Electronic Commerce
Gateway is the leading provider of Business-to-Business (B2B) Electronic Commerce services, allowing numerous industries within South Africa to transact together electronically. The company’s local service is based on the very successful EDI-Switch system, which has been implemented similarly in over fifty countries worldwide.
Managed Networks
GC has a large data network running across South Africa and into neighbouring countries. A number of major corporations have outsourced their networks to Gateway to manage. GC furthermore provides their customers with Internet connectivity as well as links into other value-added financial institutions.
There are currently 41 full-time employees within the organisation, with offices in London and Johannesburg. This report will investigate the possibility of opening a third office in Ghana to service the West African region.
SELECTING AN AFRICAN COUNTRY
Africa is a large continent with over 800 million people in fifty four countries. The combined Gross Domestic Product (GDP) is approximately $1.72 trillion with only 15 countries accounting for 83% of the total GDP.
Table 1: Top 15 GDP contributors in Africa. Source: “Unlock the business opportunities in Africa ” Phillips Consulting (May 2003)
When investigating a potential country to invest in, it is important to firstly select one that has a large enough economy to give a decent return on investment. The Author therefore decided to reduce the options down to the top ten countries.
The Author then looked at other factors which were compulsory requirements before investing in any country. The Author immediately removed any countries that were currently experiencing any armed conflicts or that were renowned for terrorist acts abroad. This information was obtained from the Central Intelligence Agency (CIA) World factbook website. The last general filter was the removal of any North African countries, as they would already be trading with nearby European countries and competition would be great.
This reduced the ten countries down to three possible candidates, namely, Mozambique, Nigeria and Ghana. Lastly, a number of other factors were considered and compared. These are summarised in the table below.
Table 2: Comparison between three African countries – November 2003
Although there was no country without its share of issues, the Author decided to select Ghana. The deciding factors were the low levels of corruption, less competition from other SA companies and the potential to use Ghana as a Gateway to West Africa.
GHANA
Introduction
Ghana lies on the Gulf of Guinea and forms part of the West African Region. The capital city is Accra. Other major towns are Kumasi and Tamale and the ports of Cape Coast, Tema and Takoradi.
The flag of Ghana consists of Red, gold and green horizontal stripes with a five-pointed black star in the centre of the gold stripe.
The colour red represents the blood of those who died in the country’s struggle for independence. The Gold stands for the mineral wealth while the green for the rich food. The star represents the love star of African freedom.
Ghana gained its independence in 1957 from England making it the first black colony to win independence. Until then, the country was known as the Gold Coast, a name termed by the early Portuguese explorers who initially set foot on the shores of the country during the 15th century to aptly describe the country’s wealth in gold an natural resources.
During various periods from the time the Portuguese discovered gold in Ghana in 1471 to independence in 1957, the monarchs of several European Kingdoms, notably Denmark, England, Holland, Russia and Sweden, sent hordes of explorers and merchants to the country for its abundant wealth, both natural and human.
They battled for the control of the land and as a result, built forts and castles, which also served as trading ports.
Ghana has been marked by a succession of coups. The actual president Jerry Rawlings, himself seized power in a 1979 coup but he won free elections in 1992. The economical reforms instituted in the 1980s made the economy one of the most stable ones in West Africa. The mining and oil industries play key roles in the economy. The official language is English but over 100 native languages are spoken. The local currency is the cedi.
PESTLE
According to Michael Porter, (1997) six largely uncontrollable external forces influence an organisation’s external environment. “The external environment changes constantly. Furthermore most changes are beyond the control of individual firms. Firms must react to, or anticipate, market changes. Overall, changing market conditions create opportunities for some firms and pose threats to others. (Schnaars -1998)
The Author used the PESTLE analysis to investigate what effect the six external forces may have on Gateway’s proposed investment in Ghana.
