• Friday, June 14, 2024
businessday logo

BusinessDay

Challenges affecting the development of Africa’s supply chains

The intersectionality of transportation, security, and supply chain risk management

Africa’s consumer market is expected to reach a value of $2.5 trillion by 2030, making it one of the fastest-growing consumer markets in the world. This economic valuation is powered because over 1.4 billion Africans wake up every day intending to use essential goods and services to support their life.

The goods and services Africans need can only be provided through a seamless supply chain network. However, while many Africans can expect to use consumable and non-consumable goods like food, drinks, sugar, refined energy products, and medical devices daily, the African supply chain industry is not yet ‘Uhuru’.

Trade restrictions are highly pervasive in Africa, and moving goods across supply lines between two nearby African countries can cost an arm and a leg. When Nigeria, the continent’s largest economy, is not routinely closing its borders to its next-door neighbor, Benin, warring tensions may affect trade relations between Ethiopia and Eritrea.

These supply breakages mean that Intra-African trade stands at only 15.2%, a poor showing when compared with intra-continental trade figures for America, Asia, and Europe, which stand at 47%, 61%, and 67%, respectively.

Conversely, the global supply chain industry has experienced significant changes since the onslaught of the Covid-19 pandemic.

Analysts believe that the Covid-19 pandemic has harshly exposed the vulnerability of the worldwide supply chain model that dominated the way African trade was conducted. This model relied on multiple suppliers, most of whom were located in China and other far-flung countries worldwide.

Thus, the supply lines to many African countries were severed following the extended lock-down orders enforced in China and other exporting countries to Africa—a security measure to stop the spread of the deadly coronavirus.

To this end, key players in Africa’s logistics industry, including governments, supply chain industries, transport companies, and manufacturing companies, must take a step back and observe their supply chain processes

Since the Covid-19 pandemic, Africa’s supply chain industry has also experienced other tangential dents. The sharp fall of oil prices in April and May 2020 following reduced global oil demand on the backdrop of a rise in Covid-19 cases were not the only economic impediments that triggered a “J-shaped” economic slope in Africa in 2020. Commodities’ prices fell by 59.5% in March 2020, and container freight rates to Africa reached historical highs of about $9,000 by the summer of 2020.

Those sharp supply shocks meant that the World Bank revised the economic growth forecast for sub-Saharan Africa in 2020 to a negative 3.3%, erasing five years of progress in the fight against poverty and pushing the region to its first economic recession in 25 years. Many key African economies have not found financial footing two years after the global pandemic.

Given that the supply network in and to Africa remains beset by many sensitives, all of which pose dire economic consequences for Africans, latent challenges affecting Africa’s supply chain development must be analyzed while workable solutions to stem the malaise are provided.

Challenges affecting Africa’s supply chain development:

1. Poor transport infrastructure in inventory management processes

Inventory management goes to the heart of supply chain mechanics. Inventory management speaks to how companies keep goods meant to be delivered to their customers, including raw materials, work-in-progress goods, and finished goods.

Good inventory management ensures that there’s always enough stock of goods to fulfill business orders while adequately warning of an impending shortage. This is done by accurately monitoring a firm’s inventory from purchase to where goods are sold.

Using firm-level data from Burundi, Kenya, Rwanda, Tanzania, and Uganda, the World Bank Group found that transport connectivity issues significantly upturned firm inventory behavior in East Africa.

Since firms lose cash flow by keeping inventory in situations where transport infrastructure is unreliable, to prepare for unexpected disruptions in the supply of necessary raw materials and business inputs, many East African firms were found on the financial receiving end of poor transport infrastructure.

About 40 percent of the surveyed firms in Kenya and 25-30 percent of the surveyed firms in Rwanda and Uganda identified transport as a significant constraint to their firm’s operational supply chain workings.

The World Bank Group concludes that the quality of transport infrastructure in the East Africa Region (EAC) is poor and that the region’s road networks, rail assets, and transshipment ports all need critical development.

It is observed that the port productivity of Mombasa, Kenya, is ten container moves per crane hour, less than one-third of the container moves per crane hour of the port of Singapore. These transport constraints for many African businesses add to firm operating costs, diminish their competitiveness in international markets, and decrease their profitability.

Read also: The weaponisation of global supply chains

2. Haphazard government policies

PwC contends inconsistent government policies wreak supply chain activities in many African countries. The critical elements of good governance are accountability, transparency, combating corruption, citizen engagement, and an enabling legal/judicial framework.

However, while many African governments in Kenya, Morocco, and Côte d’Ivoire have been leading the charge towards enshrining good governance processes, some African governments are inadvertently nosediving the supply chain networks in their domain through haphazard policies.

For instance, in 2019, the Lagos State Government imposed a sweeping ban on motorbikes in the city, including prominent e-hailing brands like O-Pay and Gokada. The e-hailing motorbike brands immensely facilitated supply chain activities in the town, and the blanket ban exposed the city to another leg of last-mile issues.

Curiously, the closure of the Nigerian border and the restrictions of scarce FX for milk and corn importation have encouraged domestic production of raw materials via the supply chain in Nigeria. Thus, incongruent government policies have played their parts in drawing back Africa’s nascent supply chain network.

3. Poor technology adoption

A quantitative study in the South African Journal of Business Management probed the influence of Information Technology (IT) adoption by small and medium enterprises (SMEs) in two provinces in South Africa and found that IT adoption enhanced the integration and collaboration of SMEs’ supply chains. IT adoption in supply chain networks also helped to improve customer service, inventory management, lead time, and relationship building.

However, many African firms have not fully integrated IT processes into their supply chain networks. The supply chain process in Africa remains relatively manual-based and static, and they tail the efficient IT and AI (Artificial Intelligence) powered procedures of supply chain networks in many other parts of the world.

Hence, supply chain networks in Africa must embrace emerging and disruptive technologies like artificial intelligence, advanced analytics, the internet of things (IoT), and conversational systems.

To wrap it up, a seamless Intra-African trade, as envisioned by the African Continental Free Trade Agreement (AfCFTA), could lead 30 million Africans out of extreme poverty. It also has the potential to raise the income of 68 million other Africans who live on less than $5.50 per day.

However, supply chain networks are central to the full functioning of these and many other African trade agendas.

To this end, key players in Africa’s logistics industry, including governments, supply chain industries, transport companies, and manufacturing companies, must take a step back and observe their supply chain processes.

They must also do well to improve the African supply chain network by plugging the holes outlined. Therein lies the key to transforming Africa and the fortunes of its people.