Guest post by: Obinabo Tochukwu Tabansi, Lagos, Nigeria.
Africa is home to the next major world economy, and African supply chains will make that possible. Despite the impact of the recent pandemic, Africa’s economy is doing better than expected. According to the African Development Bank (AFDB), Africa is set to outperform the rest of the world in economic growth over the next two years (2023 and 2024).
African supply chains have seen much improvement in recent years. There is still a lot to do for the continent’s supply chain operations to catch up with those of the present major economies, but every indication points to a giant on the rise.
Overview of African Supply Chains
It is not news that Africa is a vast and diverse continent with about a billion people living there. One view is that the continent’s supply chains are servicing the entire population of Europe and the Americas combined while being mostly organized as traditional supply chains.
Traditional supply chains are reactive and linear in nature, operating like single minded entities. This makes them slow to adapt to changes. Traditional supply chains are also mostly focused on production and provision of the goods and service, rather than the needs of the customer.
Supply chains within the continent face a myriad of hurdles, and many businesses navigate them with precision and ingenuity. Although impressive, this does not negate the legitimate challenges and concerns that come along with doing so. These challenges impact businesses to varying degrees across different regions on the continent. And because traditional supply chains react slowly, it results in loss of productivity and profitability. These challenges include:
- Poor infrastructure
- Political and regulatory uncertainty
- Cultural and language barriers
- Limited access to business resources
Despite these challenges, opportunities also abound. Some of those opportunities are:
- Abundant natural resources
- Growing population
- Emerging middle class and increased consumer spending
Challenges for African Supply Chains
As we already established, there are challenges facing the African supply chain. These challenges typically result in increased costs, delivery delays, and unnecessary downtimes. Let’s take a quick look at each of them.
Poor Infrastructure — Poor infrastructure is a plague on Africa, from bad road networks to inconsistent energy supply, unreliable transport modes, and underperforming ports. Poor infrastructures impact the production, logistics, distribution, and preservation of goods and services across the supply chain. Poor infrastructure inevitably makes the supply chain more complex and expensive to manage.
Political and Regulatory Uncertainty — Across the continent, there are many instances of political uncertainties. Political uncertainties lead to unrest and crisis, which businesses find difficult to navigate, and that dampens the economic prospects of the affected regions. Sudan is a very recent example of how political uncertainty can create unrest and serious supply chain problems. The problem with political uncertainties in any African country is that there is a high level of interconnectivity. This means when one country is affected, it has a high potential of affecting other African countries. Such situations result in supply chain disruptions, slow production, and poor planning.
Cultural and Language Barriers — Africa is very diverse, with over 3,000 ethnic groups speaking more than 2,100 languages. Naturally, this makes doing business quite interesting and challenging. This difference in cultures and languages makes communication and collaboration difficult for most small businesses. Cultural differences also impact business practices and require companies to channel their resources and adapt strategies to the specific cultural context. These often result in higher operating costs for the business.
Limited Access to Business Resources — Business resources in this context refer to skilled labour, money, and technology. The lack of skilled labour makes it difficult for businesses to benefit from their potential. A business will typically not do better than the knowledge and skills of its staff. Lack of access to financial resources and technology dampens the development of the business, limiting its expansion and reach. Ultimately this impacts the growth of the African economy.
Opportunities for African Supply Chains
However, the outlook for African supply chains is far from doom and gloom. Despite the challenges discussed above, the continent is doing well economically, which points to the success of its supply chains. The African supply chain is brimming with potential and opportunities for businesses willing to invest. What are these opportunities and potential?
Abundant Natural Resources — Africa’s rich and abundant natural resources and agricultural potential makes sourcing raw materials a delight for most businesses. Investing in Africa will mean localizing most sourcing to the continent, and building a robust, resilient, and agile supply chain. Its natural resources make it an attractive destination for mining, energy, and agricultural businesses. For businesses involved in the extraction, processing, and distribution of commodities, Africa is a huge growth market.
Growing Population — According to Statista, the average age of the African population is about 20 years. Juxtapose that with top world economies like China, Japan, Italy, and Korea, which all have an ageing population. Africa’s current population is about 1.3 billion and is expected to rise to 2.5 billion by 2050. With the current trend of the economy, the vast majority of the population is also on their way out of poverty. All the above facts point to a growing population with increased buying power which ultimately means more demand for businesses.
Increased Consumer Spending — Forget about future potential for a minute, let’s focus on the present. Another Statista article shows that household consumption in Africa is on the increase. Economic growth is already happening. Businesses can lean into the rising middle class and establish a strong presence on the continent, which will pay off in the near future.
Strategies for overcoming challenges and maximising opportunities
As with every other economy, there are strategies to maximise the potential and opportunities in the African supply chain landscape. Four of these strategies are:
Invest in Infrastructure — Governments across the continent should collaborate with businesses to improve infrastructure and transportation networks. These Governments can get the major corporations in Africa to undertake the cost of these infrastructures in exchange for tax write-offs or deductions. Businesses and local authorities can work together to develop efficient road and rail networks and upgrade underperforming ports.
Build Strong Relationships — Any successful supply chain is the sum of its relationships with all stakeholders (internal and external). The same applies to the African supply chains. Businesses across the continent will benefit from forming strategic alliances with local partners and leveraging their expertise and networks. It will give them an edge when navigating cultural nuances and the complex regulatory environment.
Invest in Talent — As mentioned earlier, no business will do better than the skill and knowledge of its labour force. Businesses can invest in the training and development of talent for the people in their supply chains. Investing in training and development will enable businesses within Africa to build a skilled and diverse workforce that can contribute to the overall success of supply chain operations.
Leverage Technology — Technology and innovation play a major role in the modern supply chain’s success. In fact, it is almost impossible to meet customer demands and expectations without some form of investment in technology. Embracing digital solutions like the Internet of Things (IoT), blockchain, and data analytics can enable real-time tracking, improve inventory management, and enhance supply chain visibility. Integrating technology into the African supply chain can considerably reduce costs, lead time, and inefficient processes.
Examples of Successful Supply Chain Management in Africa
There is no shortage of companies which have successfully navigated their supply chains in Africa and continue to do so. Let’s take a look at two such companies in Nigeria:
The Dangote Group — Dangote Group is one of the biggest businesses in Africa. It was started in Nigeria as a commodity trading business but became a huge conglomerate with interest in several sectors, including cement, sugar, and other industries. The Dangote Group built its success on vertical integration, focusing on backward integration to control its supply chain from production to distribution. The company became a market leader in various sectors by localising its production facilities and establishing strategic partnerships, which helped it simplify its supply chain and reduce costs.
MTN Group — Operating in multiple countries comes with its share of difficulties and complexities, especially when considering poor infrastructures and government policies. However, MTN Group managed to overcome all those challenges by investing in its network infrastructure, ensuring connectivity even in remote areas. MTN also successfully captured a significant market share across the continent by navigating cultural nuances and tailoring its services to meet local needs and preferences.
Conclusion
The African supply chain landscape is a constantly evolving market with its fair share of challenges and opportunities. However, businesses can overcome the challenges by developing strategies such as those presented here. Companies that learn to take advantage of Africa’s growing population, abundant natural resources, and emerging markets will find long-term growth and profitability for decades to come.
Author Bio
Obinabo Tochukwu Tabansi is a supply chain content writer with close to seven years of experience working in different facets of the supply chain. Today he is diving into his passion for writing on all things supply chain. His blog, Supply Chain Nuggets, is one of Africa’s fastest-rising supply chain blogs or digital magazines educating supply chain professionals on how to navigate the supply chain complexities on the continent. His readers enjoy the value of his content, and you can too.