What's the Cultural Cost of Doing Business in Africa?

For the last 15 years, I have worked with #investors , fund managers, and businesses operating and expanding into #Africa . My work is mainly focused on two major areas: enterprise growth and risk management. Recently, I have been spending more time on #risk management, primarily #cultural and #social risk. I chose these two because my research shows a more inherent risk in how people behave around business than in the business model itself. Cultural and social #information or #misinformation is an actual cost to include in your cost of doing business.

If you are an #investor or fund manager, you have received that pitch deck with a section on "use of funds." You were sold that the funds you deployed in the target company would be deployed for the purposes stated in the pitch deck. But you missed something important here. You forgot that "use of funds" was a #suggestion , not a #commitment . To understand this better, you must understand how social and community events such as weddings and funerals are paid for in most African cultures. Your money, in most cases, will never rise above community needs. The #community comes first. We can explore this more in another conversation. This might help you understand all those fights you've had about the use of your deployed funds.

Deployment aside, just how do cultural and social factors affect business risk? Since you asked, I will let you in on a few of my findings.

Granted, #Africa is a diverse continent with numerous countries, each with unique cultural practices and business norms. While it is essential to recognize that cultural practices can vary widely across regions, there are some widely shared business practices and norms in Africa, informed by cultural and social practices. A lack of cultural and social awareness has led to lots of unintended #losses for #investors , heated misunderstandings with expansion partners, and strained relationships with suppliers.

Today I will let you in on one distinction between highly #capitalistic economies, such as the United States, and highly #social economies, such as what we find in most African communities. This one significant distinction is that, in most African cultures, business is not an #exchange of #value but an #exchange of #relationships . In most African cultures, business falls up there with #weddings , #funerals , #birthday parties, and #rites of passage. Suppose I use business funds to help a friend organize a funeral for their beloved mother. In that case, the universe will forgive me because I have "#deployed " capital where society most needs it.

Focusing on relationships rather than the bottom line is not necessarily bad. I mean, who wants to put money above people. But you must understand how to build a profitable business around this rationale rather than fight it. Attend a funeral of a prominent person in most African communities. You will hear announcements about how company X has sent a gift to the family because (a) the deceased lived near the company headquarters, (b) the deceased's son or daughter worked for the company, (c) and many other relational reasons. Very soon, you will find out that companies in this part of the world are one with the #community . If you try to make it all about business and the bottom line, you will lose to the community.

If you are beginning to wonder whether your losses had something to do with your lack of #cultural and #social #intelligence , you are asking the right questions. And the answer is, very likely. As I write this, a lot of capital is being deployed based on the business model, P&Ls, balance sheets, and market size, all in complete disregard for how cultural and social norms inform how all the factors of production interact in this part of the world. If risk comes to your capital, it will likely come from failing to understand the glue that holds everything together. And if you are doing due diligence, it's time to add a cultural expert to your DD team.

#GetCulture #DoingBusinessInAfrica #CulturalDueDiligence