heavy losses.

In my experience companies in Africa are particularly susceptible to this because of political instability, economic volatility, evolving regulations, and other local factors. So make sure you’re using a blend of forecasting, hedging, and diversification strategies to overcome these risks.

A simple way of doing this: use legitimate fintech platforms, which can mitigate risk by allowing businesses to lock in exchange rates.

In summary

Yes, there are hurdles – some of which I’ve outlined here. But these hurdles aren’t impossible to get over, especially if you plan well, do some thorough research around the market you’ll be going into, stay agile, and use the best tools available.

And by adopting these best practice strategies, you can discover just how rich and rewarding African markets can be for UK companies.