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Revealed: Soft underbelly of family businesses in East Africa
What you need to know:
- Tanzania, like other countries, boasts a significant number of family-owned conglomerates, contributing substantially to the nation’s economic prowess.
Dar es Salaam. Family-owned businesses (FOBs) stand as pillars of industry in the entire East Africa region, but the lack of effective succession planning renders them vulnerable, experts said yesterday.
Such businesses have been instrumental in the socioeconomic development of the region and a catalyst for the growth of the private sector, according to reports.
Tanzania, like other countries, boasts a significant number of family-owned conglomerates, contributing substantially to the nation’s economic prowess.
A report by Asoko Insight, a leading corporate data provider in Africa, sheds light on the dominance of FOBs in key sectors, such as agriculture, construction, industrial manufacturing, consumer goods, and transport.
The report underscores the impressive revenue figures of leading FOBs like Bakhresa Group and Mohammed Enterprises Tanzania Limited (MeTL), both surpassing the $500 million mark. However, beneath these success stories lies a ticking time bomb: the impending challenge of succession planning.
According to the report, nearly 20 percent of Tanzanian firms earning more than $15 million annually are family-owned. The numbers are staggering, yet studies on family-owned businesses consistently highlight the underutilisation of succession planning.
Experts caution against the prevalent mindset of “doing nothing” as the default succession strategy, pointing out that such a luxury could be detrimental to the survival of businesses.
“It’s almost seen as taboo to plan for the founder’s exit, retirement, or death while they are still alive. It’s a daunting and emotional affair best kept at the back of the mind. But ignoring succession does a disservice to FOBs,” said Mzumbe University’s business consultant specialising in family-owned enterprises, Dr Mtebe Mtebe.
The lack of a structured succession plan not only jeopardises the legacy of these businesses but also puts them at risk of failure. “The most common reasons small businesses fail are a lack of capital and a lack of a succession plan. Having a structured plan in place can help keep the business stable during what is likely to be a challenging time for the family at its helm,” he notes.
The capability of successors emerged as another significant hurdle in the succession journey. The assumption that all family members possess the skills to run a business can lead to grave consequences.
A business strategist, Mr Thomson Bundala, emphasises, “Running a family business requires a unique set of skills. Not all family members might possess the acumen to navigate the complexities of the business world.”
Succession planning should extend beyond merely identifying heirs; it requires grooming, training, and mentoring the next generation of leaders, according to the report.
The report suggests that effective succession planning isn’t just about new executives taking up the mantle but about new leaders carrying the existing vision forward and developing it further.
Examples of successful second-generation leaders are abundant, showcasing the positive impact of formal business training and modernised practices.
“The next generation should be equipped not just with family values but also with contemporary business knowledge. This ensures a seamless transition and the ability to adapt to evolving market dynamics,” affirmed Mr Bundala.
The Asoko Insights report emphasises the diverse landscape of Tanzania’s leading FOBs, spanning ten sectors. Agriculture, construction, and industrial manufacturing dominate, collectively representing 60 percent of FOBs in the country.
Despite these impressive figures, some family businesses face immense challenges due to the absence of a robust succession plan.
As East Africa emerges as the continent’s most dynamic region, FOBs play a pivotal role in driving regional markets. However, the impending threat of an uncertain future looms large.
“Succession planning is not just a necessity; it is an imperative for the survival and sustained growth of family-owned businesses. There are many family businesses that have failed just because of this,” noted Dr Mtebe.
Experts said succession planning is not just about handing over the reins; it’s about ensuring the torch is carried forward with the same vigour and adaptability that built these businesses in the first place.
“East Africa’s FOBs need to embrace this reality to secure their legacy and continue being the economic powerhouses that they are,”said Dr Mtebe.
