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Why Do African Businesses Fail?
With the collapse of nearly all African stock brokers at the Nairobi Stock Exchange- some of which looked as if they had long passed the collapsing point, it is right time to ask: Why do African businesses fail? Some years back, we asked experts – all of them non-African Kenyans who were managing directors or chairmen of multinational companies in Nairobi – and the answers we got were as follows:
1. Company taxes are very high in Kenya. “Although the specified rate is 40 per cent, disallowable items such as pension make it much higher in real terms.”
2. Pressure to own land is very high. So most Africans rushed to purchase land when they have spare money instead of re-investing in their businesses. The search and purchase of the land itself creates a diversion from the business. This point is actually related to the next one mentioned.
3. African businessmen are involved in too many things and there is no time for specialization. If he is a retail trader, he will stock everything, leaving no room at all for specialization. Or he will tend to move to areas that offer quick returns. “You can see the number of bars that have shot up,” one of the interviewees said.
“Most failures occur when you get involved in too many things.”
4. Lack of knowledge. Since an African businessman goes into many areas, he soon finds that he lacks operational knowledge and skills of some of the businesses. He is therefore forced to take money from the successful business to subsidies the unprofitable ones.
5. Inability to know when to quit. Most African businessmen don’t want to close unprofitable businesses for fear of looking like failures.
6. Over indulgence of the African businessman. Most African businessmen will often marry again and again, diverting business funds and their attention as well as creating friction in their businesses.
Our interviewees saw greater chances of success in cases where the African entrepreneur has gone into businesses where he has specialist knowledge and professional qualifications.
“Agro-based fields have been the best,” said one expert. Usually such businesses are not run by absentee owners with other fulltime jobs. When you are capable, success requires time, devotion and hard work.
“One key thing that every potential investor should keep in mind is that there will be small returns and hard work at the start. Perseverance and good business sense will lead to success.”
All our interviewees of singled out businesses run under the Kenya Industrial Estates as good models for African entrepreneurship. “In this case, there are good feasibility studies and the commitment of the business owners to personally run their businesses.”
Well, what do you think? Send us your comments and don’t forget to read PART TWO of “Why Kenyan African Businesses Fail.”
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