Things you need to consider before setting up a business in Africa

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Things you need to consider before setting up a business in Africa

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If someone had told me at the beginning of last year that I would be a business owner in Nigeria, I would be surprised, but fast forward nine months later, and I am very proud to be. This post will quickly highlight some things you need to think about before taking the so-called “bold” step to start a business back home. Naturally, the suggestions will be Nigerian-focused since I am based here.

1. Are you going to be based in Africa and monitor the business?

You would think that this one goes without saying, yet I’ve heard so many horror stories of people opening shops here, yet they are still based in the UK. Look, I don’t know about other countries, but Nigeria is not the place to be doing that BS. You NEED to have your eyes on your employees at all times – this is like the number one rule of doing business here. Always be prepared for the worst.

My friend told me a story of someone who opened a restaurant here, and the staff changed the POS systems to their own. They were also bringing in their own bags of rice and goods – today, that business is no more. Another friend who owns an architecture business told me that he was confused about why the company was making so much revenue, but the bottom line wasn’t over ₦500k / £700. In the end, he discovered his staff was stealing mercilessly, and he fired every single employee that day except the security guard. These are cases where the business owner was even based in Africa!

What about the many stories that one of my favourite YouTubers, Phrankleen, covers of people sending money back home to their families to start farming businesses? The one that made me cry in laughter was when the family told the guy that 350 turkeys had run out of the farm, which is so hilarious but not funny at the same time. So my point is, make sure that you are not running this business from abroad.

2. Be careful with having inputs in foreign currencies.

Suppose your business involves importing products or raw materials priced in dollars or any other currency. However, you are doing business in a country like Nigeria, where the exchange rate is devaluing anyhow. In that case, you might want to consider whether there are local alternatives. This isn’t to say that there won’t be inflation in local raw materials, as some of the machinery/inputs that they used may be priced in foreign currency. However, you may not be hit as hard by purchasing it directly from abroad.

3. How many people are you hiring?

In general, labour is cheaper here than in the West. This can benefit your business as labour is usually one of the highest costs in any industry. However, it would be great if your business creates jobs for Africans rather than just lining your own pockets. For example, if you are building an app rather than hiring Indian or European developers, why don’t you look for the many talented African developers out there? If you are manufacturing a product, why don’t you source some of the inputs from the country you plan to sell or somewhere else in Africa rather than abroad. We have the AfCFTA now, which means that you can import tariff-free goods and services from over 44 countries. Make sure you also plan to find the talent that will work on your business. Recommendations are always better, as while labour is abundant, finding the quality you need maybe a little more complicated.

4. Are you sure your margins are as high as you think they are?

There certainly is little more uncertainty to doing business here as societies here are less structured than what you see abroad. This can be both a benefit and a hindrance to what you’re doing, so you need to sit down and do a detailed scenario analysis on what can go wrong with your business. Consider the current inflation rate and incorporate that into your financial projections to avoid nasty surprises.

5. Will you still have bills, family, or responsibilities abroad?

It would be best if you thought about how you will still financially cover your responsibilities in the West. E.g., Do you have a property with a mortgage? Will you place a tenant there? Who will be in charge of monitoring the property if any issues arise? Do you have a family that you are leaving behind, maybe young children? Who will look after them and fill the void for you when you are not there? Whatever the time you think it will take for you to break even, double that time so that you have enough capital to deal with any issues that may arise when you are away. If you think it will take you six months before you make any considerable money from your African business. Have at least twelve months of savings ready to cover at-home expenses.

6. Where will you live, and how will you move around?

Do you have the place you want to live in ready? Have you been building a home back there? Have you SEEN the

 home you have been building? Again, we all know horror stories of people sending money back home to their siblings to buy land and build a house, but there is nothing there when they get back home. Phrankleen‘s youtube channel is full of them. Have you projected how you will be able to cover the rent? Most African countries pay their rent on a yearly basis. Are you going to be able to cover the first 2-3 years?

What about transportation? I don’t know about other countries, but you need a car in Nigeria. You can just about get away with taking taxis around in Lagos, but it gets a lot harder the minute you leave the state. In Abuja, there are some taxis, but there wasn’t any Uber/Bolt working in Ondo state. Are you going to ship a car from abroad? Do you have an accurate view of what the customs charges (and bribes) will be? Are you planning to buy a car in Africa? Do you have a trusted dealership that you can go to? I know someone who ran a check on a vehicle they were being sold in Lagos, only to discover that the mileage had been rolled back over 50,000 miles. For anything you want to do when you move back home, get a recommendation from a citizen.

So here are a few things you need to consider before moving back home. There are many others, but this is a good place to start. You can come back home and build a successful business; Wode Maya‘s youtube channel is full of success stories! Just make sure that you have done adequate planning to limit nasty surprises.

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