Why do Partnership Business Fail in Africa?
This article is in response to a fundamental question from one of the visitors of Askmeonline.net who wanted to know more about partnership business in Africa. Africa is the world’s second-largest and second-most-populous continent, after Asia in both cases. The Mediterranean Sea surrounds the continent to the north, the Isthmus of Suez, and the Red Sea to the northeast. The Indian Ocean to the southeast, and the Atlantic Ocean to the west. Like in other continents, one of the business forms operated in the African continent is Partnership. The other forms include Single Proprietorship and Limited Liability companies
What is Partnership
Before dwelling on the partnership business in Africa, let us see the meaning of a partnership business. According to Investopedia, a partnership is an arrangement between two or more people to oversee business operations and share business profits and liabilities. There are three categories for partnership business, namely general partnership, limited partnership, and limited liability partnership.
Categories of Partnership Business
General Partnership: Each partner shares equally in the workload, liability, and profits generated and paid out to the partners. Furthermore, all partners are actively involved in the business’s operations.
Limited partnership: Limited partnerships allow outside investors to buy into a business but maintain limited liability and involvement based on their contributions.
Limited liability partnership: Limited liability partnerships (LLPs) allow for a partnership structure where each partner’s liabilities are limited to the amount they put into the business. Limited liability means that if the Partnership fails, then creditors cannot go after a partner’s assets or income. Limited liability partnership is common with Professional firms like lawyers, accountants, and doctors.
Partnership Business in Africa
A partnership business is just like a marriage that requires some mutual respect and compromises all the time. As Partners, you need to build trust and work together to create a successful partnership business. All Partnerships that failed are a result of a lack of respect for the agreed terms and conditions. Africa is not working in isolation, nor working as an island. The need for principles remains the same no matter from which continent the Partnership operates from. The following are six (6) primary reasons why most partnerships fail in Africa and elsewhere in the world.
Partnership with family members and friends dilute principles
Partnering with family members and friends has been a common phenomenon these days. However, most partnership businesses do not stay long as a result of partnering up with friends and family members. Businesses with family and friends lose focus as it can quickly dilute the business principles as agreed in the Partnership Deed. In most cases, where things go wrong, partners may fail to hold each one responsible hence becoming a cause for devastation. If the family enters into a certain challenge, automatically the challenge affects the business. This is a common phenomenon in many African countries.
Unequal Commitment Among Partners
A successful partnership requires partners to equally connect, unite, bridge the gaps, and assist each other. For this to happen it requires full commitment from the partners. However, where one or more partners have less commitment to the business, it automatically affects the business performance.
The level of responsibility and commitment for the business mostly depends on the reasons that prompted the partners to start the partnership. It is natural to find the reasons that prompted one partner to enter into business being different from the other partner. As a result, the level of commitment can be different. Further, variation in the level of commitment reduces the level of trust. Working with a partner, you cannot trust and rely upon is harmful to the business. Pushing in more than your share of the business’s weight looks exploitative and wash away the energy and commitment which is long built. In such an environment, it is better alone than entering into a partnership business.
Lack of Patience and Perseverance from the Partners Reduces Audacious
Lack of Patience and Perseverance from the Partners Reduces Audacious. Getting success in a partnership business environment requires patience, perseverance heart, and audacity from among partners. Business growth opportunities are available for those who are bold and brave enough to take up business challenges. Taking up business challenges requires patience and an audacious mind. If some or all partners miss the patience and the perseverance elements towards a business operation, it is easy to miss out on business growth targets and hence business failure.
While entering into the partnership business, partners need to agree on terms and conditions that set the business goals and values. If partners cannot set and properly decide on the long-term direction of the business, values clashes will happen which finally leads to the death of the business. Many business partners in developing countries like those in the African continent, take business operations for granted. Value differences need to be resolved as soon as they occur.
Unclear Long-Term Goals
Long-term goals are critical in running your partnership business. However, the same has to be agreed upon from the beginning. If the long-term goals are unclear to one of the partners, implementing activities towards business success becomes a nightmare.
In operating a partnership business, partners share risk and have a set of complementary skills. If the partners’ personalities do not fit together enough, the business may be in trouble. Disagreements between partners become a common phenomenon. With obvious personalities clashes, partners’ minds can not read among each other.
Un-balanced Risk Tolerance
If one of you is willing to take more risks while the other(s) are not, the growth of the partnership business is in question. It is known all over the business community that highly risky transactions have high returns on investment. in the context of partnership, you need to capture the partner’s readiness to take the risk.
Specific Reasons for African Partnership Business Failure
Three items are much common in African Partnership challenges which include infrastructure difficulties, Liquidity, and Corruption.
- Absence of proper Infrastructure makes the business environment unfriendly.
- Absence of a clear channel for access to capital generate liquidity problem.
- Existence of a Corruptive environment produces waves and instability.