Time for a paradigm shift in Africa's supply chain
The COVID-19 pandemic continues to ravage economies the world over, while unearthing weak links that have existed for a long time in economies globally. In Africa, the adverse impact of the pandemic on African economies is already being felt.
Aug 26, 2020
Herbert Mwaura (Kaplan & Stratton Advocates) and Jodie Reindorf (Hogan Lovells)
African governments have put in place numerous legal, social and financial measures to contain the spread of the coronavirus, save lives and mitigate the effects of the pandemic on their economies, but this has come at a high social and economic cost.
The crisis has, among other things, shed light on Africa’s heavy reliance on foreign trade partners. Trade with these partners has been marred by trade restrictions and cross-border blockages, creating shortages and increasing the cost of essential items. Key services industries on the continent, including tourism, transport, and logistics services have been seriously disrupted.
In light of these new challenges, a golden opportunity presents itself for Africa to re-invent itself through the necessary evolution of a reliable, profitable and sustainable supply chain across the continent. This article will examine the need for a paradigm shift to an African supply chain and the opportunities available for various players, with a primary focus on Kenya.
The African Union's call for a "Paradigm Shift"
It is estimated that Africa's manufacturing sector's output will contract by 10% in 2020, which equates to a drop in over USD 50 billion worth of exports . While the continent has a sizeable export economy, over-reliance on imports of foreign goods has been a running theme in Africa's economic challenges.
Short supply of personal protective equipment ("PPE") in economies across the world was rife in the peak of the pandemic this year, with countries such as the UK, Germany and many others unable to provide sufficient amounts of PPE to healthcare workers, frontline workers and the general population. Africa was not spared, and the crunch was felt even more acutely due to the fact that pharmaceuticals and PPE used on the continent have been largely supplied by European countries, who themselves were struggling to cope with their own domestic demand. According to the OECD, Africa imports a staggering 90% of their pharmaceutical products from outside the continent, with 51% being imported from the EU, 19.3% from India, 5.2% from China and 4.3% from the United States of America , all whom were (and some of which continue to be) severely affected by the pandemic.
In the words of Nigerian President Muhammadu Buhari, "this is a global pandemic: 210 countries and territories across the globe are affected, we cannot expect others to come to our assistance. No one is coming to defeat this virus for us."
The urgency to become self-sufficient has become even more palpable this year. In July, the African Union African Peer Review Mechanism 2020 published its report on Africa’s Governance Response to COVID-19 (AU Report), which cited the overreliance on foreign trade partners as a key factor in assessing the impact of COVID-19 in Africa. The AU Report suggests that Africa should take advantage of the prevailing pandemic to boost its internal productive capacity which will progressively shift to an African supply chain.
According to the AU, the solutions lie in a coordinated and unified African approach and the innovation of African people, which is already being displayed in the responses of African nations; for example, in the development of one-dollar COVID testing kits in Senegal, or the production of life-saving ventilators in Nigeria, following the establishment of National Emergency Operation Centres which co-ordinate the pandemic response across sectors. Typically these pharmaceutical and medical supplies would have been imported from other countries.
The demand for an upheaval of the status quo with respect to Africa's import dependency is a core tenet of the AU's Vision 2063, which places great emphasis on the importance of trade in achieving a better future for Africa. Vision 2063 aims to develop projects and frameworks to remove the barriers to entry to trade which African businesses have historically faced, and also improve the value chain on the continent. This is important, given that many African economies have remained as predominantly raw material exporters, which then import the processed products from the raw materials they export. Amongst its aspirations, Vision 2063 purports to establish a greater market for goods and services produced by Africans, to Africans.
The AU's Vision 2063 pre-dates the COVID-19 pandemic but evidences the AU's decision to prioritise intra-African trade in its success plan for the continent. The core part of Vision 2063 was the establishment of the African Continental Free Trade Area (AfCFTA) in 2018, to encourage freedom of intra-African trade, bringing with it the growth of employment and foreign investment in the continent's development.
However, the challenges the AfCFTA has faced since its inauguration have been magnified by the COVID-19 pandemic: its trade commencement date (initially July 2020) has now been postponed to January 2021. However, President Ramaphosa in his address to the AfCFTA in August 2020 remained hopeful for the future impact of the AfCFTA and the "paradigm shift" that the AU has called for has already begun.
In response to the COVID-19 crisis, the AU Report examined the effects of the pandemic on national levels, as well as national and continental responses. The Report recommended that "a regional response is critical in the fight against COVID-19, and that this response should be based on international solidarity and Pan Africanism." The AU listed a number of measures taken on a continental level to address the fallout of the pandemic. These include:
The establishment of “Africa Joint Continental Strategy for COVID-19 Outbreak” adopted by African health ministers in February 2020. This strategy saw leaders of African states united in their efforts and approach to combat the effects of the pandemic, with two collective aims: (i) preventing severe illness and death from COVID-19 infection in Member States; and (ii) minimising social disruption and economic consequences of COVID-19 outbreaks.
The commissioning of the CDC to manage the Africa Joint Continental Strategy. The CDC has also provided technical expertise in disease prevention and supply chain supervision on the Continent.
