Africa is a continent of immense contrasts. No two African markets are the same and specific knowledge and insights are needed to capture business opportunities while mitigating risks. With the help of a skilled guide like KPMG, Swiss and European entrepreneurs can successfully navigate new territory and expand their business into this promising growth region. In this interview, Michel Anliker and Sara Núñez Évora from KPMG’s Trade & Customs practice answer some key questions about trade between Switzerland and Africa and explain why KPMG is so well equipped to respond to investors’ concerns and challenges.
What do you think about trade between Africa and Switzerland? Why does it remain so low?
Michel Anliker: Indeed, the share of African trade with respect to total Swiss trade is minor. In 2017, imports from Africa accounted for about 3.6% of total Swiss trade, while exports were below 1% of total Swiss trade. Additionally, trade between Africa and Switzerland follows the traditional patterns of sourcing low technology intensive agricultural and extractive goods from Africa. The main imports from Africa into Switzerland in 2017 were energy, stones, and agricultural products.Given the characteristics of the African continent, there is an enormous ocean of untapped opportunity for Swiss businesses to invest in Africa and increase cooperation with the continent. For us at KPMG, we have no doubt about the potential for businesses in the African continent. This is why we have offices in 34 countries serving 54 countries in the African continent – and a new office about to open in Ethiopia.
So, what do you think stops Swiss businesses from entering the African market?
Sara Núñez Évora: We cannot deny that doing business in Africa is a challenge for Swiss businesses. One of the main mistakes we often observe is that businesses tend to treat Africa as a bloc. There is no one-size-fits-all approach to the African continent. With 54 recognized countries separated – either on paper or in practice – by hard borders, there are innumerable languages, different regulatory environments, and approaches to business. Companies need to tailor their strategies for each country based on specific insights into each country’s way of doing business. In this line, I would add that another obstacle for Swiss businesses is the fact that in many African countries, there is no fixed set of rules on how to do business, but more of a cultural and common understanding of how things are done. Hence, local know-how is of particular importance to break into the African market. Having offices throughout the African continent is a big asset for us at KPMG. It allows us to have in-depth local knowledge of the operating environments, tax and political systems and cultural quirks and enables us operate in a coordinated way across the different offices.
What opportunities do you think there are for Swiss businesses in Africa?
Sara: Africa’s industrial tissue remains in its majority based on low processed goods, with only few countries shifting towards manufactured or semi-processed goods. Hence, there is enormous potential for upgrading and upscaling production within Africa and/or supplying those processed goods that are not produced in enough quantity and quality domestically. For instance, Swiss businesses in the food sector have a wide range of opportunities in the African continent. According to OECD figures, Africa currently spends about USD 63 billion a year on food, beverages and tobacco. Of this amount, USD 35 billion is spent on food imports alone. With the growing population in Africa, forecasts show that the annual food import bill could reach USD 110 billion by 2025 unless domestic production is scaled up. If I were in the food industry, I would not think twice.
Michel: Furthermore, many African countries are working towards diversifying its production structure towards higher value added manufacturing. Currently, Africa’s imports of heavy machinery and transport equipment are among the lowest of the world by region. This again presents an opportunity for Swiss companies that are global leaders in these sectors.
Could you tell us more about trade within Africa?
Sara: In 2016, intra-African exports made up to 18% of total exports while intra-Asian trade is at 59% and intra-Europe trade at 69%. There is a long way to go until Africa achieves this level of integration. This is due in part to the fact that 16 countries in the African continent are landlocked, many are small economies and fragmented markets, there are low energy and transportation links, poor infrastructure, and low cooperation between governments. However, African countries are determined to change these figures. While free trade is being questioned in most parts of the world, governments in Africa are prioritizing intra-African trade at the top of their agendas. In fact, earlier this year 44 African countries signed the African Continental Free Trade Agreement, which forms the basis for the world’s largest single free trade area in terms of number of countries. This agreement commits to removing tariffs on 90 percent of goods, and liberalizing trade in services, including air space and free movement of people. The latter, often taken for granted by Europeans, is of particular importance. Currently, it is easier for Africans to get a visa to fly to Europe than to move across African borders. Even making a call between two neighboring African countries can be more costly than calling overseas. This impacts intra-African business ties and production chains.Additionally, the agreement aims at reducing administrative and transaction costs and overcoming market segmentation since transportation and communication infrastructure for intra-African trade is less developed than those that connect Africa to the rest of the world.
Why might intra-African trade interest Swiss companies?
Michel: Open African markets will lead to more competition, economies of scale and specialization. It will increase the efficiency of companies allowing them to integrate deeper in global supply and production chains. Swiss companies can benefit from this in two ways: by being part of this industrialization process as well as have new partners for their production chains.Additionally, better cooperation and regulatory harmonization across Africa will be of benefit to Swiss companies operating in and across Africa.
What advice would you give to a business wanting to invest in Africa?
Sara: I would advise Swiss companies to train and invest in local staff. Furthermore, I would encourage them to step away from the traditional businesses patterns and explore other untapped sectors. Where appropriate, they should invest in infrastructure. Finally, understand the market both from an economical but also political and social perspective.
KPMG in Africa
KPMG is the authoritative voice for business in Africa – unmatched in our ability to provide excellent service to our global, regional and local clients. Our deep expertise on Africa’s contrasts and opportunities and long-standing relationships, means we can deliver informed perspectives, local knowledge and clear, value-adding solutions. KPMG in Africa’s footprint is well established, allowing our member firms across the continent to work together to provide globally minded, forward-thinking solutions that are informed by deep-seated local expertise in each country.