Upscaling African SMEs Post Covid: Adapting to the New Normal

Doing business in Africa

The East African Federation: An African Powerhouse?

Kabeeria Kaume

The East African Federation (EAF) is the vision of a united African state composed of six East African Community (EAC) Member Nations. This community currently has Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda as members, with the DRC (upon approval) as the seventh, making a total population of 195 million. The establishment of this federation would result in a landmass of over 2.5 million square kilometers, making it the largest in Africa, in which the largest city would be Dar es Salaam with 7 million people. At present, the GDP of the EAC stands at $224 billion, ranking 49th in the world with a per capita GDP of $1,150. Could this be Africa's first superpower?

Image 1: EAC Flag (Source: East African Community). Reasons for hope

East Africa has been the fastest-growing region in Africa for decades. Uganda, Kenya and Rwanda have each had 5, 6 and 7% growth respectively in 2010 until the pandemic. Collectively, the EAC's GDP has grown 92% from $106 billion in 2010 to $204 billion in 2019.

The EAC embodies modern cooperation with an old history. Kenya, Uganda and Tanzania were united as a colony in 1919 under the British empire before transitioning into the East African Community in 1967, which at the time used the East African shilling and standard external tariffs. This was subject to collapse in 1997 following diversity in the political system, including dictatorship under Idi Amin, socialism under Mwalimu Nyerere and capitalism under Mzee Kenyatta. In 1999, the community was revived under the EAC Treaty with a four-step plan:

A. Customs Union

B. Common Market

C. Monetary Union

D. Political Federation

The motivations behind this were numerous, seeing that there is a shared cultural identity and that even semi-autonomous states can be part of a greater union. A similar dominant tropical savanna climate has been noted within the community, which lends itself to similar agricultural and seasonal practices. At present, the lingua franca is English but was recently changed to Swahili, which is spoken by about 200 million persons in Africa.

Strides to unity

Many have posited that religion is key to political and social stability in any union, with the most widespread religion in this region being Christianity. 140 million Christians live within the EAC, comprising roughly 78 % of the population. The second most significant religious identity within the community is Islam. This is important because the split of South Sudan from the Republic was a key part of their annexation and is easily seen as a separation of the Christian and Muslim populations from the former country. Ensuring the stability of the region will no doubt require cooperation from both faiths and their adherents.

The first African superpower?

The leading strength this federation would have if properly harnessed is its massive youth demographic. The EAF would have a median age of 17.8 years and ensuring these youths are on the path towards economic independence is vital to the success of the federation. Several plans are in place to ensure the right infrastructure is in place. Mombasa is the largest seaport in the region and a massive economic and cultural hub that services the interior, which will be dwarfed by the $22 billion Lamu port, expected to be the biggest in Africa upon completion. The continued expansion of all airports in the region and attraction to international investors is on a steady rise. The federation's proposed capital is Arusha in Tanzania, with a population of around 400,000 people. The city has served as a centre for diplomacy for several years, and was where the civil war in Rwanda was brought to an end through the peace and reconciliation agreement. Even when the SPLM party was near collapse, the agreement for South Sudan was settled in Arusha. The city is fairly central in the federation and has served as the headquarters of the East African Community.

It is from Arusha that much progress has been made. The Customs Union was established in 2005, and Rwanda and Burundi joined the community in 2007. The 2010 East African Common Market Protocol was intended to foster an open market zone to improve the exchange of people, goods, services and capital within the community. Zero tariffs and minimal duties have shown promise within the region. Having this backed by the East African shilling will no doubt raise the region's monetary strength.

Teething problems

The Common Market still has further to go, as imports that undercut local businesses are often denied entry to neighbouring markets. Kenya has locked out Ugandan milk, timber, sugar and maize. South Sudan joined in 2016 and the Republic of Sudan also sought entry in 2011, but was denied for poor relations with South Sudan and Uganda. In 2013 all member states committed to progressively unite monetarily by harmonizing their monetary and fiscal policies, while Kenya, Uganda, Tanzania and Rwanda simultaneously unveil their national budgets in June. This union is still quite far off. Seeing how differently each currency performs, convergence will be difficult since each nation still has its own currency and seems to benefit or be short-changed depending on their current fiscal strength.

