An interesting article in the Economist on diversified businesses of Africa. Sounds suspiciously similar to the Indian environment 25 years back.
Looks like African businessmen are getting into 5-60 businesses each, six being the average for the top 200 groups. The reasons for doing these are as follows :
• Talent is scarce – you hardly get enough top management talent to run very large enterprises; hence, smaller separate businesses
• Banking system is not sophisticated and large enough to fund large projects / groups. Smaller loans are given more easily. Hence, smaller, multiple businesses
• Unstable Regulation – business owners never know which regulation will change and hence make some business unviable. That’s why they want to be in multiple businesses.
• Complicated tax laws, allowing transfer pricing between sister companies as a route to reduce taxes is another compelling reason for the multiple businesses. And for the complex holding structures of the group companies
• Finally, the lack of number of entrepreneurs themselves and the sheer scope for businesses is being met by a handful of businessmen. So, they are happily filling in one space after another themselves.