Africa presents enormous opportunities, but also high complexity in doing business. An expert weighs in.

Africa presents enormous opportunities, but also high complexity in doing business. An expert weighs in.
Africa presents enormous opportunities, but also high complexity in doing business. An expert weighs in.

Understanding Work in Africa

Insights by Shaun Barnes, Executive Director at 21st Century

“Africa has been labelled as “the last remaining frontier for business”, offering a myriad of opportunities for global and regional corporations. With its wealth of natural resources and a large, young, and ambitious population, it is made up of rapidly transforming and growing economies.

“Along with the opportunities comes the complexity that often leads to higher-than-anticipated cost structures. Major impediments to doing business across multiple African countries include poor infrastructure, fragile political stability, unpredictable governance, and difficult environmental conditions. Corruption, high tariffs, red tape, cumbersome bureaucracy, and seemingly arbitrary decisions by officials play a role in hampering business.

“However, companies run into challenges such as a shortage of skilled talent, a lack of reliable information on remuneration and changing workforce dynamics that complicate the effective management of human resources.

“It is apparent from the work that 21st Century does in these markets that South African organisations operating in Africa experience difficulties in three key areas of managing human resources, namely:

  • Maximising reward returns through developing appropriate pay and benefits packages in widely different jurisdictions; and establishing a balance between the various elements of pay (salary, benefits and allowances, incentives) bearing in mind the differences between these elements compared to other regions in the world.
  • Identifying a regional talent pipeline of skilled professionals and leaders where standards from one country to the next vary significantly; and
  • Using and maximising workforce planning and deploying staff across locations where there is a high degree of variability in local practices.

 

“For organisations looking to enter these markets and even for those already established and seeking a broader regional presence, there is a need for knowledge and awareness of possible risk factors. We will examine each issue in greater detail to provide some insights.

  1. Remuneration differences

“Many countries that fall into the developed economy category have moved towards simpler remuneration structures that have cut out a raft of allowances and benefits, mainly due to tax regimes. Remuneration packages in developed economies have also started to move from a high guaranteed component to a greater reliance on variable pay in the form of annual or long-term bonus structures. Allied to this, annual salary increases have tended to be low over the past number of years.

“Africa differs from this approach in a number of ways. There is a larger emphasis on benefits and allowances for reasons that will be explained below. The region tends to still have a pattern of larger salary increases, either due to union/labour regimes, high inflationary increases, talent shortages or a combination of these factors.

“While variable annual incentives have started to become part of the reward landscape over the last decade, there is still a greater emphasis on fixed versus variable pay, the presence of guaranteed annual bonuses and low uptake of long-term incentives.

“It must also be remembered that Africa is not a homogenous region that can easily be classified, with differing reward mixes between North, East, West and Southern Africa as well as numerous differences between countries within regions.

“In terms of benefits and allowances, the so-called “culture of the allowance” has remained in two geographies internationally, namely South America and Africa.

“Many African countries have particularly long lists of benefits and allowances that are offered for a variety of reasons. These include the status that the benefit confers in a social sense (especially at management levels); as a tax-deductible or tax-negative salary tool in allowance-friendly tax regimes; to counteract the negative effects of infrastructure inadequacies and difficult living conditions such as electricity shortages; to address issues such as entertainment, security and transport which have high levels of cost as well as to manage access to services such as medical aid or insurance as staff and employees in many African countries do not have access to services and providers on the same scale that those in more developed countries do.

“Considering the above factors, one of the biggest mistakes a business can make is to attempt to build a “one size fits all” model for all African operations without considering the differences and local customisation that will be more effective. While globally standardised remuneration models and approaches have become the norm for most multinationals over the last decade, there should still be room for some localisation.

 

  1. Talent Shortages

“Attracting and retaining properly skilled and experienced staff remains one of the greatest challenges facing companies doing business in many African territories.

“This is due to some peculiar challenges that Africa faces in terms of building a stable supply of graduates and skilled staff. According to the World Bank, Africa is at risk of a talent pool deficit, especially the traditional Science, Technology, Mathematics and Technology (STEM) disciplines. The last estimates of the World Bank placed enrollment in STEM programmes as low as 15%. Most countries in Africa lie well below the accepted World Median for an adequate supply of STEM graduates as measured by the World Bank.

“A large contributor to this state of affairs is the relatively low number of post-graduate student numbers across the continent combined with the increases in student enrolment in universities in undergraduate degree programmes mostly linked to non-STEM courses.

“Coupled with the STEM shortage, there is also a shortage of experienced and qualified management staff across the continent.

“This leads to a constant merry-go-round of talent in many markets as companies poach staff from each other. This in turn causes ever-increasing premiums for certain staff and also interferes with internal development and succession as critical positions often become vacant before internal development candidates are ready.

