Africa Family Business Survey 2021

African family businesses need to act now to ensure their legacy tomorrow

Africa’s family business leaders are optimistic and ambitious about their growth and economic recovery for 2022. Although the overall outlook for family businesses is positive, business owners will need to address the challenges and opportunities that come with digital transformation, family governance and succession planning as well as addressing sustainable business practices.

These are some of the key highlights from PwC Africa’s Family Business Survey 2021 released today.

The majority (89%) of African family businesses anticipate a return to pre-pandemic growth rates by 2022 – this level of optimism is impressive given that no rollout of COVID-19 vaccines had been approved when the survey was conducted. Despite all the challenges they face, family businesses are more positive about their growth prospects for 2022 than they were about their two-year prospects in 2018 (86%). Traditional forms of finance (operational cash-flow and bank lending) will be used primarily to help drive this growth.

 Family Business Leader for PwC Africa Schalk Barnard says:

 “It is encouraging to note that African family business leaders are more optimistic about their growth and economic recovery than their global counterparts. Despite this optimism, there is still much more for family businesses to do – thriving in today’s world will require a change of mindset; a rethinking of priorities and behaviours, including heightened investment in the digital tools needed for economic resilience; and a new definition of legacy.”

African family businesses have proven robust and adaptable, particularly in times of crises — and as we have come to expect, they are taking a people-first approach, prioritising the well-being of their employees and supporting their local communities throughout the crisis. Overall African family businesses were more likely to make some form of financial sacrifice than their global peers. They also took greater action to support the local community than their global counterparts.

It is also positive to note that 69% of African family businesses stated that they had no need for additional capital in 2020, and only one-third (34%) are cutting dividends during the crisis. In addition, two-thirds (63%) of African family businesses expect to grow in 2021 compared to only 36% of CEOs who took part in PwC’s Annual Global CEO Survey 2021.

Family businesses, however, have had to deal with many challenges in the market brought about by technology. Many countries lack the technological infrastructure needed to enable people to work remotely and continue with other aspects of their lives via online channels. Only 62% of African survey respondents are enabling staff to work from home (compared to 80% globally), 77% retained as many staff as possible, 50% supported their local communities, and 24% are repurposing their production to meet pandemic-related demand.

Sustainability

Sixty-three percent of African family businesses believe there is an opportunity for them to lead the way on sustainable business practices, but only 36% have a sustainability strategy in place. Many family businesses are not prioritising key areas such as sustainability, which is no longer a ‘nice to have’ for those who can afford to show concern, rather, it’s a business imperative.

Barnard adds:

“Family businesses have a head start to lead on sustainability. They are the most trusted form of business, are potentially more agile, and are relatively free from short-term market pressures. 

“There is a risk, however, that established approaches and ways of thinking, particularly regarding what sustainability means and how family businesses are governed, could hold them back. For now, they are not prioritising ESG or sustainable practices. In contrast to global averages, where family businesses have a bigger focus on sustainability and reducing their carbon footprint, in Africa the bigger focus is on supporting local communities.”

In South Africa 68% of family businesses are prioritising sustainability, compared to 63% in Uganda, 47% in Nigeria and 46% in Kenya.  Many family businesses are also contributing strongly to their local communities: South Africa (72%), Uganda (56%) and Nigeria (50%), with Kenya (41%) lagging somewhat.

Sixty-percent of South African family businesses recognise that they have a responsibility to fight climate change and its related consequences (Africa: 55%); while 68% are more likely to see an opportunity to lead the way in sustainable business practices than the African average of 63%.

It is encouraging to note that 86% of African respondents say they engage in some form of social responsibility activities, including 41% who say they engage in philanthropy and 67% who say they contribute to their local communities.

At the same time, family business owners want, above all, to create an enduring asset for future generations. Legacy is top of mind for 81% of African respondents.

Family businesses also believe that the next generation’s (NextGen’s) interest in sustainability is important, not only in encouraging family businesses to embrace ESG, but also in attracting younger family members into the business. Purpose and meaning are vital to this generation, and ESG can provide both.

Still behind the digital curve

The pandemic has proved the vital importance of strong digital capabilities for businesses. But only one in five family businesses say their digital transformation journey is advanced – though they continue to believe digitalisation is a top priority. In our 2018 Family Business Survey, 80% of respondents were concerned about innovation and technology. In our latest survey, respondents named digital capabilities as their second highest priority, but 28% still report that they don’t have strong digital capabilities and that developing these capabilities is not high on their action agenda.

It is notable that only 46% of South Africa family businesses claim to have strong digital capabilities and only 39% recognise it as a key priority.

African family businesses with US$10m+ are more likely to prioritise aspects relating to innovation/digitalisation than families with <US$10m turnover. Third or later generation African family businesses are also more likely than first- and second-generation businesses to prioritise aspects relating to innovation/digitalisation. Only 26% of all African respondents say their digital journey is complete and 57% believe they have a long way to go.

Our findings also revealed that NextGens play a greater role in 54% of digitally strong businesses, though digitalisation, innovation and technology are more of a priority for third-and fourth-generation businesses.

Family trust and cohesion

Family dynamics are a sensitive issue, with topics such as succession planning being an emotional matter. About half of first-generation African family businesses expect that the next generation will become the majority shareholders in five years’ time. It is concerning to note that 76% of African family businesses don’t have a succession plan in place to make sure that the business is passed down to the next generation in a planned and formalised manner. Similarly, only 19% of families have a family constitution/charter, which links strongly to not having a succession plan in place.

Family values matter, but less than half of survey respondents have put them in writing and only half have codified governance policies. It is positive that 84% of South African family businesses have a clear set of family values (Africa: 76%) and 78% agreed that this has helped them in managing their businesses during the COVID-19 pandemic.

Seventy-five percent of African family businesses have some form of governance policy in place but still lag their global peers. Only 41% have a last will/testament in place and various other policies are also being neglected and should be getting more attention.

On a positive note, 62% of African family businesses say that communication between family members about the business has increased during the COVID-19 pandemic, compared to 53% globally. The pandemic also intensified communication between the different generations of family members (56% in Africa versus 46% globally).

Barnard concludes:

“African family businesses are well-placed to succeed given their resilience, but they need to re-adjust both their mirror on society and on themselves. If they can accomplish that, their power to fuel the post-COVID-19 recovery grows even more important because of their financial impact around the world.

“To retain their licence to operate, they will need to revisit their purpose and use the trust they have gained to create measurable non-financial impact.”