Supply Chain and economic development: Africa’s precarious state
The African economy has consistently been tagged majorly as a consuming market. It was even regarded as the fastest-growing consuming market in the world and is expected to reach an estimated consuming population of 1.7 billion by 2030. It was predicted to become the largest consumer market by 2050. Though theoretically, this sounds extremely optimistic, the region’s reality does not correlate with this generally purported vision.
Beyond having a large population, one of the major factors that can be leveraged to predict the consuming capacity of an economy is accessibility. Without access to some of life’s basic resources such as healthcare, water, and energy, the consumption capability of an economy is undoubtedly limited. Today, more than 51% of Africans lack access to basic medical services, at least 40% do not have access to drinking water, and about 43% do not have access to electricity or energy of any form.
These are all pointers to the uneven and extremely poor distribution network across the continent. It further begs the question, if we cannot create a sustainable network to distribute such basic resources across the region, how can we then build an expansive and sustainable network to supply other types of innovative products across the region in our bid to improve its economic climate?
Distribution has always been regarded as the backbone of any developed or developing economy. Without its efficiency or thorough optimization, an economy, especially one that is as large as Africa cannot grow.
For Germany, Europe’s largest economy, its economic evolution followed the same format of developing an optimized supply chain before attempting expansion. Today, Germany is known to be one of the world’s leading export-oriented companies and also serves as the manufacturing powerhouse of some of the world’s largest companies across various industries. But, before Germany ramped up its exportation, it ensured that its supply-chain structure was firmly established to withstand the pressures of an industrial economy. The concept of Just-in-Time (JIT) manufacturing which originated from Toyota’s factory in Japan was adopted as a culture in Germany. Its private sector alongside the government developed a synchronized production-to-exportation supply chain that was flexible enough to respond to market fluctuations when required while saving waste costs, minimizing inventory, and maximizing efficiency. It was on the backbone of this innovation that Germany built its industrial economy and has since secured its position as a major player in global trade.
An almost similar explanation can be made for South Korea, an archetypal developmental state in eastern Asia. Today, South Korea is known as one of the leading exporters in several tangible product categories such as textiles, steel, cars, shipbuilding, and electronics. Before its ascension to global relevance, South Korea battled some of the default disadvantages of any third-world developing economy. But the optimization of South Korea’s supply chain was a result of joint efforts between its private sector and the government. In its bid to promote the industrial revolution, the government in a lot of ways subsidized the cost of supply-chain infrastructures for the then-major players within the private sector, known popularly in the 20th century as the Chaebols.
There are two major takeaways from these examples. Firstly, the best way to build an expansive and sustainable supply chain is to ensure there are enough private sector players within the tangible economy. Supply-chain serves as the nervous system of the tangible economy and the tangible economy drives consumption across every market. Without strong and passionate players within the tangible economy, the growth of such a market will be hampered. Secondly, without the adequate support of the government, there is only so little that the private sector can do on its own.
Today, Africa’s supply chain is in shambles. Most African countries do not have a supply-chain structure that is strong enough to support intra-country trade, depending on import shipments of almost 90% of their consumables. Transportation of goods costs 50% more in Africa than in other developed economies. Among other factors such as weak institutions, and political deficiencies, the primary reason for such high costs is that less than 70% of African roads are paved.
Roads are the primary means of transporting goods but in the absence of roads, the next best option is rail. But only 5 African countries have good and efficient intra-country railway systems in Africa; South Africa, Morocco, Tunisia, Egypt, and Algeria. This means it will be impossible to build intra-African railway systems unless there are top-level intra-country railway systems in almost all the countries. It all boils down to a lack of adequate infrastructure, bringing the bulk of the responsibility upon government institutions and political decision-makers.
The lack of good transportation infrastructure has and will continue to hamper economic growth in Africa. But is there a permanent solution to this menace? Yes, there is, but that will require a lot of investments in the long-term, an attribute Africa’s political leaders seem to be incapable of.
Fortunately, African businesses have over the past decades always found their way around these horrible infrastructures. In another article, I will explain how African businesses have navigated these impediments and describe the specific innovations that can be adopted going into the future.
