What Foreign Companies Get Wrong About Africa
May 13, 2022
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by Stephen Kanyi

I live in the quiet developing suburbs on the outskirts of Nairobi. Next to my flat are two hotels serving two different classes of the community.
One, for the purpose of this piece, I will call Crapple Inn. It is a large fancy three star-hotel, I think. With multiple posh rooms and a menu that is 90% composed of foreign dishes costs, it attracts clientele only from the higher echelons of society.
The other is the rather cleverly named Crapple Out. Crapple Out is essentially a kiosk. A place for the average Kenyan, the working-class man.
A meal at Crapple Inn costs 3$0, way above the average Kenyan income, 16% of whom are still below the poverty rate of $1.90 a day. A meal at Crapple Out costs around 0.50 cents, quite affordable for virtually any Kenyan.
While I may go for dates in Crapple Inn, I order my meals from Crapple Out.
In a few years, Crapple Inn will fold after years of losses while Crapple Out like most small hotels of its kind will experience almost exponential growth and become as large as its ‘competitor’. Only this time it will actually have a lot of paying customers.
The most surprising fact? Crapple Inn is owned by a multinational chain of hotel businesses while Crapple Out is currently owned and operated by a group of five ambitious young women.
How is it that five young African women know more about the Nairobi hotel industry than a multinational chain of hotels? Well, the answer is a little complicated but if I was to summarize it in one word it would be; hubris.
Crapple Inn’s eventual demise is what happens when a larger company thinks itself too big or too good to fail. Due to their success in their own markets, they think they know all there is to know about all other markets. That couldn’t be further from the truth.
Human culture is very diverse. Even in the same country, there could be more than one cultural driving force. Applying the same strategy to conquer all markets will fail no matter how much money you throw at it.
Take the case of mobile money in Africa, specifically Kenya. Safaricom’s M-Pesa has been a resounding success in the country helping to bridge the baking gap for millions of underserved people all across the country. Today there are more M-Pesa accounts than there are Kenyans all transacting more than a billion dollars annually. It has been a huge hit.
Well Vodafone, Safaricom’s parent company saw this success and thought they could replicate in India. With more than 92.5% of the population not having access to bank accounts, a high mobile penetration rate and an economy that was cash reliant, India presented the perfect opportunity for another mobile operation.
However, despite being an early entrant into India’s digital payment market, so far Vodafone has been unable to succeed and instead has had to cede leadership to Paytm, a domestic Indian digital wallet, now with over 200 million users.
Why didn’t mobile-money work in India when the country had the perfect demographics?
Well, Indians really like to use cash. Over 90% of transactions in India are in cash. Cash culture is so ingrained in India that even debit cards failed. India has the lowest debit/credit card point-of-sale system (POS) penetration in the world with only 693 machines per million people.
Culture when not understood or appreciated enough can be a stopping force for multinationals trying to enter new regional markets.
Unfortunately, a lot of multinationals continue to make the same mistake when trying to enter African markets. The result has been a failure to meet revenue targets for some while others have simply bowed out and called it quits citing difficult business conditions.
Crapple Out’s and Vodafone’s failure in India show that ‘business conditions’ are not the most important issue when it comes to Africa. It is attitude. Foreign companies, especially those from the West, adopt the same mentality they used to conquer their own markets, in Africa. This is a big mistake, one steered by some very big assumptions made about the African market.

  1. The ‘Africa Rising’ Narrative
    Africa is definitely rising; pre-pandemic six of the fastest developing countries in the world were African. The continent has also more than halved the number of people in extreme poverty since the turn of the millennium. This led to many experts predicting an explosion of Africa’s middle class. However, as many economists can agree; GDP and economic growth data do not reflect how wealth trickles down the economy. In Africa, while consumer spending power may have risen (from US$ 470 billion in 2000 to over $1.1 trillion in 2016), the average purchasing power is still very low.
    The truth is economic growth in many African countries has not been equally distributed. It has not created enough well-paying jobs but has instead led to the creation of a small elite class and a large poor population with little spending power.
    The middle class that many MNCs target is not as large as many people think, that is if we stick to Western definitions of the middle class. In Africa, middle class might mean just a few levels above extreme above. Someone earning enough to meet his basic needs and maybe just a few modern comforts like a TV and maybe a cheap car. With this definition, there is still a lot to work with for foreign companies to make a business out of. But again other assumptions come to the fore.
  2. Africans are Conspicuous Consumers
    A common myth made about African consumers is that they like luxury brands. This is a narrative-driven by media stories like rising champagne consumption in Nigeria and high demand for luxury branded clothing in DRC.
    Such stories have led to MNCs overestimating the demand for status-enhancing products. Research by Harvard Business Review however indicates that the majority of Africans are a lot more conservative in how they allocate their money. Most Africans value saving and education and durability and quality when buying higher cost items. For instance, in Nairobi, many people when buying high-cost electronics like Smart TVs will first save for months and then buy the most durable brand of TVs they can find.
  3. They are adopting Western Habits
    Another common belief is that as Africa develops it’s going to become more Westernized. As a matter of fact, this is what Westerners think of virtually every developing country. However, as cases like China indicate this is not usually the case. China for instance continues to be authoritarian despite decades of astounding economic growth.
    For Africans, some habits still continue despite economic progress. For instance, most Africans even middle and upper-middle-income consumers prefer to shop for groceries in the open air as opposed to malls.
    Similarly, familial ties between individuals and large family networks are still important features of African tradition to this day. Millions of people working in urban areas prefer to send money back home instead of investing in the city. In fact, Africans take this tradition everywhere they go even if they are abroad. Those in the diaspora send billions of dollars back home to their families to cater for them and invest.

These assumptions and many others are some of the key mistakes foreign companies continue to make about Africa. If they are going to succeed they will have to re-adjust their worldview to fit in a culture that they do not fully understand or appreciate.

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