Africa has several regional economic communities (RECs): Arab Maghreb Union (AMU); Community of Sahel-Saharan States (CEN-SAD); Common Market for Eastern and Southern Africa (COMESA); East African Community (EAC); Economic Community of Central African States (ECCAS); Economic Community of West African States (ECOWAS); Intergovernmental Authority on Development (IGAD); and Southern African Development Community (SADC). These were formed to realise increased regional integration through customs and monetary unions, free trade areas, and common regulatory and legal frameworks. However, implementation of the framework establishing these RECs has been somewhat ad hoc. In creating an intra-African supply chain, regional integration is paramount for increased economic growth, job creation, employment, poverty reduction, inflow of foreign direct investment, industrial development, and better integration of the continent into the global economy.
The co-ordination and unity seen between African states and RECs in the wake of the pandemic is an encouraging sign that, together, the continent can pull through the current crisis.
The African Response: Focus on Kenya
Kenya is a key player in intra-African trade. In fact, according to the World Bank Ease of Doing Business Report 2020, Kenya ranked 56 out of 190 in terms of countries which possess the best business environment; and third, behind Rwanda and Morocco, in the top percentile of Sub-Saharan countries preferred for business. The pandemic has triggered shocks on the business environment in Kenya, with imports from foreign countries decreasing significantly, causing shortages of raw materials, capital goods and delays in getting consumer goods. However, Kenya is fast adapting to the crisis. For example, private sector companies like East African Breweries Limited and Bidco Africa have already contracted small-scale farmers to produce and provide raw materials like barley, sorghum, wheat, soya beans and sunflowers. This is creating entrepreneurship, revenue for farmers and agribusiness opportunities
Kenya participates in several RECs (COMESA, EAC and IGAD). It has also signed up to the AfCFTA. However, the results of such participation have been sub-optimal due to uneven spread of natural resources amongst states, low trade complementarity between states which results in stagnant inter-industry trade in Africa, difficulty in finding efficient and affordable technologies to suit domestic market conditions, and difficulty in securing domestic and external markets for manufactured goods. There is an opportunity for Kenya and other African states to re-examine the African trade landscape versus current market trends, to develop more suitable frameworks in support of an intra-African supply chain including harmonising laws and regulations relating to inter-country trade, harmonising tariffs, and considering the possibility of a uniform currency for the African continent. Kenya will gain immensely from RECs in the short term, being one of the most sophisticated and fastest developing economies in Africa.
Transport infrastructure has also been a long time barrier in effective participation in intra-African trade. The cost of transportation of goods between African countries increases the cost of the goods themselves. African countries need to improve shipping networks and integrate road and sea freight to accelerate movement of goods within Africa. In recent years, the Kenyan government has made efforts to increase investment in transport infrastructure through direct budgetary allocations and partnering with the private sector. A notable example is the Lamu Port-Southern Sudan-Ethiopia Transport (LAPSSET) corridor - a combined road, rail and pipeline network, linking Kenya’s eastern seaboard with its landlocked neighbours. Once completed, the LAPSSET railway will connect to West Africa’s Douala–Lagos–Cotonou–Abidjan Corridor, running through Cameroon, Nigeria, Benin, Togo, Ghana and Côte d’Ivoire respectively, and reduce reliance on the overstretched Mombasa Port. This will position Kenya to support increased continental and international trade. In addition, the Standard Gauge Railway has also made Kenya the preferred entry and export point in East Africa, with faster movement of goods between East African countries.
Technology, another key catalyst in intra-African trade, is still underdeveloped in Africa compared to countries such as China, North and South Korea, Japan and the United States of America. Technology presents an opportunity to leverage automation and artificial intelligence to improve sectors such as agriculture and manufacturing. With greater productivity, efficiency, and safety, these high-growth sectors enabled by innovative technology and human capacity can advance sustainable development, maintain inclusive growth and connect supply chains in Africa. In Kenya, quality first-generation internet and communications infrastructure is a necessity. Internet connectivity still costs too much for most people, and those that can afford it complain of poor service. Not until recently did the Kenyan government legislate on the use of drone technology, which has become a key asset in sectors such as agriculture and healthcare across the world. There have also been efforts to reform the areas of data collection and data privacy through enactment of data protection laws, but several gaps exist in this regard.
Local entrepreneurs have the uncommon opportunity to partner with telecommunications companies to develop large-scale telecommunications infrastructure, which will provide formidable solutions such as faster and cheaper internet connectivity. Further, now that drone technology is becoming a necessary solution to some of the problems in the agriculture and healthcare sectors in Kenya and Africa at large, local entrepreneurs could consider partnering with drone technology providers to circumvent infrastructure challenges and reduce delivery time for consumer goods. Enactment of robust information technology laws is also key in ensuring that proper legal mechanisms are in place to support technological development and to curb the numerous risks incidental thereto. Information technology is vital in supply chain management and benefits include: increased control over production by providing improved visibility and accountability in the manufacturing process; better inventory management which reduces working capital and stoppages in the production cycle; and efficient tracking and delivery of products by manufacturers. Kenyan companies such as Twiga Foods Limited are lowering food costs in Africa by using B2B data to make food supply chains more efficient. Such technological innovations will go a long way in sustaining an independent supply chain in Africa.
Africa is full of potential, but also challenges. Building a successful supply chain will take time and boots on the ground. All relevant stakeholders must work towards improving supply chains across Africa by integrating, collaborating, optimising and enhancing technologies, skills and infrastructure. This will enhance self-reliance across African economies. Africa will, in the future, have effective measures in place to withstand the effects of another global crisis, with less need for foreign assistance.
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