September 19, 2017

Supply chain risk in Sub-Saharan Africa remains the highest in the world

Global supply chain risk Q3 2016
Global supply chain risk Q3 2016

Supply chain risk in Sub-Saharan Africa remains the highest in the world and continued to increase during the third quarter of the year as South Africa and Nigeria’s economies struggled.

Supply chain risk in Sub-Saharan Africa worsened from 5.544 to 5.558 during the third quarter of 2016, as measured by the Chartered Institute of Procurement and Supply (CIPS) Risk Index, powered by Dun & Bradstreet. The Index tracks the impact of economic and political developments on the stability of global supply chains.

According to the Index, the underlying trend in operational risk for the region is deteriorating as lower global commodity prices and non-economic factors, such as drought and political uncertainty, weigh down key economies. Dun & Bradstreet forecasts that regional growth in Sub-Saharan Africa will drop to just 1.5% in 2016, from 5% in recent years, with only a modest acceleration in 2017.

Shedding more light on the trend, André Coetzee, Managing Director, CIPS Africa, says:

 “Growth in the region is now a far cry from what we have become accustomed to. Heavyweights like Nigeria and South Africa are facing strong headwinds due to their dependence on commodity export revenues and structural flaws in their economies.

“ An extended period of slow growth, along with elevated political risk, precipitated by the ongoing fraud probe against Finance Minister, Pravin Gordhan, is also weighing on business sentiment. Currently, we forecast real GDP growth of only 0.2% for South Africa in 2016, the slowest it has been since the last recession ended.”

The impact of slower economic growth in China and persistently low commodity prices also goes beyond Sub-Saharan Africa. It has not only deepened the cash flow crisis for Nigeria, but also for oil exporters in Eastern Europe and Central Asia, the Middle East and North Africa, damaging payment performance and heightening risks for the supply chains which pass through.

Global supply chain risk grew for the fourth consecutive quarter rising to 81.6 in Q3 2016 from 80.8 in Q2. The figure is the highest since 2013 and has been driven by increases in supply chain risk in Sub-Saharan Africa, Western and Central Europe, Eastern Europe, the Middle East and Latin America.

The upward trend in supply chain risk is in part driven by a disintegration of the political consensus over globalisation, with the World Trade Organisation reporting an average of 22 new trade restrictive measures a month in its latest report.

This trend is clearest in Western Europe, where risk rose to 2.63 in Q3 from 2.60 in the previous quarter. The uncertainty around the post-Brexit relationship between the UK and the European Union has had a negative impact on trade and business sentiment in the UK and across the region.

In addition, growing disillusionment with globalisation is contributing to political risk. Elections over the next 12 months are expected to see gains for populist parties with France’s National Front, Italy’s Five Star Movement, the Freedom Party in the Netherlands and the German Alternative for Germany – all sceptical of European integration and hostile towards free trade. An agreement between Turkey and the EU to manage the flow of migrants from the Middle East has seen some temporary border controls within the common market repealed this quarter, reducing supply chain disruptions. However, with the military situation in Syria worsening and anti-immigration parties gaining momentum, European supply routes remain uncertain.

Supply chain risk in North America remains static at 2.101, but both Canada and the USA have seen trade agreements with the European Union stall this quarter. During the run up to the recent election, president-elect Donald Trump has expressed concern about the Transatlantic Trade and Investment Partnership (TTIP), while in Canada the Comprehensive Economic and Trade Agreement (CETA) has been derailed by a regional parliament in Belgium.

In Eastern Europe and Central Asia, risk has risen to 5.424 from 5.396, following a failed coup in Turkey which is likely to see an increase in interference with businesses. Supply chain risk has also deteriorated in the Middle East and North Africa from 4.406 in Q2 to 4.413 in Q3, where civil war has all but eliminated international supply chains in certain countries.

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