Published On: September 12, 2022|Categories: News|

Supply chain disruptions have had ripple effects across the globe, propelling the issue of risk in global supply chains (GSCs) to the top of policy agendas. The idea that shortages would be less severe if supply chains were shorter, domestic, and diversified has been at the forefront of policy discussions. On the 1st of September 2022, Strathmore University Business School (SBS) hosted a webinar entitled, ‘Global Value Chains in the Post-Covid Era in Africa’, bringing together global and local experts to discuss this issue in the African context. The session was moderated by Professor Lilac Nachum, Professor of International Business, City University, New York, Fulbright Scholar to Africa and a Visiting Professor at SBS.

The outbreak of the Coronavirus pandemic resulted in enormous social and economic change. Border closures and mobility restrictions were used as tools to curb the spread of the disease. Now that the restrictions have relaxed, the world is still facing enduring challenges posed by this phenomenon. Since, the 1980s, the world’s manufacturing production has been increasingly structured in what has become known as global value chains. Raw materials and intermediate goods are now frequently shipped across the globe several times before final products are exported to customers around the world. China is known as ‘’the world’s factory’’ producing goods for many of the world’s best-known companies. It is also a large customer of global commodities, primary manufacturer, assembler, and a major consumer marketplace. Currently, with the ‘zero covid’ policy in China and the effects of climate change, manufacturing has been disrupted and with geopolitical tensions in Ukraine and Taiwan exacerbating supply chain issues, the vulnerabilities in global supply chains can no longer be ignored.

Lessons Learned from the Pandemic

The pandemic served as a ‘wake-up’ call to African countries. Externally sourced supplies and other commodities vanished. Local manufacturers felt the pinch when input prices shot up and some inputs even became unobtainable and freight charges increased significantly. Many governments turned to local manufacturers for replacement supplies, especially in the healthcare industry. Local manufacturers proved to be innovative and joined forces with research institutes and governments to scale up manufacturing. Locally produced masks, sanitizers, local swabs, and other products were critical in the fight against the pandemic. The pandemic catalyzed investment in local innovation that was not given priority in the pre-COVID world.

The cost of shipping containers to Africa increased and agricultural inputs for farmers became more expensive. Some of these farmers resorted to producing organic produce for niche markets. Some shipping lines have stopped calling in certain ports. This has led to unclear lead times which has created a lot of uncertainty for businesses. When there are delays but turn around times are known, it becomes easier for businesses to negotiate with their customers. Net importers have escalated costs and rises in shipping route freight costs have not converted to better prices which has led to a depletion of income for both manufacturers and consumers.

Electronic components, spare parts and packaging material unavailability has severely impacted many sectors. Vertical integration is now happening in some manufacturing industries such as semi-conductor production. There may be more standardization of components and investment in building more resilient and diversified supply chains as businesses restructure their operations to survive.

As the world learned to live with the COVID-19 virus and reopened for business, the surge in demand escalated costs. As inflation soars globally and climate change continues to wreak havoc, countries are trying to fight rising prices and tackle the issue of food security. In Africa, these complex issues can be addressed by bringing together regional government partners, academic experts, and local manufacturers to co-create solutions. Mr. Rajan Shah, Chairman of the Kenya Association of Manufacturers (KAM) asserted that price levels may not go back to the pre-covid era. He pointed out that industries will need to maximize efficiency and productivity by using technology and reducing wastage to decrease costs. In Kenya, maize prices have doubled and subsidies from the government are not sustainable in the long term. Increased efficiency across the agricultural value chain from farm to factory can boost productivity and reduce costs.

Professor Stefan Ponte from Copenhagen Business School raised the issue of rising economic nationalism and how the policy realm affects day-to-day business decisions. He pointed out that the concept of regional value chains is nothing new and that the pandemic and other recent challenges have compounded trends that were already happening. He concluded that African countries are better off working with regional value chains in the short and long term. Global players have changing priorities and manufacturing bases can change from one country to another. Building local business bases that can serve national and regional markets is of critical importance for Africa.

Another panelist, Mr. Willian Ojonyo, Managing Director, Peleceer Group, pointed out that Human Resource (HR) issues led to be several redundancies during the pandemic. The time it took to re-hire and train staff added to supply chain problems. He called for greater investment in robotics and Artificial Intelligence tools and continuous professional development (CPD) and skills training to enhance professionalism. Information Technology (IT) infrastructure in Africa also requires further investment. Digitization of systems can enhance transparency and lead to centralization of decision-making and shorter planning cycles. Mr. Ojonyo advocated for a regional stimulus, investment in automation that can help build robust regional supply chains and improve transparency to reduce corruption as well as more collaboration between the public and private sector.

Mr. John Karani, Chairman of the Kenya Institute of Supplies Management, raised the important question, ‘Are we ready for the Africa Free Trade Agreement? Are we open physically and politically to do cross-border trading?’ He said that we must ensure that we have the right quality in place before we think of exporting. He explained that in the sixties, South Korea was a predominantly agriculture-based economy and the country intentionally invested in specific cottage industries that became the backbone of its robust economy. The country has become a net exporter. If Kenya continues its trajectory of investing in local manufacturing and growing agricultural value streams, then it can become a net exporter.

Additionally, many large Kenyan businesses are family-owned businesses that have the potential to become important players in the global arena. Family-owned businesses in Kenya should invest in gaining more business acumen and capacity to scale up their operations. Furthermore, Professor Nachum suggested that Kenya can join the global value chain by increasing the capacity of Kenyan companies to export products globally and allowing global brands to establish a presence in Kenya with local manufacturers supplying them with raw materials and goods.

Business models in Africa are changing. Reducing dependencies on far-flung global supply chains through regional collaboration and re-localizing manufacturing is the new order of the day.

Article by Shailja Sharma, Executive Fellow and Coach

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