Compensation and Benefits challenges in Africa

By Anna Chabbat, Mercer

The African continent comprises more than 50 countries, which can be usefully grouped into three main regions: Northern Africa, Sub-Saharan Africa and Southern Africa. Southern Africa is quite different from the other two regions, its maturity and sophistication making it much more akin to Western Europe and the US in terms of its business environment and practices.

Economic and social context

Africa withstood the financial and economic crises of the last two years remarkably well for a number of reasons. The shock came at a time of high growth for the continent, driven by robust foreign direct investment (FDI) by companies from more prosperous emerging economies such as China, Brazil and Russia – as well as the US – that are keen to tap into the country's wealth of natural resources, including oil, gas, gold and so on. While FDI fell in 2009, owing to investors' diminished appetite for risk, it picked up again at the beginning of 2010 as foreign companies resumed their fight to establish themselves in Africa.

What's more, the reduced capital flow from FDI in 2009 was partly compensated by government spending programmes in a few countries (principally oil exporters like Algeria), not least on major infrastructure projects.

Another reason for African countries' relative immunity to the recession is that many of their economies are not as fully integrated into the global economy as are those of other nations. In particular, many banks are nowhere near as mature or sophisticated as they are in other nations.

As a result, many African countries are well on their way to recovering the strong macroeconomic positions they enjoyed before the crisis. However, the lack of banking infrastructure, economic maturity and integration into the local economy of many African countries also has a downside, of course. One of the biggest drawbacks is that HR practitioners' skills are relatively unsophisticated, their role is more administrative than innovative and employees often view them as paternalistic. What's more, skilled talent is generally in relatively short supply. Whatever the level of seniority, employees typically have limited roles and responsibilities, and it is not unusual for bank staff, for instance, to perform a number of different jobs within the bank.

A quick look at the characteristics of four North African countries, which all enjoyed high levels of GDP before the crisis, illustrates the different levels of economic maturity and different economic underpinning.

Algeria

– Economy is mainly characterised by high revenues from hydrocarbons, which accounts for roughly 60% of budget revenues, 30% of GDP and over 95% of export earnings. Weak global hydrocarbon prices during 2009 contributed to a drop in government revenue, but the country continues to enjoy a financial cushion provided by its foreign currency reserves and a large hydrocarbons stabilization fund.
– Gradual liberalization has opened up more of the economy to private domestic and foreign participation, but recent government actions impose stricter controls on foreign investment.
– Algeria's external debt is only about 1% of GDP. The government's policies for foreign investment are restrictive. Rules governing joint ventures, for instance, require local partners to have the majority stake (51%) in order to sustain the local economy and limit dependence on foreign investors. This may deter many foreign investors.
– The country's workforce suffers from low levels of education.

Tunisia

– Tunisia has a diverse economy, which has been growing steadily in recent years.
– Major industries include agriculture, mining (particularly phosphate for export, oil and gas for home use), tourism, textiles, footwear and food.
– Government control of economic affairs, while still heavy, has gradually lessened over the past decade with increasing privatisation, simplification of the tax structure and a prudent approach to debt.
– Real growth, declined to 4.6% in 2008 and to 0.3% in 2009 because of economic contraction and slowing of import demand in Europe – Tunisia's largest export market.
– Development of non-textile manufacturing, a recovery in agricultural production and strong growth in the services sector somewhat mitigated the economic effect of slowing exports.
– Strong desire to diversify from call centres and technology and to reduce its dependence on European and US economies

Egypt

– Egypt's economy has opened up considerably under current President Mohamed Hosni Mubarak.
– The global financial crisis has slowed, but not stopped, the aggressive reforms of 2004 to 2008 to attract foreign investment and facilitate GDP growth.
– The international economic downturn predominately affected export-oriented sectors, including manufacturing and tourism, and Suez Canal revenues.
– Growth in domestic sectors, including energy, transportation, telecommunications, retail trade and construction kept economic growth from falling further in 2009.
– Living standards are still very low, with inequity between salaries and living standards leading to increasingly bold demonstrations and industrial action by labour activists.

Morocco

– Morocco enjoys generally low inflation, improved financial sector performance and steady progress in developing the services and industrial sectors.
– The country continues to grapple with a high illiteracy rate, a low education enrolment rate and a high urban youth unemployment rate.
– Moroccan exports have dropped sharply since mid 2008 as a result of the decline in global phosphates prices, the bulk of Moroccan exports by value, and the recession in Europe, Morocco's main export market.
– A record agricultural harvest, strong government spending and domestic consumption, however, combined to offset losses from weak exports.
– Despite structural adjustment programmes supported by the International Monetary Fund, the World Bank and the Paris Club, the dirham is only fully convertible for selected transactions.