There are plans to fast-track the daunting political federation alongside the monetary union. In 2018 , a committee from the six Member States was set up to draft a regional constitution to be unveiled in 2022 for ratification in 2023. Should the addition of the DRC to the federation be approved, the area of the federation would double, making it the 7th largest and 4th most populous region in the world after the USA, with a population of 285 million people. DRC has a GDP per capita of $500 making it among the poorest in the world, however, its resources and a port on the Western coast of Africa would provide the EAC with the potential to determine the path of development for sub-Saharan Africa. However as mentioned above, there is much to be done. Citing underfunding and political tension between Burundi and Uganda, Rwanda boycotted talks in 2021 claiming that the two countries supported opposition political movements in Rwanda. Failed talks in October 2021 also show how complex this final leg is proving to be. Poverty is still a major issue to be addressed in the community. It is no doubt a worthy vision for the continent-wide pan-African federation to truly realize the potential of Africa rising to determine her own fate.

References

EAC. East African Community Annual Report 2014-2015 . East African Community, 2016, http://repository.eac.int/handle/11671/ 24334

EAC. Overview of EAC, East African Community, 2016, https://www.eac.int/overview-of-eac#:~:text=The%20EAC%20is%20ho me%20to,over%2022%25%20is%20urb an%20population

EAC. Towards Political Federation in the East African Community: Achievements and Challenges. East African Community, 2014, https://www.eac.int/documents/category/political-federation

Ikuya, James Magode. Why the Current Clamor for East African Federation Cannot Produce Unity. Development, vol. 60, no. 3-4, 2017, pp. 197–200, https://doi.org/10.1057/s41301-018-0163-8

Kasaija, PA. Regional Integration: A Political Federation of the East African Countries? African Journal of International Affairs, vol. 7, no. 1-2, 2010, https://doi.org/10.4314/ajia.v7i1-2.57213

Martin, Rhys. East African Federation Looks Set for Further Delay. Global Risk Insights, 20 Mar. 2021, https://globalriskinsights.com/2021/0 3/east-african-federation-looks-set-for-further-delay

Owaka, Simon. 21st Ordinary Meeting of the Summit of the EAC Heads of State Postponed, East African Community, 2022, https://www.eac.int/press-releases/1626-21st-ordinary-meeting-of-the-summit-of-the-eac-heads-of-state-postponed

Factors Affecting the Northern Nigerian Business Environment

Aisha Ahmad

Nigeria i s an indigenous country located in West Africa. It has a population of 211 million people, the most populous in Africa, and covers a span of 923,769 square kilometres. Nigeria is made up of 36 states with its capital located in the Federal Capital Territory, Abuja. Lagos is the largest city in Nigeria and also one of the largest metropolitan areas in the world. The three major ethnic groups in Nigeria are Hausa, Yoruba, and Igbo. Nigeria is divided into six geopolitical zones: North Central, North East, North West, South East, South West, and South-South (Niger Delta region). There are about 400 ethnic groups and 450 different languages, which is why these zones are not just classified by geographical locations, but by similar languages, cultures, and political histories.

For this research, we will focus on the Northern Nigerian business environment. Northern Nigeria is made up of states from the North East, North West, and North Central. Although it  is comprised of different tribes and ethnic groups, the universal language is Hausa and the major religion practiced is Islam. It also shares similar cultures and traditions. Kano, Kaduna, and Abuja are the three biggest hotspots for business in the North. Kano is the second-largest city in Nigeria, with a population of over four million, and is a major route for trans-Saharan trade. It has the largest commercial market for entrepreneurs providing all kinds of goods and services. Kaduna is currently the number one spot for investment in Northern Nigeria, offering various growth opportunities. Abuja is the second state in Nigeria with the highest IGR per population in H1 2021.

Northern Nigerian Business Environment

A business environment is a collection of factors, both internal and external, that directly or indirectly affect the workings and growth of an organisation. Before starting a business, a manager needs to analyse the business environment and the factors affecting it, including its strengths and weaknesses, by using market information. This will help avoid making costly mistakes, wasting resources on unnecessary products, and ensuring a business achieves return on investment (ROI) or reaches break-even. One of the tools used to analyse a business environment is the PESTLE Analysis, which encompasses political, economic, sociocultural, technological, legal, and environmental factors. PESTLE analysis, as well as primary and secondary data, will be used to examine the business environment in Nigeria, with a focus on the North.

