Access to smartphones and internet connection is quickly improving across Africa. The rise in fiber-optic cable usage throughout the continent generates a whole new set of opportunities. In fact, the Africa Wealth Report from April 2022 predicted that exceptional technology advances and an emerging business class can kick-start a 38% jump in total private wealth within the next decade.
For instance, Meta announced they would be building a 37,000-kilometre-long undersea cable around the continent to improve the region’s internet access. Estimates show that around 75% of Africans will have access to the internet by 2030, compared to only 22% in 2020.
“The business marketplace in Africa has been experiencing significant growth and transformation in recent years,” Alex Daruty, Head of Commercial at Africa HR, stated on a recent GPA-hosted webinar, on which G-P were panelists. “There is a growing middle class, increased urbanization, improved infrastructure, and a global digital transformation on the continent,” Daruty continued. “So, I think it’s fair that African economies remain resilient.”
In fact, last year was another year of growth for Africa in terms of total funding raised, number of deals, and number of investors involved. This was particularly noteworthy, as the rest of the world experienced a double-digit drop in funding activity during the same period.
Africa’s thriving startup ecosystem is fueled by a young workforce.
According to market intelligence firm The Big Deal, African startups raised USD 5.4 billion in total estimated funding, including undisclosed rounds, across more than 975 deals in 2022. Daruty explained this growth in more digestible terms. “The top 30 African companies are now present in 16 countries. Ten years ago, the biggest African companies were only present in about eight countries,” he said.usi
As per Briter Bridges, the top African countries for investment were Nigeria (25.4%), Kenya (24.2%), Egypt (18.4 percent), and South Africa (10.9%). At the same time, Ghana, Uganda, Tanzania, Morocco, and Tunisia proved favorable ecosystems. On the subject, Daruty added, “The important thing to say here is that the business landscape in Africa is diverse. Each country has its own unique opportunities and challenges.”
In Jennifer McGuire’s eyes, a key point in Africa’s suitability as a destination for business growth is the continent’s young population. McGuire, Director of Strategic Partnerships at G-P, represented the company on the webinar and stated: “It has the youngest population globally, so a large percentage of the population in Africa is under 25. That is an advantage because you have a great consumer base and talent pool of young professionals who can contribute to the workforce.”
Awareness of compliance requirements is crucial when thinking about investing in Africa.
Of course, it isn’t all plain sailing for companies looking to invest in the African marketplace. Daruty explained that companies must be aware that access to skilled labor varies. There is also the risk of political instability and, with 54 countries on the continent, numerous legislative changes to stay informed of.
“Too many companies come into Africa with a first-world mindset thinking what they’re applying elsewhere will apply (here too),” Daruty said. “In the last three to six months, a staggering 60% of African countries have gone through at least one level of legislative change — 60%. So if you have to use payroll software, it better be updated with even the smallest legislative changes.”
Failing to ensure compliance when hiring in Africa risks squandering the benefits of participating in the growing marketplace. Labor laws — including hiring and firing practices, benefits, statutory vacation pay, and pension schemes — vary considerably from country to country.
For example, Algeria accepts both written and oral employment contracts. On the other hand, Egypt’s employment contracts cannot be oral, and must be written in Arabic and in triplicate. Meanwhile, Nigeria has looser termination laws with at-will employment and no statutory severance pay, while in Burkina Faso, probationary periods cannot extend past three months, and terminations must include reasons for the decision in writing. If the termination is for anything other than gross negligence, theft, or intentional damage to company property, a severance payment must be made.
Daruty also highlighted that while English is widely spoken on the continent, local languages are prevalent in many countries, and French is the primary language in 21 African countries. Further adding to the hiring complexities common on such a vast continent, legislative nuances are prevalent in each country. McGuire used Nigeria as a prime example.
“In Nigeria,” McGuire explained, “employers and employees must worry about taxes. Employees who make over 3,000 nairas must contribute 2.5% to the National Housing fund. They also have to contribute to a pension scheme, and they also have to contribute to the Employee Compensation scheme. So the point I am making is there is a lot to think about in each country, and there are 54 countries.”
High-cost statutory obligations can offset low-cost salaries.
While lower labor costs are cited as a perk for investing in the African market, McGuire also warned that care must be taken here. She noted that while it is important to benchmark salaries, it is also important to consider statutory obligations.
“Sometimes you might think, ‘Oh yeah, that’s a really low-cost market for salaries,’ but actually the social security percentages and certain tax obligations are really high, so it can work out to be more expensive.”
She also sees an opportunity for companies considering investing in Africa to contribute toward long-term positive change, namely around the gender pay gap. As McGuire explained, according to a report by the International Labor Organization, the gender pay gap in urbanized areas of the continent can be as substantial as 40%. In contrast, the pay gap in the EU is 12.7%.
Thus, McGuire believes that companies hiring in Africa can help lower the current range of this disparity.
A productive post-Covid workforce doesn’t mean the remote model reigns.
Meanwhile, regarding remote work, Daruty stated that it is becoming more popular on the continent due to more reliable internet connectivity, favorable time zones between Europe and Asia, and typically lower labor costs. Business Insider Africa magazine suggests that Marrakech, Nairobi, Zanzibar, Cairo, and Cape Town are the best African cities for remote workers. Daruty added his home country of Mauritius to that list, citing a premium visa scheme that allows expat workers and their families to work remotely from the island for one year, with renewal options.
That said, an International Labor Organization (ILO) report released in May 2022 found that the future of work in Africa looks more hybrid than fully remote. The report was based on more than 125 qualitative interviews, several case studies, and responses from over 1,000 non-randomly selected formal enterprises employing nearly 750,000 workers across a wide range of economic sectors in 15 African countries. Only 4% of the enterprises indicated they would transition to a fully remote workplace. Interestingly, the companies surveyed indicated that during the pandemic, productivity increased and has remained constant since.
Eighty-five percent of the enterprises said that Covid-related changes resulted in either an improvement or no decline in productivity. Additionally, 46% of the enterprises surveyed said that changes to business processes resulted in productivity gains, largely driven by the push to find digital processes to replace analog ones.
How G-P can help
Are you planning to expand your business to Africa? G-P backs its market-leading Global Growth Platform™ with the largest and most experienced team of in-region experts in the industry. This means we possess the global knowledge and expertise to guide your business through the expansion process in Africa, ensuring compliance with the many differing labor laws on the continent.
Learn more about how we deliver a better, faster way to grow your company here.