- Most East African family businesses believe that it is essential to be trusted by customers, employees and family members.
- Among those who consider trust among each group important: 56% are fully trusted by customers, 47% are fully trusted by employees and 77% are fully trusted by family members.
- East Africa’s level of trust is slightly higher than global survey on family businesses.
Family businesses in East Africa demonstrated robust performance over the past financial year, with 64 percent experiencing growth, compared to 46 percent in 2021, as indicated by a survey conducted by the advisory firm PwC. The PwC’s East Africa Family Business Survey 2023 affirms the resilience of family businesses, consistently overcoming geopolitical challenges.
Despite their success, experts emphasize that these businesses must adopt new priorities to ensure the longevity of their legacies. The landscape of building trust in business is undergoing a fundamental and rapid transformation. Environmental, Social, and Governance (ESG) and Diversity, Equity, and Inclusion (DEI) have become litmus tests for trustworthiness, influencing both customers and employees.
Demographic shifts, particularly with the influence of millennial and generation Z cohorts, bring forth differing goals and values. Family businesses, traditionally reliant on a trust premium accumulated over generations, have been slow to grasp this shift.
Michael Mugasa, Partner and Leader of Private Business Services at PwC East Market Area, highlights the opportune moment for East Africa’s family enterprises to focus on trust as a key strength. While family businesses have historically leveraged a trust premium to build strong relationships with stakeholders like customers, the survey reveals that many organizations have been sluggish in adapting to the evolving nature of trust today.
The survey covered family businesses in East African countries, including Kenya, Tanzania, Uganda, Rwanda, and extended into Ethiopia, with insights gathered from 95 surveyed family business owners. The intention of the survey was to assess whether current leaders and the next generation of family businesses are prioritizing key issues to build trust and safeguard their legacies.
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Kenya’s family businesses landscape
Based on the survey, family businesses in Kenya demonstrated solid financial performance in 2022, with 70 per cent of the respondents achieving growth and only an 18 percent reduction in sales. This compares with 52 per cent growth and a 28 per cent reduction in sales in 2021, which was influenced by the pandemic.
The growth in Kenyan businesses aligns closely with the global scenario, where 71 per cent of family businesses experienced growth, and eight percent reported a reduction in sales.
Despite leveraging trust from family members and loyal customers, Kenyan family businesses express a continued ambition for growth, with over 82 per cent expecting to expand, compared to the 77 per cent reported by global counterparts.
The survey highlights that while most family businesses in Kenya set goals for customer satisfaction and growth, only a few prioritize goals or targets related to diversity, inclusion, and social impact. PwC, in the survey released on Tuesday, notes that their strategies predominantly focus on business outcomes demonstrated through financial metrics and revenue growth.
Experts caution that such a focus can be limiting, potentially sidelining the full potential of internal capabilities that could support growth, including talent capabilities, asset optimization, full utilization of technology, and leveraging the strength of the brand, among other factors.
The survey results indicate that the key priorities for Kenyan family businesses over the next two years are territory expansion and increasing customer loyalty. Their immediate focus is on customers, shareholders, and investors. PwC suggests that these important focus areas could be complemented by exploring mergers and acquisitions or strategic partnerships in the region or beyond.
Tanzania businesses adopting digital tools
The Covid-19 pandemic had a profound impact on businesses, including family-owned enterprises, compelling them to embrace technology. In Tanzania, a significant number of family businesses are adopting digital tools and platforms to enhance efficiency and expand their reach, as reported by PwC. This trend reflects a heightened awareness and readiness to adapt to technological changes.
Tanzania has also experienced demographic shifts and rapid urbanization, with cities like Dar es Salaam, Mwanza, and the capital, Dodoma, witnessing a rapid increase in population. In response to these megatrends, several prominent family conglomerates in Tanzania are formulating strategies to capitalize on these shifts.
A notable example is observed in the beverage industry, particularly in soda and water, where local Tanzanian brands or family-owned businesses now reportedly control more than 60 per cent of the market. This marks a significant shift from a few years ago when multinational corporations dominated 90 per cent of the soft drinks market.
