Lagos CBD, Nigeria. Source: Africa Capital Digest
In continuation of our series on how to navigate institutional voids and successfully invest in emerging markets in Africa, we will be examining Credibility Enhancers and Information Analysers gaps in Africa.
Credibility Enhancers are intermediaries that provide independent assessments to support or validate business claims. These sets of intermediaries play crucial roles in building trust in business to business transactions within local or international markets.
For example, businesses are not expected to open their entire books to financial institutions each time they seek credit, instead, they submit relevant financial statements to assert their viability and capacity to repay the credits to the lender. On the other hand, the lending party might not have trained experts with indepth technical skills to verify claims and credit history of every credit applicant, so they contract the services of a credibility enhancer to independently scrutinise each applicant‘s claims and make recommendations.
In the same approach, prospective foreign investors exploring investment opportunities in Africa have limited choice of credibility enhancers that can independently verify and qualify projects presented to them in the continent. For instance, an investor who wants to set up a food processing plant in Africa will struggle to secure the services of an intermediary that can independently verify claims and trace the credit history of potential business partners, supply chain stakeholders, distributors and farmers as well. The current situation presents enormous challenges to potential investors. The majority of credibility enhancers in the continent charge exorbitant fees with little or no guarantee to secure a bankable report at the end of the day.
The credibility enhancer gaps in the markets across Africa offer great business opportunities for entrepreneurs with relevant skills to establish intermediaries and support potential investors aspiring to invest in the continent.
Information Analysers are intermediaries that find and generate information that facilitate businesses by providing data-mining, number crunching and consulting services. In developed markets, these intermediaries play significant roles in providing reliable data that inform critical decisions in commodities trading, mega-projects and micro-businesses alike. For instance, stock analysts and rating agencies play critical roles in financial markets by appraising companies, stocks and economies across the globe. Their significant roles inform investors decision to buy or sell stocks at any given time.
To attract an investor’s interest in Africa and sustain it to investment commitment, there is need for more information analysers to independently provide reliable and unbiased information on investment opportunities and projects. In my experience over the years, prospective investors do not have stress-free access to information analysers to independently qualify or verify investment opportunities in African countries.
A great number of foreign investors prospecting in Africa rely on media reports, social media and other unreliable sources of information that entrench the negative perception of Africa as an investment destination. Having said that, key information analysers operating in the continent are foreign-owned and headquartered outside the continent.
Moving forward, in the same way rating agencies score companies and stocks in developed markets, developing markets in Africa need qualified information analysers that can provide reliable and research-backed information services to prospective investors. These intermediaries will boost confidence on both sides and sustain investment interest to actualisation.
Once again, the limited number of information analysers in Africa present viable business opportunities for qualified entrepreneurs to bridge the gaps in the market by providing services to both domestic and international clients prospecting for business opportunities in the continent.
In the July newsletter, we will be examining Aggregators & Distributors gaps in Africa.
Meanwhile, If you are considering expanding your business into international market(s), click here and reach-out to OctoberFirst Consulting Sydney, we will work with you and achieve your business aspirations in Africa.
