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Policy recommendations and options: Boosting trade and development by tackling Africa’s supply chain challenges

Policy recommendations and options: Boosting trade and development by tackling Africa’s supply chain challenges
Photo credit: Timothy Kisambira | New Times

11 May 2018

Over the past 15 years, Africa has accounted for several of the fastest growing economies in the world. However, Africa overall accounts for just 2 percent of global trade.

The Brown Capital Management Africa Forum Signature Event “Boosting Trade and Development by Tackling Africa’s Supply Chain Challenges”, which featured African and U.S. policymakers, practitioners, and officials from regional economic communities, sketched an overview of Africa’s supply chain landscape, explored challenges impeding trade and development, and discussed lessons learned and best practices.

This brief draws on the discussion to highlight key recommendations for addressing supply chain challenges. The discussion unpacked Africa’s supply chain development and integration at both the regional and global levels, described key structural issues impeding Africa’s role in international trade and intra-African trade, and emphasized a need to prioritize and improve infrastructure development to better support Africa’s supply chains.

Supply chains in Africa: Progress made and recommendations for the way forward

Key recommendations for addressing supply chain challenges to bolster intra-African trade and Africa’s share of international trade include the following:

1. Identify Overarching Entry Points for Addressing Africa’s Supply Chain Challenges

There are five overarching areas of focus that are important to addressing Africa’s supply chain challenges: provide people with more information about trading in Africa, educate vendors about the process and standards required to get goods to the global market, facilitate communication between buyers and consumers, deliver goods in the most time and cost efficient ways, and utilize technology to facilitate trade. Programs such as the Made in Africa Campaign, which seek to connect buyers around the world with sellers in Africa, and the Africa Made Product Standards, are models for programs that can create economic opportunity in Africa. These business models can be expanded and built upon.

2. Improve Trade Facilitation Processes

One of the major barriers to trade is the thickness of the borders and the degree of red tape associated with getting goods through customs in many African countries. Cumbersome processes and associated delays in processing goods through customs discourage businesses trying to work in Africa, and stymie intra-African trade and development.

3. Invest in Improving Technology for Trade

Technology can play a key role in mitigating some of the challenges afflicting supply chains in Africa, such as the difficulties associated with selling, tracking, and delivering goods. For example, technological platforms on smart phones or computers can be tools that help connect local suppliers to the global market, making their goods available to consumers and companies all over the world, 24 hours a day, and seven days a week. Access to these platforms can be a game-changer for small and medium enterprises (SMEs) operating in Africa which could gain access to the global market through technology.

Technology can also help with the logistics of shipping goods to, from, and within Africa. Especially considering the fact that many African businesses and homes lack formal addresses, digital tracking of shipments is especially important in the African context to reduce the risk and increase the certainty involved in shipping goods.

The commercial use of drones for delivery in Rwanda is an example of technology overcoming another important issue – weak, insufficient, and disconnected infrastructure in many parts of the continent – which has been an impediment to development for years. Although no substitute for long-term infrastructure development, technological solutions can be stop-gaps that help promote trade, provide lifesaving services to populations, and ultimately further development.

4. Prioritize Infrastructure Development

Without a reliable and connected infrastructure network, the movement of goods to, from, and within Africa becomes an incredible logistical challenge.

African countries are beginning to make a concerted effort to address infrastructure and logistics challenges. East Africa is one region that has done particularly well at improving infrastructure and logistics, decreasing port dwell times, and increasing transportation efficiencies; it could provide lessons learned for other regions. For example, despite being landlocked (a status that typically presents more transportation challenges), Rwanda and Uganda have shown massive improvement in recent years, according to the World Bank’s Logistics Performance Index.

However, significant infrastructure challenges remain across the continent. For example, according to the African Development Bank, the effective speed of road transport in the Southern African Development Community is between 6 and 12 kilometers per hour (3.72 and 7.45 miles per hour), which is indicative of wider infrastructure challenges that hinder trade throughout the continent. Rural areas generally face increased challenges with logistics, infrastructure, and access to technology.

Infrastructure and other supply chain challenges can be especially debilitating for the movement of perishable goods. For example, it is estimated that 60 to 80 percent of perishable good are lost during transit within Africa mostly due to a lack of consistent refrigeration and the slow speed of ground transport.

The preponderance of seasonal roads and the overall lack of year-long passable roads, the weak regional railway networks, as well as transport-related inefficiencies – including the long dwell times at ports – all serve to increase the cost of doing business in Africa and add volatility into the supply chain equation. For example, it was noted that ports in Nigeria have dwell times of between 15 and 20 days, while the Durban Port in South Africa has dwell times of only four days, which is closer to the global standard. Average dwell times in Sub-Saharan Africa (excluding Durban) are over two weeks, while the average in Asia, Europe, and Latin America is less than a week.

5. Harmonize National and Regional Trade Integration Frameworks

All African countries are a part of at least one Regional Economic Community (REC), sometimes more than one. Many of these RECs have robust regional integration strategies, some of which include supply chain development. However, implementation of the strategies often varies within and across RECs. In some countries, the strategies and underpinning regional integration policies have not been domesticated or prioritized at the national level.

6. Expand the Scope and Lengthen the Timeframe of Regional Trade Agreements

Many regional trade agreements in Africa are made for the short to medium-term, which creates uncertainty for investors, government administrators, and consumers alike. Lengthening the timeframe of trade agreements will make engagement more stable and cost-effective in the long-term and minimize risk for investors. In addition, trade agreements in Africa are often focused on raw materials and resources rather than on finished goods. Establishing regional trade agreements with long-term views and that include provisions for the production of finished products is an important piece of facilitating trade, improving regional coordination, and supporting the production of value-added, finished goods in Africa.

7. Mitigate Risk and Increase Opportunity for Stakeholders along the Supply Chain

Various stakeholders – investors, SMEs, and governments – face a variety of risks in operating in many parts of Africa, thus mitigating and managing the risk is a key component of incentivizing businesses to operate in Africa and to facilitate intra-African and international trade.

Download the Policy Recommendations and Options brief and the related paper Boosting Africa’s Trade and Development by Tackling Some Supply Chain Challenges by Tielman Nieuwoudt on the Wilson Center website.