“It is vital that companies obtain a clear and objective view of which staff job families are running at premiums due to talent shortages as well as what those premiums are. One way of obtaining this data is by running a customised survey that invites the participation of other companies in the same sector or competing for the same talent. The survey will indicate what premiums are applied for relevant staff which will help add some reality to the cycle of constant remuneration increases that many scarce job types experience.

“This can be complemented by an Integrated Talent Management approach, which does not only require a focus on remuneration but the total employee experience.

“It is vital to build employment branding and the Employee Value Proposition around the attributes that matter most to the talent segments that a company wants to attract & retain by delivering a compelling mission, agility, interesting work, exciting career choices, skill advancement opportunities as well as appropriate rewards.

 

  1. Workforce Planning

“The use of analytics in assisting businesses to ensure that workforce composition is properly planned, resourced and allocated, has become an ever-increasing theme over the last five years. This proper use of the vast reams of staff data that most companies possess has assumed an even greater importance post-Covid in helping to determine how many staff are required in light of new working models.

“New working models that have evolved go beyond the traditional full-time employment (FTE) status approach used over the last century. Contract workers, including seasonal, fixed-term and fixed-project (the so-called gigabyte workers), project teams and work-from-home staff have all become a greater part of the staffing mix.

“While the talent shortages experienced across the continent have been highlighted in more detail above, many low-discretion level jobs across a number of industries experience far less staff attrition than in developed economies with workers electing to stay with one employer as long as they can. As a result, tenure periods of 20 to 30 years are far more common in Africa than in other parts of the world. This adds to the need to gain a more accurate view of talent pipelines that could be influenced by long-tenure retirements.

“The use of contract staff is widespread in Africa. Employers hiring casual workers do not have to offer permanently fixed working hours – or workload – to their staff. This results in cost efficiency gains because staff costs (wages and wage-related ancillary costs like social protection) only arise when the workload requires staff. The theory would state that these cost savings can result in productivity gains if the same or higher output can be produced at the same or higher quality for less expense.

“Our experience has shown that in many instances, companies that operate in industries that require large contract worker elements, either due to seasonal or project requirements, are often over-resourced in terms of FTE versus contract staff. This is often a result of inadequate central resource planning, disparate HR systems and a silo approach to contract staff needs. The benefits which the model should bring are not realised with the reverse often happening – higher costs and lower productivity.

“A more integrated approach to Strategic Workforce Planning (SWP) promises a data-driven approach towards people planning, attrition and flight risk, talent and pipeline management, recruitment analytics, under-performance risks, remuneration and benefits and real-time employee engagement and sentiment analysis.

“Companies making proper use of their analytical staff data can more accurately determine key capacity planning questions such as what productivity targets are required on various segments of the workforce, how should staffing levels within every job function and level, be decided and how many staff need to be hired and/or promoted over time in order to achieve these staffing levels, while carefully managing for loss of employees through resignations that cannot be controlled.

Conclusion

“With so many differentials and issues at play across the continent, it’s easy to see how companies and multinationals end up with ill-informed pay and talent strategies that do not accomplish their stated intentions.

Following a “one-size-fits-all approach” will also not suffice, as has been discussed. Africa remains an attractive and often underexplored market that promises rich returns to companies that can adapt and get it right. By utilising the latest good-practice methodologies coupled with knowledge of local and regional practices, companies will be in a better position to attract and retain the correct talent required and make a success of their operations in Africa.”

Ends.

Written by: Shaun Barnes, Executive Director at 21st Century, BA(Wits)BBA(Hons)(US)

About 21st Century:

21st Century, a level 2 BBBEE company, is one of the largest Remuneration, Reward, HR, Organisation Development and Change Management consultancies in Africa, specialising in sustainable business solutions, with a team of more than 60 skilled specialists, servicing over 1700 clients – including non-profit organisations, unlisted companies, government, parastatals and over two-thirds of the companies listed on the JSE. 21st Century offers bespoke business and strategy planning services, operating model and organisational design, creative reward practice modelling, change, stakeholder and culture management, training courses and comprehensive human capital and talent plans. These are all underpinned by our analytic and survey capability tailored to the African environment. 21st Century continues to offer solutions via a combination of virtual channels and on-site presence.

 

21st Century has expanded its services to offer a full turnkey sustainable business and remuneration service. Beyond remuneration and reward consulting, 21st Century offers local analytics for business advantage; remuneration and HR training; change management services; talent and people solutions; and end-to-end organisational design and development.

 

21st Century is the Africa representative for the GECN group of companies, specialists in global executive remuneration and governance.