Rishit Shah, Partner at Tax and Legal Services PwC Tanzania, highlights this transformation and encourages family businesses to seek external perspectives. PwC suggests inviting trusted third parties, such as consultants, to provide input and fresh perspectives on their business. These insights can bridge the gap between tradition and innovation, offering a broader view of industry trends.
Additionally, PwC advocates for the adoption of modern technologies, along with training, education, and upskilling initiatives. It emphasizes the importance of respecting and honoring traditions, suggesting that businesses find ways to integrate traditional practices into modern processes.
Uganda’s abundant opportunities
Like elsewhere globally, Uganda presents abundant opportunities for family businesses. The signs are evident: global capital is seeking suitable investments, and government policy has shifted toward import substitution and value addition, favoring local enterprises, many of which are family businesses, according to Cedric Mpobusingye, Partner at PwC Uganda.
However, the crucial question is whether Ugandan family businesses are ready to seize these opportunities and derive long-term benefits. Mpobusingye emphasizes the need to understand what steps these businesses must take to maximize these opportunities.
Uganda stands out for its high first-generation to multigenerational family business ratio (4:1). While the recent political stability has fostered a conducive environment for private sector investment and economic growth, there is concern that many Ugandan family businesses are unprepared for the transition to the next generation.
Results from the 2023 survey reveal low favorable scores for critical family governance and transition elements, such as shareholder agreements (23 per cent), family constitution (20 per cent), conflict resolution mechanisms (20 per cent), and testaments and wills (7 per cent). Additionally, low family trust scores, with 57 per cent of respondents considering being trusted by family members essential, highlight vulnerabilities in transition planning.
Mpobusingye stresses the importance of family businesses proactively addressing family trust, which, in turn, can help navigate issues related to family cohesion, governance, and succession. Taking such steps will enhance family and business resilience, improving the prospects of reaping benefits over the long term.
In securing long-term family business resilience, trust from regulators, customers, and employees is also crucial. The survey results for Uganda indicate significant trust gaps in each of these elements.
Backbone of Rwanda’s private sector
Family businesses serve as the backbone of Rwanda’s private sector, playing a significant role in employment and economic growth. Similar to other economies, these businesses are characterized by the intertwining of family relationships and ownership, often spanning multiple generations.
While family businesses possess unique strengths, such as shared values, loyalty, trust, and a long-term perspective, they also encounter distinct challenges that can be both complex and emotionally charged, according to Moses Nyabanda, Partner at PwC Rwanda.
Despite these strengths being potent drivers of success, Nyabanda emphasizes the importance of succession planning to facilitate a smooth transition of leadership from the current generation to the next. In the Rwandan context, prevalent challenges for family businesses include conflict resolution, a lack of professional management, governance issues, and capital constraints.
PwC observes a need for family-owned businesses to document successful practices from other family enterprises, using these insights as clear guidelines to help secure their legacy.
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Ethiopia’s huge potential for family businesses
Ethiopia, Africa’s second most populous nation with over 126 million people, holds substantial economic potential for family-owned businesses, yet this potential remains relatively untapped compared to neighboring countries.
Anthony Murage, Partner at PwC Kenya, notes that as Ethiopia opens its economy to attract private and foreign capital, family enterprises have a unique opportunity to lead and develop industries in the country. While many family firms are currently in their second generation, a few are entering their third, reflecting historical state control of productive sectors and industries and a closed economy for many years.
As Ethiopia undergoes economic reforms and embraces private enterprise, family-owned companies are well-positioned to explore new business opportunities through strategic joint ventures and private-public partnerships. Key sectors for growth include agro-processing, industrial manufacturing, mining, construction, real estate, and consumer goods.
The Ethiopian government’s commitment to structural reform, political stability, and addressing macroeconomic challenges is expected to encourage family enterprises to expand. The development of Ethiopia’s capital market and the launch of its securities exchange next year are anticipated to provide significant opportunities for family businesses to raise capital, increase market share, and attract domestic and foreign investment.
Murage emphasizes that, to leverage these opportunities, family-owned businesses need to build trust with key stakeholders, prioritize transparency through sustainability reporting, and implement environmental, social, and governance (ESG) practices.