Why family-owned businesses are important for the African continent

Private Equity, with its evolving business model incorporating experience across industries and new age technologies, can have a transformative impact on family-owned businesses which play a pivotal role in Africa’s journey to sustainable economic growth.

Family-owned and owner-managed businesses are prolific across the African continent. These businesses are important drivers of economic growth and development. Relatively speaking, there are far fewer larger businesses in Africa and the large businesses tend to be smaller than in other regions. Family-owned and founder-run businesses, with between 50 and 200 employees, are the mainstay of economies around Africa. Data shows that these businesses create jobs at double the pace of their counterparts in both the large and small business segments.

Research from Brookings underscores the significant role family-owned businesses play in job creation and economic transformation. Family businesses are seen as incubators of entrepreneurship, nurturing the skills and innovation necessary for economic growth. The report highlights that these businesses are vital for achieving the Sustainable Development Goals (SDGs) and the African Union’s Agenda 2063 aimed at transforming Africa’s economy.

And like family businesses around the world, there is a growing realisation that things need to be done differently in the face of a rapidly changing economic, social and technological landscape.

Of the 4,410 executives participating in PwC’s 26th Annual Global CEO Survey, 39% of family business respondents believe their company will not be fit for purpose in ten years if it stays on its current course; a similar percentage of the cohort identifying as family business leaders say the same thing. For sub-Saharan Africa, the percentage is 46% and for South Africa, similar to the global 39%.

The PwC 2022 Africa NextGen Survey of family business leaders-in-waiting found that they tend to follow their parents’ lead by prioritising growth over ESG, to safeguard their legacy. However – as the report highlights – “a business-as-usual approach, one that continues the way the family enterprise is currently run, won’t be enough.” Leaders-in-waiting need to develop their own blueprint for success – push boundaries and challenge years of established thinking – to maintain stability and achieve growth. Not only will new capabilities in digital adaptation be required, but expertise will also be needed to address ESG concerns: reaching net zero, managing evolving workforce trends amid the ‘great resignation’, and identifying new markets in a post-pandemic and increasingly complex world.

In our experience, there are common areas where value gets trapped in founder-run and family-owned businesses. Amongst these are areas of succession, leadership development and bringing in new management to avoid reaching a ceiling on growth. What may have worked to successfully scale to its current level may not be the same for the next phase of growth, particularly in a fast-changing, increasingly complex and more digitally-enabled market. It’s critical to focus on key man dependencies as these types of organisations often have an over-reliance on individuals when it’s important to build the equity value in the business, and not the personalities. This gives the founders and family members option value – they can choose to stay on for the next generation of the business or they can realise their wealth and pursue a new path – the choice is theirs.

In the past, family-owned businesses were reluctant to partner with private equity firms due to a mismatch in values, time horizons and objectives. While this is still often the case, there is a growing openness to the role that private equity can play in this ever-changing world. At the same time, private equity partners must be nimble enough to customise their approach to the values and objectives of the families they work with to unlock the value in partnership – or as we like to say, ‘discover the equity in partnership’.

Our CEO, Samantha Pokroy, was recently interviewed on the AVCA – The African Private Capital Association Private Equity Talks Africa podcast. Samantha spoke about our approach to scaling family-owned businesses in Africa. Listen here.

To find out more about our distinctive expertise in developing and executing strategies for scaling family enterprises, please visit our Approach page and hear more about Sanari’s 3S approach to building businesses that are Sustainable, Scalable and ultimately Saleable.