Africa, with a GDP of over $3 trillion, lags in intra-trade systems and trade with overseas markets.
- The COVID-19 pandemic exposed the vulnerability of existing Africa’s supply chains.
- The more vigorous Africa’s economy becomes, the more businesses should anticipate the development of new industries.
Despite enormous opportunities, Africa’s supply chains remain inadequate in supporting regional economies. The COVID-19 pandemic exposed the vulnerability of existing African supply chains, sending shock waves across markets. With proper optimization, Africa’s supply chains hold transformative economic potential for the continent.
Africa has over one billion consumers and a GDP of over $3 trillion. However, the continent lags in intra-trade systems and trade with overseas markets.
Brookings, a US-based think tank, points out the growth of intra-African exports. It pointed out Africa’s exports grew from around 10 per cent (1995) to approximately 17 per cent in 2017.
Although top-tier think tanks such as Brookings compare the latter with established markets driven by state-of-the-art technology with decades of experience—it is rather to analyze Africa with a new alternative lens—domestication of economic instruments, such as the African Continental Free Trade Area.
Regarding an alternative lens, Africa Hospitality Investment Forum (AHIF) 2023 addressed how the region can maximize its intra-African trade measures. The AHIF argued for using technology and challenging “business as usual” habits jeopardizing operational standards.
Further, African hospitality leaders have stressed sustaining performance by addressing trade restrictions, poor transport infrastructure, currency fluctuations and supply chain breakages. The AHIF brought forth a necessary discussion regarding supply chain challenges in the region, a substantial thorn in the continent’s economy.
How reliable are Africa’s supply chains?
The first item of the day is space, structures, and economy. These three items limit and could be a way out for African supply chains to succeed.
Africa has eight primary regions—the Sahara, Sahel, Ethiopia Highlands, Savanna, Swahili Coast, Southern Africa, African Great Lakes and rainforest. All eight spaces have an uneven connection and development. Thus operating a smooth supply chain infrastructure is cumbersome.
The AHIF report pointed out that supply chains still suffer. Businesses continue paying inflated prices for nearly every consumable and operational product not locally grown or manufactured. Even so, it is more profitable to export than tend to the regional market due to weak intra-trade regulations.
Economic instruments such as Agenda 2063 incorporate ambitious strategies to bring life into the stable rail, air and water infrastructures essential for supply chain success.
The manufacturing industry is growing in the region and propelling independence for the region. This substantial development means supply chain networks are about to transform for the better.
According to United Nations, growth estimates indicated a 17.8 per cent expansion of manufacturing output.
In the second quarter of 2021, manufacturing output increased “in many African countries,” including South Africa (39.3 per cent), Rwanda (30.2 per cent), Senegal (22.6 per cent), and Nigeria (4.6 per cent).
Car manufacturer Nissan is establishing new facilities in the region. Meanwhile, analysts foresee Africa emerging as an auto industry hub, including for electric vehicles.
“Overall, research shows that manufacturing on the continent is growing, or strongly rebounding from the pandemic, especially in key economies in sub-Saharan Africa,” A report by RFXCEL read in part.
The report went further and argued that a healthy manufacturing sector means a supply chain with opportunities to modernize alongside production facilities, adopt international standards (such as GS1) and best practices, and build the infrastructure to secure products from the time they leave the manufacturing floor to the time they reach consumers.
A consumer-centric economy is hurting supply chains. Africa holds an enormous market for domestically produced and imported goods and services.
As AfCFTA get domesticated, projects under Agenda 2063 and other initiatives are completed, hundreds of millions of consumers should have more and easier access to these goods and services.
With the latter, the African population should also be willing to spend more money. The report elaborated that as of 2021, Africa’s final household consumption expenditure was a little more than $1.9 trillion. Meanwhile, McKinsey commented this could reach 2.5 trillion by 2025.
This will greatly impact the supply chain in Africa—for manufacturing, logistics, distribution, warehousing, and “the last mile.”
The more vigorous Africa’s economy becomes, the more businesses should anticipate the development of new industries, dissipation of the informal sector, increased demand for better products, and a growing “consumer class” that will come to expect the supply chain to work everywhere on the continent.
Africa’s largest import partners
Africa holds enough resources and potential to become a beacon of professional supply chains across the global market. However, a few drawbacks are holding the region behind, particularly high importation levels. South Africa remains Africa’s largest importing country at 17 per cent of all regional imports.
According to the AHIF report, the continent’s largest import partners in 2023 were China at 21.9 per cent, the United States at 8.8 per cent, Germany at 7.3 per cent, India at 5.8 per cent and the UAE at 3.6 per cent. Nigeria, Egypt, Morocco, Kenya, and Ghana are the next largest importing countries.
Further, one of the crucial problems on the table is that Intra-African trade still stands at only 15.2 per cent, a poor showing when compared with intra-continental trade figures for America, Asia, and Europe, which stand at 47 per cent, 61 per cent, and 67 per cent, respectively, and which should be at the head of the pan-regional efforts to support trade and business.
“Much of this is due to multiple trade restrictions in the region and between neighbouring countries,” the AHIF report read in part.
Unfortunately, there is a bigger roadblock to deal with. According to World Bank, the borders between African countries rank among the most restrictive in the world. They are the main reason there is relatively little intra-African trade and investment.
Favourable geographic positions
The entire supply chain in Africa is rather a work in progress. There is an uneven spread of various economic instruments, such as strong performing institutions and infrastructures coupled with favourable geographic positions facilitating smooth access to the flow of global trade.
Down the line, the AHIF points to signs across all industry sectors of more joined-up thinking and increased regional cooperation.
“For instance, amongst East African nations, there has been a noticeable increase in activities across both government-backed and private sector efforts through the multiple alliances that exist, such as the East Africa Business Council, the East African Chamber of Commerce and Trade, and the East African Association,” AHIF report read in part.
However, the AfCFTA stands to transform the supply chain in the region. The agreement represents the largest free trade region globally. The trade area connects 1.3 billion people across 55 countries with a GDP of US$3.4 trillion and a major potential to lift over 30 million people out of poverty.