Setting up a business successfully, sustaining it and expanding it in a foreign country — especially in relatively nascent and rapidly evolving economies such as those in many parts of Africa — is not an easy feat.

While failed business ventures in Africa can sometimes be attributed to systemic issues within the nation in question, often the real problem stems from a lack of strategic vision and adequate research on the part of the investing entrepreneur.

Larger players have the resources and capacity to formulate a well-informed approach towards extending their operations into African markets.

However, small and medium enterprises (SMEs), which are more constrained in their access to technology, capital and knowledge, require greater support to overcome the hurdles that entering new markets normally entail. Targeted state involvement could greatly facilitate such SME ventures.

Local strengths

India and the African continent have a development partnership focusing on issues of national importance. This can be dramatically enhanced by forging self-sustaining linkages between African and Indian businesses, particularly emphasising the SME sector.

SMEs are central to linking the private sector and poverty alleviation, as they are relatively more labour-intensive and tend to be more effective in employing and adding value to local resources, using simple and affordable technologies. Furthermore, SMEs’ technologies are easier to acquire, transfer and adopt. SMEs are also better positioned to satisfy the limited demands of small and localised markets due to their lower overheads and fixed costs.

Moreover, SME owners tend to show greater resilience in the face of recession by holding on to their businesses as they are prepared to accept lower compensation for limited periods. For these reasons, SMEs can be a favourable vehicle through which India can channel mutually beneficial investments into Africa.

By providing Indian SMEs with the strategic inputs they require to penetrate promising African markets, India can propel its bilateral relations with African countries, underpinned by positive returns for both parties.

Turkey, Brazil example

In fact, other countries, having recognised the enormous gains to be accrued from linking their SMEs to African markets, are adopting this approach at a national level.

In Turkey, for example, where SMEs produce roughly 27 per cent of the national economic output, generate approximately 60 per cent of exports and employ around 80 per cent of the workforce, Africa is being highlighted as an important export destination.

SMEs from Turkey are identifying and seizing a number of opportunities in diverse sectors, ranging from agriculture and agro-processing to construction and infrastructure services.

Turkish Airlines, Turkey’s national carrier, is expanding rapidly in Africa and aims to be the largest non-African carrier on the continent.

The Turkish government is also steadily increasing its presence across Sub-Saharan Africa, including countries such as Chad and Somalia, in response to the rapid development of Turkish business interests in the region. The Turkish prime minister’s visit to Somalia in 2011 was the first visit of a non-African premier in 20 years.

Currently, large corporations such as Vale and Petrobras take up the major share of Brazilian investments in Africa but its SME sector is showing progressively greater interest in the continent.

A 2013 survey reveals that 71 per cent of surveyed Brazilian SMEs had international business activities and only 16 per cent were restricted to exclusively domestic operations.

The remaining 13 per cent of respondents were high-performing, internationally oriented SMEs, many of whom operate in Africa. Apex-Brasil, Brazil’s trade and investment promotion agency, is actively encouraging SME penetration in Africa. Currently, the greatest number of Brazilian SMEs in Africa are concentrated in lusophone (Portuguese-speaking) Africa.

States in the spotlight

Indian SMEs are increasingly keen on foraying into African markets as discussions with SMEs from the States of Andhra Pradesh, Gujarat, Karnataka and Punjab have revealed. SMEs in aggregate account for over 40 per cent India’s exports and can, therefore, contribute significantly towards deepening India’s investments in and trade relations with Africa.

Indian SMEs are eager to pursue opportunities in diverse sectors in African economies, including agriculture, natural resources, healthcare, real estate and gems and jewellery.

Unfortunately, obstacles such as a limited understanding of new geographies, socio-economic contexts and political conditions combined with insufficient debt financing, are preventing SMEs from exploring new areas of investment.

The government, by formulating India’s own SME strategy geared towards Africa, can help small players overcome such hurdles. Moreover, industry bodies such as the Confederation of Indian Industry and the Federation of Indian Chambers of Commerce and Industry can, through their global reach and extensive interactions with Indian industry at the operational, institutional and policy levels, offer support to the government in its bid to increase SME access to Africa.

Grab Summit opportunity

An SME-focused strategy necessarily involves taking into consideration African counterparts. Interviews with African SMEs revealed that they solicit technologies as well as capacity-building assistance from Indian businesses in their effort to expand the scale of their operations.

Thus, African SMEs can employ Indian technologies in order to bolster their businesses while Indian SMEs will be correspondingly presented with new markets for their technologies and products.

True to the ethos of symbiosis that characterises India’s current development partnership with Africa, the growth of Indian SMEs in Africa should not be a one-sided process. Long-term commercial and development gains can be ensured only if bi-directional ties are systematically nurtured to build lasting associations between the SMEs of India and Africa.

The upcoming India-Africa Forum Summit, scheduled for mid 2014, is an opportune platform for evaluating India’s SME relationship with Africa till date and jointly determining the way forward for continued cooperation. The summit presents an ideal opportunity to showcase India’s strategic SME agenda and thereby demonstrate that India is continually refining its engagement with Africa to promote reciprocity and inter-dependence at both the micro and macro levels.

(The author is Managing Director of Avignam Group, with interests in Africa.)

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