Economic
Conditions
Political Environment
External
Environment
Social and Technology
Cultural
Legal
Figure 3: PESTLE diagram. Source: Michael Porter 1997
Political
Ghana has a constitution accepted through a national referendum held in 1992. After 11 years of military rule, the Provisional National Defence Council (PNDC) handed over power to the National Democratic Congress (NDC) an elected constitutional government under a multi-party parliamentary system.
The second presidential and parliamentary elections held in December 1996, retained Jerry John Rawlings as President for a second term of four years. In the 2000 general elections after Jerry John Rawlings had completed his two terms in office and had stepped down, John Evans Atta-Mills lost the elections in the presidential race to John Agyekum Kufuor, then the leader of the biggest opposition party the New Patriotic Party (NPP) which now forms the government.
- Government type: constitutional democracy
- Capital: Accra
- Constitution: new constitution approved 28 April 1992
- Legal system: based on English common law and customary law;
- Suffrage: 18 years of age; universal
Comment
Gateway obviously needs to ensure it operates within the laws of Ghana if the company decides to open a branch. The Author was reassured upon reading an article about the Ghanaian government ‘s zero tolerance to corruption campaign that began in 2000.
Economic
Economic growth is best achieved in countries were there is political stability. One of the aims of NEPAD is to help the political stability of countries, by encouraging economic stability and codes of conduct for all African countries that have subscribed to the African union.
Ghana is well endowed with natural resources and has twice the per capita output of the poorer countries in West Africa. Even so, Ghana remains heavily dependent on international financial and technical assistance. Gold, timber, and cocoa production are major sources of foreign exchange. The domestic economy continues to revolve around subsistence agriculture, which accounts for 40% of GDP and employs 60% of the work force, mainly small landholders. In 1995-97, Ghana made mixed progress under a three-year structural adjustment program in cooperation with the IMF. On the minus side, public sector wage increases and regional peacekeeping commitments have led to continued inflationary deficit financing, depreciation of the cedi, and rising public discontent with Ghana's austerity measures. A rebound in gold prices is likely to push growth over 5% in 2003.
Source: Ghana Information Services Department 2002
As can be seen by the information above, it appears as if Ghana’s economy is growing at a steady rate. Although there is not huge growth it is constant and consistent. Ghana is furthermore currently trading with South Africa and is slowly becoming more dependant on its imports from SA. The table below indicates how Ghana’s purchasing has increased in the past ten years.
Table 3: Ghana’s dependence on South African Trade– November 2002
(Source: WTO)
Comment
The next table compares South Africa’s exports into Ghana compared to other African countries. What is interesting to note is the 31% increase in trade from 2001 to 2002. This indicates that other South African companies have also identified the potential in Ghana. It is important that Gateway Communications does not procrastinate its investment in the country and needs to act quickly once a decision has been made.
Table 4: SA’s trade with the Rest of Africa. Source: SA Department of Trade and Industry. (February 2003)
Social
The following factors may have a serious impact on the initiative currently under investigation, as well as on future projects.
- The demand for water is increasing rapidly in most countries due to population growth and economic development.
- Most people and countries are poor
- Management of the HIV/ AIDS pandemic
- Rapid population growth
The information below is a good indication of the status of the Ghanaian population (Winne 2003):
Technology
The technological developments in Africa are not geared for global trade. Information and communication technology has been identified by NEPAD as the targeted priority for human and economic development in Africa. Ghana appears to have an average Telecommunications system:
- Telephones - main lines in use: 200,000 (1998 est.)
- Telephones - mobile cellular: 30,000 (yearend 1998)
- Telephone system: poor to fair system; Internet accessible; many rural communities not yet connected; expansion of services is underway
- Radio broadcast stations: AM 0, FM 18, shortwave 3 (1999)
- Radios: 4.4 million (1997)
- Television broadcast stations: 11 (1999)
- Televisions: 1.73 million (1997)
- Internet Service Providers (ISPs): 2 (1999)
Comment
The Author read an article that Ghana would host the international conference on Information Technology and Economic Development (ITED) scheduled for March 2004. The conference, which is the first to be held outside the United States of America (USA), would bring delegates from countries such as Zambia, Kenya, Swaziland, South Africa, Ethiopia, Canada, Ireland and India. (ITweb, 2003 ) Ghana will furthermore be hosting the 7th West Africa Computing, Telecomms & Broadcasting Expo at the Accra International Conference Centre in May 2004.
