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Why African companies collapse after founders are deceased?

20.04.2019
Article from AFRIC editorial
A business can last long if all the necessary modalities and requirements are met. Most businesses in the western world last for many years but this is not the case for Africa as it has become a normal phenomenon that firms or companies crumble a few years after their founders are deceased. It is evident that African businesses or brands that have survived beyond the death of their founders had partners from other continents.

Some companies like Alhasan Dantata and Sons LTD in Nigeria, The Kenyatta Family Business in Kenya, Remgro in South Africa and METL Group in Tanzania still exist in Africa and beyond when their founders are no more. Others such as Dunkin Donuts and Baskin Robins in South Africa, ESKOM Company in South Africa, Tiko Soap Company in Cameroon, ECOAIR International in Algeria and SPRING Bank in Nigeria just to name a few are now defunct.

There are some possible reasons why a greater percentage of companies in Africa collapse after the founders are deceased.

Sole Proprietorship

Most African founders prefer sole proprietorship because they think knowledgeable people will take over their companies when they are no more or retired. This definitely limits the growth of the company and can lead to its failure and discontinuity.

Since sole proprietor companies in Africa do not often have much capital to sustain the existence of their companies or to use as collateral security to get loans, it is somewhat difficult to expand the business thus risking their failure after the proprietors are no more in control.

Due to lack of partners, sole proprietor founders have limited ideas and do not share them to their successors which make it difficult to smoothly run their companies in their absence leading to progressive failure.

Lack of Continuity plans & Ownership Succession

Most African companies do not have a clear business strategy and trend that they follow and constantly switch their strategies which may not work for them. They do not expose business plans and modus operandi to their potential successors early enough because they are frightened at the thought of death making the companies liable to collapse.

Autocratic managerial strategies

Most documents, archives and vital information of African companies are always in the possession of the founders which they keep confidential. Most of these are used to back up the company’s transactions, activities and existence. Due to lack of access to these by successors in case the founder is not there, the company’s existence will be in jeopardy.

They avoid involving their potential successors in the modus operandi and lucrative functions such as financial transactions, legal negotiations, partnership agreements and many more handling them singularly. This can lead to the failure of the company in their absence.

Limiting employment to family

Africans investors have the mentality that employing only family members keeps their wealth consolidated, especially at the top positions as managers and directors. In most cases, if they are not properly audited, they misuse the company’s resources especially after the founder is no more leading to its downfall.

Lack of business and innovative strategies

When a business follows well structure procedures for the running of activities and accountability, it is likely to last long. Founders of companies do not always follow these especially in the case of sole proprietorship.

They find it difficult to welcome innovate ideas to stay in line with the changes in consumer taste, business trends and socioeconomic situations. This causes their businesses to be defunct after they are no more because the successors continue in that same trend.

Companies that produce and sell local products and provide local services do not test their limits, realize their vision and challenge themselves to do more because they fear to lose their capital thus limiting their continuation.

Recently, the management of businesses has been digitalized, from security, accounts, to labour to make production process and provision of services easy. Instead, African proprietors are resisting using it because they think it is expensive; their companies fail because customers go to those with innovative ideas.

Low capital

When there is low capital, it is difficult to expand a business. Most African founders with low capital do not sell shares which could increase the company’s capital. As a result, this limits their existence after the founder is no more or unable to champion its activities.

Taxes

Some investors avoid or resist insurance policies, which can serve as a revival strategy in case of any damage or disaster and avoid taxes thinking it is extra expenditure. These companies often close after legal sanctions have been meted by the government in the absence of the founder.

Lack of business skills:

It is common to find uneducated business founders in Africa which makes them fear to take risks, carry out business projects and co-opt partners which can lead to closure after their death.

Change of Lifestyle mentality

The success mentality of many Africans is the change of lifestyle by purchasing fancy cars, building mansions, buying expensive outfits and lavish spending during leisure trips. Apart from the fact that they lose the profit which could be ploughed back to expand their companies, it send sends a wrong signal to the prospective successors and employees to do same after their death or retirement.

Article from AFRIC editorial.

Credit image/google images

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