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Africa Stand Up: Strengthening supply chains – the key challenge for Africa

09 June 2017

Supply chain development is at the heart of any ability for Africa to "Stand Up". Without urgent improvement Africa risks remaining a supplier of primary materials to which others add value, leaving it vulnerable to the vagaries of external commodity price and market fluctuation. Africa has long been a base for many multinationals that understand this and have traditionally invested in manufacturing businesses and processes as well as their own "bespoke" supply chains. They know that getting their supply chains right will deliver direct business benefit in efficiency and cost savings, coupled with wider economic and social benefits of more stable and sustainable locally owned and operated industry which adds value in country/region. But there is now a need for scale and collaboration to drive this beyond the individual efforts of corporates.

The stars should be aligned for development of fully integrated and locally funded supply chains with  the increase in consumer demand for companies to source products locally combined with growing pressure on consumer facing industries to buy local. It is no secret, however, that supply chains in Africa need to be strengthened and are plagued by a number of issues. By way of example, there are limited amounts of locally produced "secondary" processed materials which are key to adding manufacturing value. In practice, this means that suppliers and distributors must often rely on imports of ingredients from countries outside of the continent, for example, China, which can even prove prohibitively costly and encourage suppliers to choose the cheaper option of importing the whole product, as opposed to merely parts of it.

All parts of the chain are challenged, including poor infrastructure, logistics, capacity and long lead times.  In several countries, significant parts of the population do not have access to decent roads or transport links, especially during rainy or colder seasons (for example, in Ethiopia and Ghana), which disconnects these communities and suppliers from each other. Countries which are landlocked can be particularly affected by long lead times (for example, in Burundi it can take up to 71 days to import goods from other East African countries and clearing customs at airports in the Democratic Republic of Congo can take significantly longer than in South Africa) – though this may be improved over time by the introduction of the All Africa Passport.

So what is the answer?  First, and possibly foremost, is scale – that is, suppliers need to have an efficient and cost effective supply chain in local conditions. It is impractical for each manufacturer to invest in its own bespoke supply chain for every country. This means that especially in smaller economies collaboration, often cross sector, is a major opportunity supported by private and public alike. In addition regional rather than local country chains are essential.

Second, and a corollary to the above suggestion, is collaboration both at primary level and also at a horizontal level for common parts of the chain which are of mutual benefit (and giving scale). Many companies that have successfully established themselves in Africa are finding opportunities to partner with others in order to spread the cost of supply chain channels and maximise the rewards realised, with concomitant benefit to local suppliers/contractors. Obviously these arrangements need careful regulatory planning.

Thirdly, this will only work with public sector facilitation. The goals are not purely for short term private gain, but of clear long term public benefit and there is the need for governmental and DFI support in partnership not only financially but also (and perhaps more importantly) in terms of policy. For example internal defensive tariffs which prevent cross border trade can make supply chains uneconomic by preventing scale and, in turn, damage local business. Governments need a clear strategic view – if they want to promote local capacity they need to embrace wider scaled up business to facilitate local development. A holistic plan is therefore needed. Policymakers should rather look for ways to implement policy in a way which does not effectively penalise local producers but instead makes them more attractive to businesses hoping to source materials for their products. Critical to this is also ensuring efficient, fair and enforceable arrangements which will allow global businesses to thrive in a local context. Corruption and excessive red tape will simply suffocate trade. A major part of this will involve adopting sensible policies on artificial barriers to trade (for example, tax policies and exchange controls) to encourage greater investment and supply.

Lastly (and critically!) businesses should assess how best they can use advancements in technology such as blockchain, trade finance and aviation to assist in maintaining efficient supply chains.. Similarly, many companies are using fintech and mobile money to provide micro-solutions to local distribution networks.

Despite deep seated origins, the problems are clear and the solutions are there, even if they are not always easy to execute. Without scalable collaborative innovation, however there is a risk Africa will not leap. Instead, it risks remaining stuck in the production of primary natural resources which long term cannot generate sustainable and consistent growth.

We're experienced at supporting our clients throughout the supply chain. If you are looking for more information, why not try our Complex Contracting Hub www.hlcomplexcontracting.com ? It contains interactive tools, including our supply chain tool, which enables anyone in a supply chain to identify key issues relevant to them.

Try our Supply Chain Distribution Site

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