Doing Business in Africa: Where Strategy Meets Social Investment

With 200 million people between the ages of 15 and 24, Africa currently has the world’s youngest population of any continent. And each year between now and 2020, 11 million more are expected to enter the African labor market. Africa contains many of the world’s fast-growing world economies, and there’s a palpable enthusiasm when you speak with many young people and social entrepreneurs.

Yet, right now many young people either have no jobs to go to or only limited skills to do the jobs that are available. The promise of Africa’s explosive economic growth points to a critical inflection point: Will the increasing population growth outpace the development of jobs and education necessary to accommodate the labor market?

By 2020, the global economy will also face a shortage of the skilled talent needed to drive prosperity and social security. According to the McKinsey Global Institute’s 2012 “World at Work” study, there will be 45 million “missing jobs”—medium-skill positions that companies seek to fill, but for which qualified applicants are unavailable—in developing economies, many in Africa.  Indicators show this is still the case today and point to a lack of access to the type of higher education that often propels young people into the workforce. A lack of meaningful engagement in the labor market poses a tremendous risk for global security. Fueled by social imbalance and poverty, this can lead—and in many parts of the world, has led—to civil unrest.

Corporations have the opportunity to step up and help fill this gap in ways that government cannot. For the companies that do, the benefits are compelling: a skilled and ready workforce, an increased social license to operate, and a competitive advantage in new geographies with substantive market potential.

Private sector investment in Africa is about making smart social investments today as part of a sustainable and inclusive growth strategy that will pay off in economic growth—ultimately growing business while meeting a clear social need.

It’s not tenable, however, to take a business-first, business-only approach when entering developing regions. A company must take into account the macro socioeconomic needs facing these countries. Recognizing the inherent demographical challenges, for example, a critical mandate of SAP’s growth plan in Africa is to equip young people with the tools to thrive in the 21st-century workforce—to bridge the burgeoning gap between supply and demand in the labor market.

SAP wants to create a full cycle of technology skills support, providing university graduates with training and immediate job opportunities, as well as casting a wider net to include primary and secondary students. SAP’s Skills for Africa scholarship program, for example, will train 10,000 technology consultants in Africa by 2020. After the program, trainees are guaranteed an internship or job interview with SAP customers or partners. Thousands of consultants are developing highly sought-after technology skills, and SAP is gaining a pool of skilled candidates.

Last year, we also launched Africa Code Week, a one-week program designed to introduce children to programming; 90,000 children, 3,000 parents and teachers, and 100 partners participated across Africa, planting the seeds of digital fluency in the next generation.

One company alone, however, cannot fill the gap. Many other companies like IBM, Intel, GE, and The Dow Chemical Company, are taking the lead in Africa through shared value initiatives. Dow, for example, is expanding operations in Africa with new offices in Ethiopia, Nigeria, and Morocco. It is strengthening its social license to operate while building the capacity of local entrepreneurs and civil society actors through pro bono. In 2013 and 2014, Dow sent 80-plus employees into Ghana and Ethiopia to work on capacity-building projects with NGOs, nonprofits, and social entrepreneurs. In that same year, GE announced that it would invest $2 billion in Africa by 2018 to spur the development of infrastructure, human resources, and energy projects, and has subsequently launched a host of initiatives.

Building a presence in African markets taught us some strategic principles that apply to anyone thinking about entering a new market:

1. Go first, scale later. The very nature of market development means entering the unknown. Get to know the local context before going deep. Through initiatives like the Social Sabbatical, a program where high-performing employees work on short-term pro bono assignments with social enterprises in emerging markets, employees bring back an experiential understanding that gives our company a clearer view into promising opportunities and teaches us what to avoid.
2. Know your strengths, and leverage them. Invest in social engagements close to your business expertise. If your expertise is water, focus your social impact efforts there. SAP is the largest business software company in the world; we know how to leverage technology and make enterprises successful, and our social investments mirror this.
3. Bring a friend. Working with a partner who knows the terrain catalyzes all aspects of working in a new market. On the Social Sabbatical, for example, we work with partners like PYXERA Global, an international NGO that brings a vital understanding of customs and business norms and a network of local contacts in the private, public, and social sectors. A partnership approach will accelerate your organizational knowledge about a market, and your organization will have a reputable ally who has built trust—often hard-earned—with a community over time.
4. Design initiatives to accelerate skills and market development. Design initiatives that develop an individual’s technical skillsets and her entrepreneurial abilities. The number of job seekers often exceeds the number of jobs available. By cultivating technical and entrepreneurial capabilities in a market where you seek to do business, you will help nurture a workforce and the local capacities to launch new businesses that encourage a local economy to flourish.
5. Leverage the power of leapfrog technology. The initial product development steps taken in a Western market may not apply in another business context. One example is Illuminum Greenhouses, a start-up in Nairobi, Kenya, that sells smart, remote-controlled, solar-powered greenhouses. These solar-power sensors calculate the actual amount of irrigation needed, reducing water consumption by up to 60 percent—an approach that bypasses the need to develop costly infrastructure like electrical grids. One of the greatest attractions for young farmers is that they can control their greenhouses using a smartphone app, freeing up time to focus on other income-generating activities.

The GDP of 25 African countries is expected to grow 5 percent annually between now and 2025. Meanwhile, 60 percent of African households will have discretionary spending power by 2020. The middle class has and will continue to grow, and create a burgeoning, high-value marketplace in a spectrum of sectors.

Market entry in Africa may appear complex on a continent made up of 54 countries at varying socio-economic levels, but the companies with the foresight and fortitude to step into this complexity, will excel in the African marketplace of tomorrow.

Read more stories by Alicia Lenze & Brett Parker.