July 1, 2012

An interesting article in the Economist on diversified businesses of Africa. Sounds suspiciously similar to the Indian environment 25 years back. Looks like African businessmen are getting into 5-60 businesses each, six being the average for the top 200 groups. The reasons for doing these are as follows :

• Talent is scarce – you hardly get enough top management talent to run very large enterprises; hence, smaller separate businesses
• Banking system is not sophisticated and large enough to fund large projects / groups. Smaller loans are given more easily. Hence, smaller, multiple businesses
• Unstable Regulation – business owners never know which regulation will change and hence make some business unviable. That’s why they want to be in multiple businesses.
• Complicated tax laws, allowing transfer pricing between sister companies as a route to reduce taxes is another compelling reason for the multiple businesses. And for the complex holding structures of the group companies
• Finally, the lack of number of entrepreneurs themselves and the sheer scope for businesses is being met by a handful of businessmen. So, they are happily filling in one space after another themselves.

Interesting !!