Partners in Africa - The Key to success or Failure?

09 March 2015

It’s no secret that sub-Saharan Africa has seen significant growth over the last decade. There may have been bumps on the road, but the trend is set to continue. The US private equity group, Carlyle is a case in point. In April of last year it closed its maiden private equity fund focussed on sub-Saharan Africa at nearly USD 700 million, 40 per cent above target. Last November, it announced its first investment in Nigeria, taking an 18% stake in Diamond Bank. And, the same week saw another first for Carlyle, this time in South Africa, where it acquired TiAuto in a deal thought to be worth about USD 182 million.

It’s clear then, Africa is increasingly attractive for investors. A burgeoning middle class with consumerist aspirations, a desperate need for investment to narrow the infrastructure gap with other parts of the world and new oil and gas finds set against slower growth elsewhere headline many other factors  enticing new investment.

Of course it’s not all plain sailing and some of those very features which make for tantalising opportunities can also mean relentless challenges, think the lack of infrastructure in a continent whose very geography can conspire against success.

There is also the political angle. There’s an oft repeated message, but one, nevertheless, whose force should not be diminished by repetition. That is: understanding the political environment is vital, especially in a continent where the nexus between politics and business can be close. And this is where the choice of local partner can take on extra significance.

The unfamiliarity of a new market makes it pretty much essential to have a local partner of some description if a business is going to succeed. This partner can bring local knowledge, connections, networks and insight – key to business success. And, not only may it be advisable to have a local partner, but increasingly across sub-Saharan Africa, local content laws are making it a legal requirement. Furthermore a local partner may often have to have a controlling stake in the venture.

For these reasons, finding the right partner is crucial and the choice must be carefully made.

Corporate history is littered with examples of companies who have made the wrong choice and been punished, either by regulators or the market. The reputational repercussions home and abroad, can be devastating. In one stark example, the UK Bribery Act makes a company liable for bribes paid by third parties on its behalf. And figures show that in over 80 per cent of cases, bribes are paid by third parties.

Of course, it’s not just a question of bribery. Before entering the relationship it’s important to know as much as you can about your partner. Who really owns the company? Are they connected politically and if so, how and to whom? Are they effective? What’s their reputation in the market? Are there any skeletons in the closet?

You wouldn’t buy a house without having a thorough survey done first and so too with business partners.  In the same way as a house you haven’t had surveyed, if you don’t really know who you are dealing with before you enter into a relationship, you run the risk of having the venture collapse around you. Comprehensive due diligence on your local partner is essential

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What issues have you encountered with local business partners? Share your thoughts below or contact us to set up a meeting to discuss things more confidentially here.

Christopher Nason | Director, PwC UK
Email | +44 (0)7760 485 833

Other articles by Christopher Nason



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