The quest for skills and talent

The shortage of talent and skills on the African continent has been exacerbated over recent years by the requirement of major foreign direct investors for thousands of people, often quickly, to work on major infrastructure projects. They have been monopolising the employment of engineers, English speakers and people with business knowledge and experience, to construct roads, bridges and so on – as well as to provide management support in areas such as finance and marketing. And they are all competing fiercely for talent and skills.

This quest for skills and talent has inflated salaries considerably – particularly in countries such as the Democratic Republic of Congo, where employers can expect to pay finance directors and general managers comparable salaries to those they might commonly pay in Western Europe or the US.

Many African countries have also witnessed sudden influxes of competitors in particular markets. The telecom and automotive industries are prime examples. Where there might previously have been just one or two players, within the space of just two or three years, another two or three companies might have sprung up, each requiring thousands of employees, particularly for customer-facing roles. There was a burst of such expansionary activity during the years 2006 to 2008, and another is currently under way.

Similarly, Morocco has a big automotive industry. A large French car manufacturer is currently establishing a new plant there, supported by the Moroccan government. It needs to hire at least 1,000 people within a few months, and the only place to get the requisite skills is from its direct or indirect competitors. Therefore, retaining employees is a huge challenge.

The recruitment and retention challenge is made all the more difficult by the continuous "brain drain" from Northern Africa to Europe, North America and the Gulf, where engineering, IT and finance skills are also in short supply, but the pay is better. The exodus of talent has been encouraged by agreements between universities.

So companies in Northern Africa are now trying to lure back nationals, particularly those who have been trained in the best Western schools and universities and are multilingual, as well as being familiar with the local environment. However, persuading them to return to their home countries is not easy: they have grown used to the quality of life and career prospects in their adoptive countries.

Some young high-fliers (usually aged 27 to 37) are starting to trickle back to their native countries – often on very high salaries. But compensation is not always the answer. Yes, they have high expectations and demand at least the equivalent package of the expatriates who will typically have been doing their jobs. But they also want to try to replicate the lifestyle of the country they have returned from, and that ambition is usually manifested in tangible symbols of "success" – fringe benefits, primarily expensive cars.

Indeed, expensive cars are a critical component of compensation and benefits packages in Africa. State-of-the-art mobile phones run a close second, with a house or housing allowance third on the list. But career opportunities are also increasingly important. The quality of the fringe benefits on offer can determine whether an individual joins your company or not, and multinational corporations have a major advantage over local employers in being able to offer good career opportunities. But they have to play up this advantage in their communications – both externally, to attract people, and internally, to keep them.

And competition for talent doesn't just come from other companies in any given country: Africa in particular is rapidly becoming an international market for recruitment. Talent moves easily between different African countries – and between North Africa and the West and the Gulf, although cultural differences make it easier for North Africans to move to Sub-Saharan African countries than vice versa.

Southern Africa

Southern Africa is culturally and economically very different from Northern Africa and Sub-Saharan Africa. Unlike those regions, it is well integrated with the rest of the world. However, the structure of compensation and benefits packages is different both from the rest of Africa and from Europe and the US. In essence, employers integrate benefits costs into basic salaries, leaving it up to individuals themselves to decide the level of insurance, health care cover, pension and so on. However, bonus and performance-related pay are separate.

HR challenges

The challenges for HR professionals in Africa are clearly considerable. It is difficult to grade jobs because roles are often very fragmented and basic, and market immaturity means there is a dearth of information against which to benchmark and evaluate positions.

But the war for skills and talent, particularly in certain areas, throws much conventional HR practice out of the window anyway: at the moment, companies just need to recruit as many people as they can, fast.

Clearly, in the longer term this will have to change, and one of the big conundrums HR is wrestling with is whether it should spend more time, effort and money on developing people from within the organisation rather than buying them from outside. Again, turning conventional HR good practice on its head, many companies are not prepared to make this investment only to see the people they have trained poached by a competitor down the road.

But unless multinationals strike the right balance between "buying" and "making", they will find that the huge potential benefits of establishing or expanding their operations in one or more African countries will be outweighed by the prohibitive cost of employing people to work in them.

About the author:
Anna Chabbat is Africa and the Middle East Compensation and Benefits Forum Project Leader, Africa Market Leader.
She can be reached at anna.chabbat@mercer.com.