The Crucial Role of Governance in African Family Businesses: Lessons from the German Mittelstand

As Africa continues to experience rapid economic growth, family businesses are emerging as significant players in the continent’s development. These businesses, which often span multiple generations, are crucial to the economic fabric of African societies. However, to ensure their longevity and success, proper governance is essential. In this article, we will explore the importance of governance in African family businesses, drawing lessons from the German Mittelstand’s role in reviving the German economy post-World War Two. We will also discuss the potential impact of the African Continental Free Trade Area (AfCFTA) on these enterprises and the need for African governments to support their growth in light of recent global events.

The Importance of Governance in Family Businesses

Effective governance is critical to the success of any business, but it becomes even more vital when the business involves multiple generations and family members. In African family businesses, the importance of governance cannot be overstated. Proper governance helps to minimize conflicts, clearly define roles and responsibilities, and establish a framework for decision-making. It also fosters accountability, transparency, and professionalism, ensuring the business remains competitive and relevant in a rapidly changing environment.

Governance Framework for Family Businesses

The governance framework for family businesses typically includes three main components: the family council, the board of directors, and the management team. The family council serves as a forum for family members to discuss business issues and make decisions affecting the family’s interests. The board of directors, which ideally should include independent members, focuses on strategic planning and oversight. At the same time, the management team is responsible for the business’s day-to-day operations.

By establishing a governance framework that separates family and business interests, family businesses can promote professional management and maintain a healthy balance between family unity and business success.

The German Mittelstand: A Model for African Family Businesses

The German Mittelstand, a collection of small and medium-sized enterprises (SMEs), significantly influenced the country’s economic resurgence following World War Two. These family-owned businesses comprise around 60 percent of Germany’s GDP and are characterized by innovation, specialization, and a focus on long-term growth. Their commitment to sound governance, professional management, and employee welfare has made them resilient and successful, contributing to Germany’s status as an economic powerhouse.

African family businesses can learn from the Mittelstand’s emphasis on governance, innovation, and long-term growth. By adopting similar policies, African SMEs can create sustainable businesses that positively impact the continent’s economy.

The German Mittelstand model has been widely recognized as a successful model for family businesses in Germany. Its strong focus on innovation, quality, customer service, and long-term orientation has characterized it. The Mittelstand companies are typically small-to-medium-sized enterprises (SMEs) that operate in various industries, including manufacturing, engineering, and services.

The African continent is home to many family-owned businesses that face a range of challenges, including limited access to capital, poor infrastructure, and political instability. However, there are also opportunities for growth and development in Africa, particularly in emerging markets.

Access to capital: One of the key challenges facing family businesses in Africa is limited access to capital. To succeed, the Mittelstand model would need to be adapted to the local context, with a focus on developing innovative financing models that cater to the needs of family businesses.

Infrastructure: Infrastructure is another key challenge in Africa, with poor roads, unreliable electricity supply, and limited access to technology. To overcome these challenges, the Mittelstand model would need to be adapted to the local context, with a focus on developing innovative solutions that leverage technology and local resources.

Local talent: Developing local talent is critical to the success of family businesses in Africa. To succeed, the Mittelstand model would need to be adapted to the local context, with a focus on developing local talent through training and mentorship programs.

Long-term orientation: The Mittelstand model is characterized by its long-term orientation, with a focus on sustainable growth and development. To succeed in Africa, family businesses would need to adopt a similar long-term orientation, with a focus on building strong relationships with customers, suppliers, and other stakeholders.

Innovation: Innovation is a key driver of success for Mittelstand companies. To succeed in Africa, family businesses would need to adopt a similar focus on innovation, with a focus on developing new products and services that cater to the needs of local customers.

Adopting and implementing the Mittelstand model in Africa would require a thorough understanding of the local context and the unique challenges family businesses face in the region. By adapting the Mittelstand model to the local context, family businesses in Africa can leverage the strengths of the model and overcome the challenges facing them, leading to sustainable growth and development.

The AfCFTA and the Potential for African Family Businesses

The AfCFTA presents a significant opportunity for African family businesses to expand beyond their local markets and participate in regional and global value chains. By removing trade barriers and facilitating the free movement of goods, services, and people, the AfCFTA has the potential to create a single market of over 1.2 billion people with a combined GDP of over $3 trillion.

African family businesses can seize this opportunity to scale up their operations and access new markets, driving economic growth and job creation across the continent. However, to fully realize this potential, governments must support their family businesses by providing an enabling environment, including access to finance, technical assistance, and infrastructure.

The ACFTA presents a unique opportunity for African family businesses to scale up their operations and access new markets, driving economic growth and job creation across the continent. Here are some key strategies that African family businesses can adapt to take advantage of the opportunities presented by the ACFTA:

Expand their market reach: The ACFTA aims to create a single market for goods and services in Africa, with the goal of promoting economic integration and development across the continent. African family businesses can leverage this opportunity by expanding their market reach and accessing new markets across the continent. This can be achieved by forming partnerships and collaborations with other businesses in different regions, leveraging their collective strengths to expand their reach.

