May 23, 2017

Bleak outlook for Sub-Saharan Africa supply chain in 2017

  • Protectionist trade policies and commodity volatility threatens global supply chain, including SSA
  • Underlying trend for sub-Saharan region remains negative
  • Rapid rise in commodity prices unlikely in the near time after a period of depressed prices
  • Adoption of protectionist trade policies likely to grow gap between an interdependent global economy and the pursuit of national interests

Following two straight quarterly declines, the CIPS Risk Index reports that sub-Saharan Africa’s supply chain risk score held steady in Q4 2016. However, the underlying trend in risk in the region remains negative, largely as a result of the global rise of populist economic policies, the impact of commodity prices, and socio-political change and instability in key global regions, both in the West and East. In addition, the sub-Saharan Africa region continues to have the world’s highest levels of supply chain risk within the CIPS Risk Index, having increased further from 5.52 at the beginning of 2016 to 5.5 in Q4.

The CIPS Global Risk score also gives rise to concerns about supply chain management risk overall. The global score for Q4 2016 rose to its highest level in 24 years, namely 82.64 – as compared to 79.81 in Q1 2016 – signalling that supply chain risks in most regions are elevated. The CIPS Risk Index, from the Chartered Institute of Procurement & Supply (CIPS) powered by Dun & Bradstreet, tracks the impact of economic and political developments on the stability of global supply chains.

Factors affecting supply chain risk in sub-Saharan Africa

Andre Coetzee, Managing Director of CIPS Africa, says, “In 2017, major sub-Saharan Africa economies will look to contain the protracted damage inflicted by the drop in global commodity prices. While many commodity prices have shown some recovery, forecasts show that a rapid rebound in these prices is not expected in the near term, so there are still challenges ahead.”

Coetzee says that like other regions in the world, sub-Saharan Africa is likely to be affected by socio-political changes in such world powers as the United States, China, Europe and the United Kingdom. He continues, “Besides commodities, another issue that was brought to the fore in 2016 was the increasing shift towards protectionism in global trade policy, confirmed by the Brexit vote in the UK and President Trump’s election victory in the US. The adoption of protectionist trade policies, closing of borders and pursuit of bilateral trade deals over multilateral ones, all signal that the gap is widening between an interdependent global economy and the pursuit of national interests.

“As multilateral trade agreements are dismantled, global supply chains face unparalleled uncertainty. For example, the UK is a big trading partner with Africa in general, and Brexit could mean that over 100 trade agreements on the continent will need to be renegotiated.[1]

He clarifies, “Even before the inauguration of Donald Trump as the new American president, the United States trade relationship with sub-Saharan Africa was underdeveloped – with only some 1.5 per cent of US exports destined for sub-Saharan Africa. In addition, US trade with Africa was reported to have been in decline since 2011[2]. Sub-Saharan Africa did not feature in any of the discussions during President Trump’s campaign, which could imply even less engagement between the region and the new US administration.

“The Trump campaign was conducted on an anti-globalisation platform, promising to redefine US trade relations with the rest of the world. As such, a more restrictive trade policy is likely, which will have significant effects on the global economy. This has implications for existing US and sub-Saharan Africa trade agreements, of which the African Growth and Opportunity Act (AGOA) is the most significant.”

Coetzee adds that China could also have an impact on sub-Saharan Africa’s supply chain risk, partly because of the rise of a Chinese middle class with higher pay expectations. An increase in wages has impacted China’s competitiveness, which has caused suppliers to move their supply chains out of the country and into nearby Indonesia.

Key priorities in 2017 for sub-Saharan supply chains

Coetzee points out that the impact of oil reserves in sub-Saharan Africa must be considered as a key factor for supply chains in the region, as oil revenues have been a prime driver of economic activity since the 1970s. He notes that in oil exporting countries, oil revenues are used to sustain infrastructure projects and welfare spending, while oil importing countries benefit from trade, investment and jobs.

Commenting on the key priorities in 2017 for sub-Saharan Africa’s supply chain industry, Coetzee notes, “Currency hedging will remain vital activity amid the landscape of exchange and commodity volatility, while contingency plans must be put in place to protect supply chains from foreseeable trade barriers. Re-shoring supply chains will be an increasingly attractive prospect in the months to come. But, these are uncertain times for supply chain managers and there is no quick fix.”

“It is more important than ever for supply chain managers in our region to listen to their suppliers so they can react quickly to any change and therefore retain resilience in their own supply chains,” concludes Coetzee.

Global supply chain risk Q4 2016

Q1 2016 Q2 2016 Q3 2016 Q4 2016
Global Risk score 79.81 80.83 81.60 82.64
Western Europe 2.56 2.60 2.63 2.65
North America 2.08 2.10 2.10 2.10
Asia Pacific 3.42 3.42 3.41 3.43
Sub-Saharan Africa 5.52 5.54 5.55 5.55
Eastern Europe and Central Asia 5.39 5.39 5.42 5.43
Middle East and North Africa 4.37 4.40 4.41 4.41
Latin America 4.52 4.52 4.52 4.53

 Fig 1. Global risk as recorded by the CIPS Risk Index

Compiled for African Mining Brief Online by:

Hill+Knowlton Strategies Ground Floor, Alpha House,

Ballywood Office Park,

33 Ballyclare Drive,

Bryanston,

South Africa,

2021 P O Box 130029 Bryanston Shopping Centre

2074

http://hkstrategies-africa.com

[1] https://www.brookings.edu/blog/africa-in-focus/2016/06/21/the-brexit-what-implications-for-africa/

[2] https://www.brookings.edu/testimonies/deepening-the-united-states-africa-trade-and-investment-relationship/

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