Inside Supply Management Magazine
A Safari of Supply Chain Possibilities
Africa has the natural resources and prospective workforce to become the next manufacturing and sourcing hot spot, but realizing that potential requires infrastructure investment, procurement expertise and economic harmony.
Nathaniel Boso is well-versed on Africa’s assets — a burgeoning youth population with an expanding middle class and improved living conditions, an abundance of mineral resources and an already strong apparel sourcing base — that suggest the continent could be the next China and last supply chain frontier.
For the dean of the School of Business at the Kwame Nkrumah University of Science and Technology (KNUST) in Kumasi, Ghana, that potential is tempered whenever he hits the road. For example: A recent drive from the western part of the country, near the Ivory Coast border, to Kumasi should have taken about three hours, but the narrow and underdeveloped roads turned it into an eight-hour slog.
That arduous commute typifies the intersection between Africa’s supply chain possibilities and its present state. Consumer demand is growing, and there are isolated supply chain successes. But the continent as a whole is years away from developing the necessary manufacturing capabilities and logistics framework as well as an economic and free-trade consensus in a part of the globe plagued by geopolitical instability.
“There’s a lot of excitement about Africa, but we have to be cautious about the level of optimism,” Boso says. “We still have the least developed supply chain. The basic infrastructure for making and moving goods and services is simply not there.”
Africa has the second-largest (1.3 billion) and youngest (average age 19.7) population among continents. “The growing young population is an incredible asset,” says Dale Rogers, Ph.D., professor of business at Arizona State University. “But you have to be able to feed those people, employ them and teach them.”
Nevertheless, resources are in place for an investment race between companies and countries. They include:
- The second-largest (1.3 billion) and youngest (average age 19.7) population among continents
- A third of the globe’s known reserves of such minerals as gold, titanium, platinum and manganese
- Low labor costs
- An emerging economy, with consumer spending growing at a compound annual rate of 3.9 percent and expected to reach US$2.5 trillion by 2030, according to the Brookings Institution, a Washington, D.C.-based research group.
However, that potential will remain untapped without the development process that matures supply chains and economies, says Tom Linton, a senior adviser at global management consulting firm McKinsey & Company. “It comes down to a sequence of things that need to happen,” he explains. “As was the case in Asia, it starts with stability, followed by infrastructure and an educated workforce. Then, companies (will) move in to leverage the capabilities.”
The China Comparison
Conventional wisdom has suggested that Africa follow the same path as China, which in the late 1970s began designating areas as “special economic zones” and massively investing in infrastructure, helping the Communist country evolve from largely an agricultural economy to a manufacturing and technology power.
“In 1980, the infrastructure in Africa wasn’t that much different than the infrastructure in China,” says Dale Rogers, Ph.D., ON Semiconductor professor of business at the W. P. Carey School of Business at Arizona State University in Tempe, Arizona. “Some of the best infrastructure in the world now is in China because it’s continued to invest, something even the U.S. hasn’t done a good job of.” (See story on page 22.)
However, as Rogers points out,
it’s much simpler for a single authoritarian country to dictate its economic direction, while a continent of 54 sovereign states recognized by the United Nations (U.N.) has disparate characteristics and interests. Africa is also contending with such obstacles as the coronavirus pandemic and climate change, noted Fatima Denton, director of the U.N. University Institute for Natural Resources in Africa in Accra, Ghana, during a Brookings Institute webinar in September.
A worker inside a small-scale mine in extracts tanzanite, a rare gemstone mined commercially only in Tanzania. A third of the world’s known reserves of such minerals as gold, titanium, platinum and manganese are in Africa.
“Many countries have ambitious industrialization plans, (but) industrialization has had somewhat of a checkered history in Africa,” Denton said. “We cannot industrialize in same the way mature economies have done. Times have changed, and we are dealing with a (structure) that comes with its own associated problems. We face challenges that this continent didn’t produce but is on the front lines of, and it will be the hardest hit. So, we have to industrialize with some degree of ingenuity, (including) green industrialization and trade.”
The Brookings webinar discussed the African Continental Free Trade Area (AfCFTA), which was founded in 2018 and commenced trade on January 1. AfCFTA advocates say the pact should spur economic growth and reduce inequality and poverty in the continent. Rogers calls it a “positive first step,” but he and Bosa are skeptical, in part because free trade does little to address stability, the first step in Linton’s sequence.
