Africa is home to some of the world’s fastest growing economies. GDP growth on the continent averaged 4.4% in 2010 to 2015, up from an average of 4.1% in 2000 to 2010 and foreign direct investment continues to strengthen. In fact, as the global market weathers ongoing uncertainty, international companies based in more developed regions are increasingly interested in expanding their operations into Africa.
While the dynamic opportunities for business growth are undeniable, the continent does present some interesting challenges. With 54 countries to choose from, as well as a complex geography of languages, politics, customs and legislation, compliance in all matters is key. All too often though, foreign businesses setting up a new office on the continent encounter unnecessary issues – with many having to confront severe penalties as a result of not knowing, or not abiding by, local laws.
It’s absolutely critical that you are up to speed on the regulatory and legislative lay of the land in each host country that the companies you’re advising expand into – from managing expat and local employees to navigating foreign tax and legal systems. Here are three of the most common, yet easily overlooked trip-ups to bear in mind. As well as some simple steps to ensure that your clients’ operations stay compliant at all times.
- Communication – it’s all Yoruba to me
As common sense would suggest, no two countries in Africa are exactly identical – regardless of which colonial power once held sway. Which means that should the company you’re advising plan to expand into say Nigeria and Ghana, it will need more than just a superior command of the English language. In Nigeria alone, there are ten widely spoken languages (excluding English) which can be heard from busy Lagos streets to high-rise boardrooms.
While it certainly pays to enlist the help of a translator, an inability to communicate correctly goes beyond grammar and tenses. Different ethnicities within one country, not to mention across multiple borders, all have important gestures and customs that need to be respected. Any cultural misstep can undo weeks of relationship-building and delay the opening of a new office. Ideally, as an accountant advising a company expanding into Africa, you need to work with a local advisor or partner who can help you navigate the language of business in unfamiliar territory.
- Access to information
Each country also has its own set of laws and tax regulations. If we stick with the above example, your experience with the Nigerian legislative system cannot simply be copied and pasted onto a Ghanaian expansion plan. Believe it or not, this does happen – when companies are frustrated by a lack of readily available information, they sometimes default to what they already know in the hope of fast-tracking processes. Not only can this create an expensive mess, it can also severely damage the company’s reputation before it’s even had a chance to establish itself.
It absolutely pays to be patient and source the correct local legislative information in each country your clients wish to operate in. Once in hand, you need to review the legislation carefully and make sure that you understand each and every letter of the law. Should local authorities detect any non-compliance – whether by wilful ignorance or incorrect interpretation – the company will be held liable.
What’s more, local laws are often updated suddenly and without warning. If your team doesn’t stay consistently up-to-speed and make the required legislative adjustments in good time, your client will be caught on the back foot and face penalties. Knowledgeable in-country service providers can help although they rarely offer a cross border solution. If your clients are doing business in multiple locations, try and work with one partner that can cover all the countries they operate in.
- Expat employees
When opening an office in a new country, most companies send trusted employees out from their headquarters or other well-established hubs. An expat employee’s contract will generally stipulate that their earnings remain unaffected by any currency exchange rates or tax and social security deductions. This puts accountants and global payroll managers under intense administrative pressure. You have to make sure that all perks and benefits are correctly itemised, pay attention to tax equalisation, deadlines and submissions, and ensure that expat employees are not ‘short-changed’ by all the host and home country’s regulatory requirements.
In addition to all that, it’s crucial that no employee ever ‘earns less’ when working in a foreign post which requires complex gross up calculations. Incredibly, many accountants still work these out manually, using iterative sums and excel spreadsheets to get the numbers they need. An automated global payroll system can take care of these calculations much faster and, thanks to cloud-based software, it can also stay up-to-date on all important legislative changes in real-time.
Africa is a challenging, yet exciting, continent to expand into. Don’t let global payroll issues impede your clients’ growth plans – with the right technology, support and preparation your clients will stay compliant and enjoy great success.
By Bruce van Wyk, director, PaySpace