21 Sep

African countries need to rethink how they trade with each other

If Africa wants to change how to trade with the rest of the world, it needs to start by rethinking how it trades with itself. Without urgent improvement, Africa risks remaining a supplier of solely primary materials to which others add value. But to succeed in moving higher up the global value chain, Africa will first need to develop efficient local and regional supply chains to facilitate higher levels of trade within the continent itself.

Multinational companies that recognised the opportunity to serve Africa’s growing market for consumer goods realised that the only way to do this successfully is to invest in their own “bespoke” supply chains on the continent. They know that getting their supply chains right is crucial to their businesses, while a more stable, locally owned and operated industry also has wider economic and social benefits. 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 the 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. However, it is no secret that supply chains in Africa need to be strengthened and are plagued by a number of issues.

The continent has limited amounts of locally produced “secondary” processed materials, which is key to adding manufacturing value. This means that suppliers and distributors must often rely on imports of ingredients from countries outside of the continent, which can be so costly that it encourages 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 by factors like poor infrastructure, logistics, capacity, and long lead times. In several countries like Ethiopia and Ghana for example, significant parts of the population do not have access to decent roads or transport links, especially during rainy seasons. Countries that 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.

Read more: African countries need to rethink how they trade with each other

21 Sep

Africa: Overcoming the challenges for manufacturing

During the period of relative stability since the start of this century, Africa has experienced rapid growth and has indeed outperformed global growth trends. As a result, its gross domestic product (GDP) has significantly increased and has brought wealth to many countries. However, most African countries that have enjoyed high growth recently, are mainly mono economies. Blessed with many natural resources, their economies have greatly improved, but they still remain at a subsistence level and have not moved beyond.

Despite the high growth rate, industrialisation in Africa has barely taken root. Besides South Africa, the most industrialised African country, and barely a few others, large-scale industrial manufacturing is practically nonexistent. Thus, for Africa to grow to the next level, it is critical to examine the reasons why the continent does not seem able to gather momentum for high value-added manufacturing activities.

Political stability and relevant economic strategy

The main reason cited by foreign and domestic investors for putting off or even avoiding major investments in the manufacturing sector, is the perceived lack of political stability in Africa. While the development of the capital-intensive manufacturing sector requires a long investment cycle, the political lifecycle may be very short-term. As a result, it is very difficult for the government of the day to implement a coherent long-term economic strategy with all the relevant economic frameworks and policies that will only bear fruit long after their term in office has expired.

Although Africa has great potential to develop its manufacturing sector, the political leaders need to have a clear economic vision to develop sectors in which their respective countries have sources of competitive advantage. Without a conducive environment supported by the relevant economic framework, there are no significant incentives for potential investors to commit themselves.

Most of the time, political factors trump economic factors. African political leaders conduct their own type of populism, where they need to satisfy their majority supporters to win elections and remain in power.

Read more: Overcoming the challenges for manufacturing in Africa