Two Africas: Inequality and Instability
Supply chains and manufacturing activity in such countries as South Africa, Egypt and Morocco are advanced and on par with those of many industrialized nations. In 2018, Morocco passed South Africa to become the continent’s biggest exporter of passenger vehicles, at an annual value of $9.9 billion.
With few exceptions, the drop-off after that top-tier trio is substantial. In recent years, Africa has been a destination for apparel sourcing; for example, Swedish clothing brand family H&M Group has eight suppliers and eight factories in Ethiopia and also sources from Morocco and Kenya. The U.S. imported a record-high $453 million of apparel from Kenya in 2019.
But inequities exist: A 2019 report from the New York University Stern Center for Business and Human Rights found that Ethiopian garment workers earned the equivalent of $26 a month, the lowest pay in the world. In comparison, the report stated, workers earned $340 a month in China, $207 in Kenya and $95 in Bangladesh.
However, perhaps the biggest inequities between countries — those that most challenge trade agreements and continent-wide economic growth — are with levels of geopolitical stability. Geopolitical turmoil is one of the biggest threats to supply chains, and Africa has a long and tragic history of it. “This is a continent with several generational political and ethnic issues that are going to be very difficult to integrate,” Boso says.
According to the 2021 Fragile States Index by The Fund for Peace, a Washington, D.C.-based research institution, 10 of the world’s 14 most unstable countries are in Africa. Somalia, South Sudan and the Democratic Republic of the Congo are among the top five. The Supply Chain Risk Insights Report 2021 by the British Standards Institution (BSI) forecast that terrorism could cause disruptions in Eastern and West Central Africa, and elections in 10 counties, including Somalia, Ethiopia and South Sudan, might result in social unrest.
Some countries are dominated by the military. It’s very fragile — in Guinea, Mali, Burkina Faso and Ivory Coast, things are just not stable. Anything can happen at any time.
Among the most recent turbulence: Last year’s elections in Guinea were marred by violence, and in August, military members staged an uprising in the capital of Conakry and vowed to replace regional governors. In October, Sudan’s military dissolved the country’s transitional democratic government and declared a state of emergency, a move U.N. officials denounced as a “coup.”
“Some countries are dominated by the military,” Boso says. “It’s very fragile — in Guinea, Mali, Burkina Faso and Ivory Coast, things are just not stable. Anything can happen at any time. And it’s so unpredictable to the extent that, in some cases, you don’t know how to even plan for risk.”
It’s hoped that more intra-continent commerce and increased participation in global trade will help ease tensions. Of the AfCFTA’s 54 nation signatories, 38 had ratified the agreement as of mid-September. “Countries with better institutions and less corruption will be more likely to experience benefits,” Wisdom Akpalu, Ph.D., dean of the School of Research and Graduate Studies at the Ghana Institute of Management and Public Administration in Accra, said during the Brookings webinar. “There may not be political will in countries that feel they won’t benefit, and that will constrain the collective impact.”
Infrastructure Is (Almost) Everything
The second step in the sequence is infrastructure, as the agricultural products of today and the minerals promise of tomorrow lose value without capacity to manufacture and transport. “In Ghana, you see a lot of tomatoes, avocados and other products rot in the streets,” Boso says, “because there’s a supply chain problem of capability to move these commodities from production point to end user.”
While Rwanda is developing improved infrastructure, Boso says, most of sub-Saharan Africa is struggling to catch up with the top-tier nations. Like in all parts of the world, COVID-19 exposed infrastructure deficiencies, and closing the gap will be costly: The continent’s infrastructure needs require $170 billion a year of investment through 2025, according to the African Development Bank.
Ghana recently announced a $1.5 billion investment to nearly quadruple capacity at Tema, the country’s biggest port. However, transportation headaches intensify after the containers are unloaded: It takes an average of 30 days to move goods from south Ghana to the northern border with Burkina Faso, due in big part to narrow roads, Boso says.
