The AFRICA CEO FORUM and KPMG published their African family business barometer in November 2020. Based on a bi-annual survey, the third edition, carried out in collaboration with the Nelson Mandela University Family Business Unit, shows how African family enterprises are focusing on adapting to a rapidly changing global and local environment.
The fallout of the Covid-19 pandemic has not spared family businesses in any part of the world. Though the crisis has created many challenges, it has also been a catalyst for structural change, innovation and bold decision-making. While many factors favour the resilience of such businesses, the uncertainty they face regarding the economic impact of Covid-19 poses a real threat.
However, the current situation does not seem to have altered their confidence. Amongst the 122 survey respondents representing nine countries across Africa, less than 20% of them had a negative outlook about the future, in part due to excellent economic growth in 2019.
The survey also measures how prepared family businesses were to address such a global crisis. A majority (64%) of respondents reported having a business continuity plan. Nevertheless, there are some disparities on the continent, with only 50% of respondents from the two largest economies (Nigeria and South Africa) having a continuity plan, whereas they represented a majority in other countries (such as in Ghana and Kenya). It should also be stressed that these plans need to be tested (to prove and improve their efficiency).
The ability to adapt to a changing global and local environment is thus a key concern for family businesses and one that encompasses dealing with external pressures, like currency instability. In such an uncertain environment, the popularity of raising financing through individual financial partners, individuals or families has declined as compared to the 2018 survey. Banks or financial institutions remain the preferred option.
Being able to adapt to new opportunities through innovation is also a crucial survival mechanism in a rapidly changing environment. This aspect is particularly challenging for family businesses as they tend to prioritise long-term financial security. The low degree of risk-taking, including when it comes to exploration and experimentation for opportunities (42%), is another detrimental trait.
The barometer also provides a window into the intricate structure of family businesses, including their approach to emotions and affections. This aspect can be tied to social factors (reputation, for example) and the perception they have of themselves as a collective, especially when it comes to decision-making. Accordingly, only 44% of respondents agreed that the best results occur when individuals/teams decide for themselves what business opportunities to pursue. However, as a component of socioemotional wealth (SEW), emotion was not considered as important as economic considerations (49%) in making decisions.
As family businesses aim for continuity, the pandemic has brought into focus succession and sustainability. The former is tied to how they manage their wealth and how they use their wealth to make a difference in their communities. Having a professional team to assist with wealth management (30%) is not yet a common trend. The giving back to the community side of things is however positive, with only 7% of respondents reporting that they did not engage in charitable causes.
As for succession, survey participants showed a clear desire to continue their family business legacy (69%), with only 23% indicating their intention to sell their business in the coming three years.
Although the pandemic has had a significant impact on this year’s results, the barometer also indicates that a number of the challenges highlighted in the previous survey still persist. These include issues related to turnover and profitability, access to finance and, as mentioned earlier, currency volatility – a direct consequence of political uncertainties.
The current trend is an increase in turnover for the majority of respondents (nearly 70%, compared to 39% in 2016). While the war for talent noted in the previous barometer is no longer a key concern, 45% of respondents were able to achieve growth in turnover without increasing staff numbers and therefore increased profitability.
Financial difficulties are also amongst the top three challenges forcing innovative business models. As family businesses manage declining revenue and profitability in a volatile economic environment, they are also influencing entrepreneurial orientation (EO).
As such, 64% reported that their family business actively introduces improvements and new products/processes. While particular attention is also being paid to trends and future needs, family businesses on the continent were not often the first to introduce new products, services and management techniques (44%); and even fewer are the first to adopt new operating technologies (39%).
These results demonstrate why it is time for family enterprises to challenge the traditional way of conducting business. They stand to benefit from encouraging employees to come up with creative ideas, identifying business opportunities and pre-empting competitor responses.
Although the tides are shifting and new paradigms emerging, family businesses remain essential to Africa’s economy and will shape its future. They have certain strengths, but like many sectors nowadays, they need to evolve in several fundamental ways.