Africa is good business – but don't be caught out by not doing your homework.
Integrated reporting is indeed a journey! It's a journey for the companies, as well as those developing and contributing to the guidance.
Africa is now a global investment ‘hotspot' - but full of surprises for the unprepared. We outline the ten most common mistakes made by companies entering into Africa.
Lack of knowledge and planning
A common mistake many investors make is regarding the African continent as a single business regime, not taking into account that there are over 55 countries, each with its own rules and regulations. Some regions in Africa have tried to introduce uniform regulations, but in practice all countries vary. We recommend that planning begins before the tender documents are even filed, as there are a number of issues that can influence pricing, deliverability in terms of the contract and extracting profits from the specific country.
Lacking knowledge of the business culture in the host country
Foreign investors may unwittingly disrespect local cultural norms, with negative consequences for their businesses. To avoid this, an in-depth study of local business culture is one of the most important steps a company should undertake when entering a specific country or region. Language barriers can be a problem for companies operating in both Franco- and Anglophone countries. It is important to realise that English is not always the only – or the main - business language.
Which can impact on deliverables in terms of contracts.
What type of business entity to set up
Companies may be under the impression that they can just begin operating, only to find that in certain countries it is mandatory to register an entity. An example is the Democratic Republic of the Congo (DRC). Another important consideration is the length of the business engagement, as most African countries require some form of Permanent Establishment (PE) regime. Being unaware can result in a company paying tax on its worldwide profits in a specific African country.
Minimum Share Capital
There can be consequences when companies do not take into account statutory minimum share capital requirements, which can vary from USD 500 to USD1,000,000.
In some countries it is mandatory to include local shareholders and directors into newly established companies.
Foreign Exchange Regulations
When companies cannot repatriate all of their profits and investments during, or after, the project has come to an end.
Direct and Indirect Taxation
It is vital for companies to do their homework regarding indirect taxes, especially on import duties.
Taxation Of Employees
Must be considered when planning or pricing for a tender.
Get to understand the latest requirements and regulations for foreign workers in the African country of your choice.
Author: Abel Myburgh is BDO's Africa Desk Coordinator.