The insufficient manufacturing capabilities mean most African businesses are import-dependent. Products from such countries as China and India come with high transportation costs that are passed on to consumers. Africa has the rubber to make personal protective equipment (PPE) and other medical supplies, but only a handful of apparel factories could be retooled to produce them.
“Even if we could manufacture PPE, it comes back to the same issue: Do we have the infrastructure to move materials around efficiently?” Boso says. “Not at this time, because there are no (transcontinental) railway lines for moving commodities across the country.”
Ethiopian Airlines and Kenya Airways have boosted cargo service, including converting passenger jets unused during the pandemic. Airfreight volumes in Africa were up 33.5 percent in June compared to the same month in 2019 — the largest increase of any continent, according to the International Air Transport Association. However, the most vital modes in African transportation are railways, which have drawn the highest-profile investments, especially from China.
As part of its Belt and Road Initiative that has also spearheaded construction of roads, ports and power plants, Beijing has spent heavily to modernize Africa’s patchwork railway system, highlighted by new lines in such countries as Ethiopia, Kenya, Nigeria and Tanzania. In Ghana, investments on current and future railway and roads projects will exceed $2 billion; some of the funding is through loans from China.
Chinese president Xi Jinping offered Africa $60 billion in infrastructure financing in 2015 and 2018, as Beijing insisted it was not engaging in “debt trap” diplomacy. “Of course, China is not handing over these monies for free,” says Boso, who notes that one loan agreement provides a Chinese corporation access to minerals mining in Ghana. “And given some of the history, you hope African countries are using the money efficiently to develop infrastructure. You hope that’s what all the money is geared toward.”
Interest from companies in the U.S., India and Russia, among other countries, suggests an African investment race is underway. And in October, Forbes magazine reported that London-based firm Development Partners International has built an African investment fund of more than $1.1 billion.
“For businesses to relocate or establish operations in Africa, the incentives must be right,” Akpalu said during the Brookings webinar. “Whenever there are good institutions, the environment is enabling, and businesses can get a return on their investment, capital will go there. If risk is involved in investment, it’s unlikely there will be any, and that has (traditionally) been the fate of Africa. … The risk of setting up in many Africa regions has been seen as high, and we have not been able to attract those kinds of investments.”
Building Africa’s Supply Chain Know-How
The third step in the sequence — an educated workforce — is most personal to Boso. With much of the continent’s population under higher-education age, the challenge is widespread — and supply management aptitude is especially lacking, he says. That is a reason Boso left his position as doctoral program coordinator at Leeds University Business School in England to join the KNUST faculty in 2017.
“In industries across Ghana and Africa, there is a problem attracting world-class supply chain professionals,” he says. “When I talk to professional associations or supply chain people, many will say they joined supply chain work without any formal education in it. They just learned on the job. So, there is clearly a need for supply chain professionals who are well-trained and have a deep knowledge of modern supply chain management.”
In recent years, ASU’s W. P. Carey School of Business and the KNUST School of Business have collaborated, most notably on ShipShape, a mobile education game that teaches such supply chain skills as purchasing, demand planning and inventory management. In 2020, the U.S. Agency for International Development (USAID) announced a $15 million grant to support an ASU-KNUST partnership project in Ghana: the Center for Applied Research and Innovation in Supply Chain-Africa (CARISCA).
Among CARISCA’s objectives are to (1) drive research and training to innovate African supply chains, (2) raise the efficiency and effectiveness of the continent’s health-care and agricultural value chains, (3) build inclusion and opportunities for women and disadvantaged supply chain stakeholders and (4) develop a robust partner network.
“The growing young population is an incredible asset,” Rogers says. “But you have to be able to feed those people, employ them and teach them. (Boso) is doing important work in Ghana, as there is such a need for training and improving skills to producing a new generation of scholars, including supply chain scholars.”
Realizing Africa’s supply chain potential is a process that will take years — and economic development, free trade and building a manufacturing and infrastructure framework are critical steps. But human resources will be most valuable, Boso says.
“Much of the conversation in Africa is about how supply chains can defy the odds,” Boso says. “We talk about so many problems and challenges facing Africa. But a lot of companies have smart, innovative ways to get around those problems. So, the supply chain institutions in Africa at the moment may be weak, but we have the personnel that can provide the opportunity for innovation.”