Invest in Research and Development (R&D): Innovation is a key driver of success for African family businesses. By investing in R&D, family businesses can develop new products and services that cater to the needs of local customers and increase their competitiveness. The ACFTA presents an opportunity for family businesses to collaborate and share knowledge and resources, driving innovation and growth across the continent.

Develop strong supply chains: Developing strong supply chains is critical to the success of African family businesses. By working together to develop strong supply chains, family businesses can improve their efficiency and reduce their costs, increasing their competitiveness in the market. The ACFTA presents an opportunity for family businesses to collaborate and develop supply chains that span the continent, leveraging their collective strengths to drive growth and development.

Build strong relationships with customers: Building strong relationships with customers is critical to the success of African family businesses. By understanding the needs and preferences of local customers, family businesses can develop products and services that cater to their needs, increasing their competitiveness in the market. The ACFTA presents an opportunity for family businesses to expand their customer base and build strong relationships with customers across the continent.

Develop local talent: Developing local talent is critical to the success of African family businesses. By investing in training and mentorship programs, family businesses can develop local talent and build a strong foundation for sustainable growth and development. The ACFTA presents an opportunity for family businesses to collaborate and develop training and mentorship programs that help to develop local talent across the continent.

The ACFTA presents a unique opportunity for African family businesses to scale up their operations and access new markets, driving economic growth and job creation across the continent. By adopting strategies that focus on expanding their market reach, investing in R&D, developing strong supply chains, building strong relationships with customers, and developing local talent, family businesses can leverage the opportunities presented by the ACFTA to drive growth and development across the continent.

Global Challenges and the Need for a Strong African Mittelstand

Recent global events, such as the COVID-19 pandemic and the ongoing civil unrest in Russia, have highlighted the need for economic resilience and self-sufficiency among African nations. As the world continues to grapple with these challenges, African economies must focus on fostering a strong Mittelstand to ensure stability and growth. By nurturing and supporting family businesses, governments can help build a robust and diverse economic base that is less susceptible to external shocks.

To achieve this goal, African governments should consider implementing policies and programs that promote the growth and development of family businesses. These initiatives may include:

Access to finance: Facilitating access to affordable credit and other financial services for family businesses, particularly SMEs, is crucial for their expansion and growth. Governments can partner with financial institutions to create targeted loan programs and credit guarantee schemes for these enterprises.

Technical assistance and capacity building: Offering training, mentorship, and advisory services to family businesses can help them adopt best practices in governance, management, and innovation. This support can be provided through public-private partnerships, industry associations, and business development centers.

Infrastructure development: Investing in physical and digital infrastructure, such as transportation networks, energy supply, and internet connectivity, can improve the business environment for family enterprises and enhance their competitiveness in regional and global markets.

Regulatory and policy reforms: Streamlining business regulations, easing bureaucratic procedures, and providing tax incentives can encourage the growth of family businesses and attract investment in key sectors of the economy.

Fostering innovation and research: Encouraging family businesses to invest in research, development, and innovation can help them stay competitive and drive economic growth. Governments can support this by funding research and development programs, establishing technology parks, and promoting collaboration between businesses and research institutions.

Examples of African Family Businesses Driving Growth

There are several examples of African family businesses that have made a significant impact on the continent’s economy. One such example is Dangote Group, a Nigerian multinational conglomerate founded by Aliko Dangote. The company, which started as a small trading firm in 1977, has grown to become one of Africa’s largest and most diversified business groups, with operations spanning cement, sugar, salt, food, and beverages. Through sound governance, professional management, and a focus on innovation, Dangote Group has contributed to Nigeria’s economic growth and created thousands of jobs across the continent.

Another example is Bidco Africa, a Kenyan-based consumer goods manufacturer founded by Vimal Shah and his family. Since its inception in the early 1980s, Bidco Africa has expanded its operations across East Africa, providing employment opportunities and driving regional economic growth. The company’s commitment to corporate governance, innovation, and community engagement has been instrumental in its success.

In conclusion, the importance of governance in up-and-coming family businesses in Africa cannot be overstated. By adopting sound governance practices and drawing lessons from the German Mittelstand, African family businesses can ensure longevity and contribute to the continent’s economic growth. The AfCFTA offers a unique opportunity for these businesses to expand and scale, but governments must play a crucial role in creating an enabling environment for their success. Through targeted policies and initiatives, African nations can foster a strong Mittelstand, driving economic resilience and prosperity in the face of global challenges.

Tsitsi Mutendi is a co-founder of African Family Firms, an organization that aims to facilitate the continuity of African family businesses across generations. She is also the lead consultant at Nhaka Legacy Planning and the host of the Enterprising Families Podcast.