The strongest link is local: Africa must support African supply chains to unlock sustained economic growth
The current Covid19-related economic challenges both locally and throughout Africa starkly highlight the need for pan-African companies and governments to support African supply chains, and in so doing, to boost economic activity on the continent.
This can be achieved by procuring the production of goods and services for infrastructure and industrial projects via the mechanism of ‘Team Africa’, which is a concept in which local suppliers and manufacturers collaboratively supply mining, industrial, power generation, and other sector projects.
“Covid-19 provides further impetus for Africa to support its own supply chains which will stimulate business in a myriad of upstream and downstream supply chains,” says Nicolette Skjoldhammer, Managing Director of South African steel fabricator and erector Betterect.
“While the new intra-African trade agreement provides opportunities and incentives for African stakeholders to procure from local businesses, the effects of the Covid-19 pandemic have shown industry just how dependent Africa has become on the Asian supply of goods and services, and prices of Asian consumables – to name but one supply chain item among many – are rising exponentially,” she advises.
Skjoldhammer says that one of how industrial supply chains on the continent can collaboratively drive growth is when companies focusing on the supply, processing, fabrication, and erection of steel structures join forces to deliver pan-African infrastructure projects in the mining, power generation, petrochemical, and other industries.
“These companies are able to form a cooperative and synergistic ‘Team Africa’, which supplies and processes the steel, or fabricates and installs the finished steel structures,” she explains.
“South Africa and its counterparts like Nigeria and Ghana certainly have the expertise to successfully undertake the design, fabrication, and installation of large steel structures throughout the continent. We have not only proven this over years of successfully participating in new and expansionary mining, power generation and other infrastructure projects; but also by supplying the core expertise in large structural steel projects under the auspices of European and Asian companies,” says Skjoldhammer.
“In fact, if you peel away the various levels of project supply, frequently you will find that South African and African expertise and capabilities remain at the core,” she asserts.
What is admittedly still standing in the way of opportunities for ‘Team Africa’ to grow its business on the continent is the perception that Asian goods and services are more cost-effective than those locally available; and the fact that project financing is often provided by Asian companies.
However, according to Skjoldhammer, the truth of the matter is that when potential clients and their estimators look at sourcing costs, they often do not consider the cost of a fully erected steel fabrication project, for example.
“Our experience has shown us that equipment fabricated in China is on average about 30% more expensive on landing in Africa, and approximately 20% more expensive at this point when it is imported from Turkey,” she comments.
The goal, says Skjoldhammer, is for African companies to be instrumental in growing the local and pan-African market for African companies –- and thereby set up a virtuous cycle of stimulated economic growth throughout the continent.
“To achieve this aim, companies, and stakeholders must identify their own ‘Team Africa’ to collaboratively participate in projects during the conceptual and design stages thereof. However, she points out, when it comes to the procurement criteria in the context of Team Africa, it is more a question of ‘dangling a carrot’ than ‘waving a stick’ as requirements to include local content often hamper the undertaking of new projects.
“The intra-African trade agreement is evidence that key stakeholders are already thinking and engaging along the lines of procurement in terms of a ‘Team Africa’ concept and mechanism. Furthermore, ACFTA’S current implementation means that pan-African countries will not pay tariffs when they trade with each other.”
There are still various logistical obstacles to working in African countries, such as moving equipment and fabricated structures across borders, dealing with customs ‘red tape’ and delays, and obtaining the necessary permits to work in-country.
However, the intra-African trade agreement is geared to address some of these challenges, such as improving inadequate transport infrastructure, and this could also help to get more projects off the ground.
Skjoldhammer explains: “Undertaking more projects on the continent will create and drive the core growth that in turn generates further growth. The use of the African supply chain for projects across Africa will open up an even deeper supply chain on the continent: from, for example, a local steel fabricator buying locally-rolled steel, to the support industries which specialise in galvanising, corrosion-protecting and painting that steel, and the range of businesses both up and downstream in the supply chain which supports the steel fabricator with telecommunications, IT, transport and a host of other items such as PPE (personal protective equipment) and stationery.”
She concedes that the continent as a whole also still faces challenges such as corruption and – in certain countries – political instability which may hinder efforts to bolster the local supply chain.
“However, for ‘Team Africa’ to thrive, only a few African countries need to support the ‘Team Africa’ supply chain. The rest will soon follow,” she asserts.
“The company that I lead recently formed a ‘Team Africa’ alliance with a steel supplier and processor, to supply a Zimbabwean gold mining operation with large steel tanks for a processing plant. This highly successful collaboration and synergistic project demonstrate that there is no limit to what a ‘Team Africa’ can do. The knowledge and experience in the industry is such that we can deliver any project throughout the continent.
African companies and countries must take the long-term view of ‘sowing the seeds for the future’: supporting one another, combining their resources, skills, and experience to realise this amazing and well-timed opportunity to transform our continent into an economic powerhouse,” Skjoldhammer concludes.