What are the factors affecting the business environment in Northern Nigeria? To get a good grasp of what business owners in Africa experience from their start-up stage, I used both primary and secondary data, including my survey of several entrepreneurs: Aliyu Bello Aliyu, CEO of MyClinic.ng, a healthcare technology company focused on affordable digital inclusion for African hospitals; Hadiza Abarshi, CEO of a business that provides purely natural fruit juices; and Faridah Kyari, owner of a bakery business and a catering home-based school for young women. In a PESTLE format, these are the factors that affect the business environment:

1. Political Factors: Despite its economic potential, some of Northern Nigeria's regions face some level of violence. The high tension, civil unrest, and rampant insecurity have made it hard to do business there. Bandits and kidnappers have displaced a lot of residents in those areas, thus affecting businesses. As we all know, lack of security takes away investments from cities. For instance, the production of rice in Zamfara and Kebbi has been severely affected by bandits who hold local farmers to ransom before they can harvest their goods, thus driving up the prices of the food.

Notwithstanding, the security situation has improved in the North-Eastern part of Nigerian and business activities are still booming in many states.

2. Economic Factors: Operating a mono-economy with a heavy reliance on the oil sector, Nigeria's economic situation has faced its woes following the pandemic situation. The revenue generated is low, and when distributed across the federal, state, and local governments, not much is left to pay salaries. This leaves disposable income very low, making it hard for families to afford their basic needs.

Nigeria has a high rate of unemployment, which provides an opportunity for businesses and foreign organizations to have more access to labour and outsource their labour-intensive units to Nigeria.

3. Sociocultural Factors: The dominant religion in the North is Islam and it affects the business and investment choices people make. For instance, Northerners will not engage in certain profitable businesses like alcoholic beverages, pork meat, or gambling/betting because these are all prohibited in Islam. Kano State has banned the sale of alcoholic beverages. Also, most Northerners refuse to get bank loans for capital funding because of interest (riba) which is strictly prohibited under Islamic laws. It is on this basis that MyClinic.ng started a health insurance scheme with one of the biggest non-interest Islamic financial institutes in Nigeria, Jaiz Bank. Religious and cultural beliefs play a big role in the Northern business environment and affect many business decisions. To invest in a Northern business, non-interest loan options should be provided.

4. Technological Factors: Northern Nigeria is a region of agriculture. But most rural parts are disconnected, with no railway tracks to transport goods across state lines or into the cities. However, there is some good news for entrepreneurs and potential investors on that front as railways and trains are being commissioned that will create major trade routes linking the North and South and its ports for export trades.

Another challenge is the lack of proper education on how to integrate modern tools with technology and resources into businesses to drive up productivity and maximize profit. With the world transitioning into a digital age where everything is now online, Nigeria is not left behind as there are several successful tech start-ups, and tech schools with both in-person and online learning options. There is increased use of online facilities by businesses as staff work remotely post-COVID. It is imperative that any entrepreneur has basic tech skills or has a co-founder who is tech-savvy to lower the cost of operation. Most Northern business start-ups spend a lot of money on getting software developers, product managers, data scientists, and so on. A huge sum of their capital is spent on outsourcing the work, which pushes achieving ROI back a year.

5. Legal Factors: Through NIRSAL MicroFinance Bank, a sum of N50 Billion credit facility has been created to assist households and MSMEs (micro, small and medium-sized enterprises) that were hit by the COVID-19 pandemic. Interest rates have also been reduced from 9 percent to 5 percent, which goes a long way in ensuring businesses have enough starting capital and achieve faster break-even without the threat of heavy interest reimbursement. The Central Bank of Nigeria loan ratio has also been increased to make sure Deposit Money Banks (DMBs) can continue to give out lower interest and longer-term credit to businesses.

Another factor that affects the business market in Nigeria as a whole is the lack of mentorship. As start-up founders with no experience, entrepreneurs are bound to make avoidable mistakes. This is due to the general lack of experience in navigating the business environment. Mentorship creates value for the involved parties. With the right mentorship, a business can grow at an accelerated rate, saving time and cost, and soon reaches break-even. This is because mentors who have more experience, have navigated the waters, and are more knowledgeable on efficient approaches to intrinsic and extrinsic environmental factors can provide the necessary insights. They could also provide an entry into the market, as existing parties.

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