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IDJ-ENGLISH Strategies Necessary for Growth in Africa over the next 20 Years


Strategies Necessary for Growth in Africa over the next 20 Years

-The COVID-19 Crisis increases the benefits of partnering with local companies

Kohei Muto, CEO/Co-Founder
Double Feather Partners Co., Ltd.
In Africa, the last growth frontier, Japanese companies are expanding their businesses. However, barriers to advancement are still high. What kind of strategies should Japanese companies adopt in the region into the future? We ask Kohei Muto, CEO of Double Feather Partners Co., Ltd., who has a rich track record in supporting business in Africa, and who also participates in the public-private African Business Council. (Interviewed by Saki Kawata)
Professional groups from financial institutions
We have many graduates from financial institutions, and we provide comprehensive support, such as research, financial and management strategic advice to local companies in Africa and Japanese companies aiming to expand into Africa. We also invest in startups with our own funds, and we support the growth of companies from a medium- to long-term perspective while taking risks by ourselves. We are also preparing to launch a venture fund to further expand investments in startups.
Rapid growth due to population growth and deregulation
At a time when uncertainty is increasing due to the COVID-19 crisis, the situation is not easy for investment or expansion in Africa. Transportation costs are rising as supply chains are damaged. Business costs are higher in manufacturing and other industries than ever before. However, as the population declines in each country, only the African continent will grow in the world. It is said that one in four of the world’s population will be African by 2050.
In Africa, where laws and regulations are loose, it is easy to conduct demonstration experiments for social implementation of state-of-the-art technologies and businesses that are strictly regulated in developed countries. Especially in the field of telemedicine, deregulation is progressing as the shortage of medical personnel becomes more serious. In urban development, Africa, where infrastructure is not well maintained, has the potential to create new AI cities from scratch. Not only IT companies, but also developers and manufacturers can challenge businesses using new ideas that cannot be found in Japan.
When expanding business overseas, it is important not only to look at Asia, Europe and the United States, but also to take into account such growth in Africa in five or 20 years’ time . It is also necessary to develop a strategy for what kind of business portfolio should be formed now in a way that will increase the business value of the company.
Rapidly growing local startups
There are three main ways to enter Africa. The first is to enter the market on a zero-based basis, creating factories and establishing local branches. The second is to make promising local companies affiliated companies through business collaboration and capital alliances, and then expand the businesses together. The third is via mergers and acquisitions (M&A) with local companies.
In particular, amid the COVID-19 crisis, the latter two have a certain economic rationality. This is because, while the business value of promising local companies is generally relatively decreasing, the long-term growth rate is large enough from a macro perspective. Especially in Africa, the growth of companies centered on digital assets such as fintech, health tech and e-commerce have seen remarkable progress in recent years. Venture capital companies around the world also tend to invest more in these startups.
Under such a situation, there are many advantages to Japanese companies working with local startups. Because, in Africa, it is not yet at the stage where consumers can buy high-quality products from Japan considering the level of disposable income. It will take another 10 to 20 years to get to that stage, but it would be too late to enter the market by that time. European, Chinese and Korean companies would already occupy the majority share of the market.
On the other hand, even if you enter now, you cannot sell your products. But if you have a business or capital alliance with a local company at such times, even if your products do not sell, the profit of the investing company will become your own profit in the future.
In addition, by developing products through R&D with local partner companies for local needs, including demonstration experiments, it is possible to enter the market as quickly as possible when purchasing power increases. It does not mean that you cannot win unless you work with startups, but it can be said that whether you have such a medium- to long-term strategy will be intrinsic to future success.
For African companies, collaboration with Japanese companies has other benefits in addition to financing. One of them is human resource education. For example, local companies that develop cashless payment systems often have no knowledge of the hardware, even if the system, itself, can be developed. Taking such opportunities, Japanese companies dispatch engineers to provide technology and knowledge. While solving local issues, you can contribute to human resource development and grow your own business. It complies with the current trends of the Sustainable Development Goals (SDGs).
To work with the Japanese government is also extremely important for entering the African market. Information about Africa is limited because there is a physical distance from Japan and little cultural relationship. Few countries still have bilateral tax treaties. In some cases, it is possible to obtain appropriate information by working with the government, JICA, Japan External Trade Organization (JETRO), etc., and to exchange opinions on proposals for improvement of the legal system together. Companies are more likely to avoid various risks this way, than by challenging them alone.
In addition, the “Basic Information Gathering Confirmation Survey on the Formation of the African Regional Startup Ecosystem”, which we are currently commissioned to conduct by JICA, is closely related to the promotion of overseas expansion of Japanese companies.
In this project, under the name of the project NINJA (Next Innovation with Japan), an acceleration program to promote the growth of local startups is being conducted in Kenya and South Africa over three years to investigate issues related to the formation of ecosystems. Kenya and South Africa have the largest amounts of funding raised by startups in Africa. Kenya, known as “Silicon Savannah”, has attracted talented tech talent from Europe, the United States and other countries. South Africa, which has a high level of education, also has many excellent engineers and is active in starting businesses. In Europe and the U.S., excellent engineers are often highly paid by GAFA. However, since there is no GAFA development base in South Africa as yet, it is easy to attract such excellent human resources. This is one of the factors contributing to the environment in which startups are easy to grow.
A business contest will be launched in Japan in February this year, and an acceleration program to be launched in Kenya in April. Among them, we will cooperate with Japanese companies, world-class venture capital companies with which we work, and European and U.S. companies. By creating bridges not only between Japan, but also the world and Africa, we, a Japanese company, are looking to support the development of African companies to become global such as GAFA and Alibaba of China. I would like to continue to focus on matching African companies with Japanese companies, and support them to reflect the growth of the African market in improving the business value of Japanese companies.
Japan’s ODA, which has been implemented in Asia so far, can be characterized as a subsidy from Japan in the medium- to long-term, and there have been few mechanisms to continue to deepen exchanges with Japanese companies in both directions from an economic point of view. From Japan’s standpoint, there was no idea that innovative companies would be born from poor developing countries.
However, in fact, innovation has born from such places, and global companies appeared one after another. In Africa. We should make use of that lesson. In addition to individual projects to create infrastructure, it is desirable to more actively promote the creation of a sustainable system that flexibly supports corporate growth in parallel with a company’s medium- to long-term business strategy.
“International Development Journal”, February edition, 2021



(株)Double Feather Partners
CEO/共同創業者 武藤 康平氏
最後の成長フロンティアと呼ばれるアフリカには、日本企業の進出も増えつつある。だが進出への障壁は今なお高い。日本企業は今後、どのような戦略をもってこの地域に挑むべきか。アフリカでのビジネス支援で豊富な実績を持ち、官民によるアフリカビジネス協議会にも参画している(株)Double feather PartnersのCEO、武藤康平氏に聞いた。


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