Ghana has a requirement to upgrade its communications infrastructure, as it needs to attract foreign investment. The Author believes that Gateway Communications would have an ideal opportunity to supply much needed skills and solutions to the West African market.
Legal
Africa has a history of defining policies and not having the capacity of governing due to the instability and conflict in African countries. The problem is further compounded by American and European countries that “rape” the continent of its valuable natural resources. In many African countries the leading military power dictates the laws of the land. This is fortunately not the case with Ghana, which is a democratic country with a legal system based on English common law and customary law. Ghana is trying hard to promote itself as an open country that welcomes foreign companies. Any person is welcome to download the country’s legal policies and the requirements for opening a business in Ghana.
Comment
Ghana is trying hard to promote itself as an open country that welcomes foreign companies. Any person is welcome to download the country’s legal policies and the requirements for opening a business in Ghana.
Environment
The following environmental factors may affect a business:
- Water-pollution
- Air-pollution
- Forestry
- Preservation of natural habitats (wild-life )
- Green-peace (protecting the resources of the sea)
- Anti-pollution acts
- Oil spills
- Natural disasters
- Hunger / starvation
Comment
Since Gateway Communications is a services oriented company with no manufacturing or industrial component, this factor is probably the one that will have the least effect. Care would obviously be taken to promote a positive image of a company that care for the local environment and is socially responsible.
GLOBALISATION
The founding myth of the dominant nations is that they achieved their industrial and technological superiority through free trade. Nations which are poor today are told that if they want to follow the richer countries’ path to riches, they must open their economies to foreign competition, or globalise. According to Monbiot (2003) they are being conned.
The three nations which have developed most spectacularly over the past 60 years - Japan, Taiwan and South Korea - all did so not through free trade but through land reform, the protection and funding of key industries and the active promotion of exports by the state. All these nations imposed strict controls on foreign companies seeking to establish factories. Their governments invested massively in infrastructure, research and education.
The nations which are poor today are forbidden by the trade rules from following either route to development. New industries are immediately exposed to full competition with established companies overseas, which have capital, experience, intellectual property rights, established marketing networks and economies of scale on their side. Unable to develop competitive enterprises of their own, the poor nations are locked into their position as the suppliers of cheap labour and raw materials to the rich world's companies.
It is therefore advisable to Ghana to invest heavily in training and infrastructure to move from a supplier of raw materials to an exporter of higher margin manufactured goods.
REGIONALISM
While multilateral trade negotiations inch forward, agreements between groups of nations have achieved ambitious trade liberalisation on a regional level. (Harvard 2003) Free trade blocs formed by agreements such as the North American Free Trade Agreement (NAFTA) and customs unions such as the European Union (EU) have allowed countries to lower trade barriers among neighbours and political allies while still retaining some control to protect domestic markets.
Recently, the number of regional trade agreements (RTAs) has surged. About 168 RTAs are in force as of 2002 with over half of those coming into existence after 1995. The Economic Community of West African States (ECOWAS) is a regional group of fifteen West African countries established in November 1975. It has its secretariat and headquarters in Abuja, Nigeria. The original objectives of the organisation, as contained in the ECOWAS Treaty are, among others, to promote co-operation and integration in order to create an economic union in West Africa.
The participating countries are Benin, Burkina Faso, Cape Verde, Côte d’Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone and Togo.
This agreement would assist Gateway in sourcing business opportunities from neighbouring West African countries.
E-COMMERCE
Commerce is a fairly simple concept. Whether it is something as simple as a person making and selling popcorn on a street corner or as complex as a contractor delivering a new Airbus to SAA, all of commerce at its simplest level relies on buyers, sellers and producers.
In an e-commerce sales channel you find all of these elements as well, but they change slightly. You must have the following elements to conduct e-commerce:
- A product
- A place to sell the product - in the e-commerce case a web site displays the products in some way and acts as the place
- A way to get people to come to your web site
- A way to accept orders - normally an on-line form of some sort
-
A way to accept money - normally a merchant account handling payments. This piece requires a secure ordering page and a connection to a bank. Or you may use more traditional billing techniques either on-line or through the mail.
- A fulfillment facility to ship products to customers (often outsource-able). In the case of software and information, however, fulfillment can occur over the Web through a file download mechanism.
- A way to accept returns
- A way to handle warranty claims if necessary
- A way to provide customer service (often through email, on-line forms, on-line knowledge bases and FAQs, etc.)
The Author is convinced that there will be a demand for Gateway’s e-commerce expertise in Ghana, even if it compliments the networking portion of the business.
INTERNATIONAL TERRORISM
Terrorism will be with us for the foreseeable future. Some terrorists will continue using the most popular form of terrorism--the truck or car bomb--while others will seek alternative means to deliver their deadly message, including weapons of mass destruction (WMD) or cyber attacks. We must remain vigilant to these new threats, and we are preparing ourselves for them. (US State Department web site)
Table 4: Conflicts across the Globe– November 2002 (Source: WTO)
The definition of an armed conflict as indicated in the table above is:
A political conflict in which armed combat involves the armed forces of at least one state (or one or more armed factions seeking to gain control of all or part of the state), and in which at least 1,000 people have been killed by the fighting during the course of the conflict. An armed conflict is added to the annual list of current armed conflicts in the year in which the death toll reaches the threshold of 1,000, but the starting date of the armed conflict is shown as the year in which the first combat deaths included in the count of 1,000 or more occurred.
Since the unfortunate bombings in America on September 11th 2001, the world is on a terrorist standby. Businesses now understand that markets around the world can be severally affected by acts of terrorism. Fortunately (hopefully) Gateway Communications will not have to contend with terrorists acts in Ghana but precautions should always be taken to ensure the safety of both staff and their families.
CONCLUSION & RECOMMENDATIONS
The Author believes that the company should seriously consider acting on the advice contained in this report. Ghana appears to be an opportune country to invest in, especially the Information Technology market. The next step of action could possibly include a business trip to the country with a view to identify opportunities or potential partners.
The diagram below suggests various options when considering opening an operation in Africa. The Author strongly suggests an initial joint venture with a local company that understands the market & the “unwritten” rules of the country. The Author has submitted an example of an actual Ghanaian Information Technology company, SiliconPro, requesting a foreign investor for expansion.
Figure 4: Options for investing in Africa. Source: Phillips Consulting 2003
REFERENCES
Central Intelligence Agency (CIA): “World factbook database”
, 22 November
Dykes, D (2002) “Positive surprises expected in 2003” , 14 June 2003
Games D (2003): The Experience of SA Firms Doing Business in Africa
South African Institute of International Affairs, 10 june 2003
Harvard University (2003): “Regionalism” , 28 November 2003
Martin Creamer (24-30 January 2003): “SA exports to Africa”, Martin Creamer’s Engineering
Porter, M.E. (1997) “Competitive Advantage”, New York: Free Press
Phillips, G (May 2003): “Unlock the business opportunities in Africa” (Powerpoint presentation), Phillips Consulting
SA Department of Trade & Industry (2002) , 3 November 2003
UNCTAD World Investment Report 2000 (July 2000): “Multinational company’s reasons for not investing in Africa”, UN, July 2000
US State Department (2003): “Global Terrorism” ,November 2003
World Investment News, Multimedia Information Company “An Introduction to Ghana” , 17 November 2003
APPENDICES
- Gateway Communications company profile
- SiliconPro summary investment document