By Ken Cottrill
Africa’s untapped potential as an economic powerhouse is attracting increasing interest. But before they can realize this potential, companies need to build supply chains capable of supporting growth in African markets. It’s a formidable challenge, but much of the required expertise already exists if companies know where to look.
Following tepid performances in 2016 and 2017, many African economies are rebounding. The African Development Bank forecasts growth rates of 4.0 and 4.1% in 2019 and 2020 respectively across the continent. This year, 40% of African countries are projected to achieve growth of at least 5%.
In addition to the improved economic outlook, an increasingly uncertain global trade environment is highlighting the continent’s potential. Upheavals such as the trade war between the US and China are spurring companies to reconfigure their global supply chains as they look for alternative sources of growth.
As companies develop strategies for expanding in African markets, they need to be aware of the challenges that shape the supply chains that are at the core of their strategies. Here are four examples of these challenges.
Extreme diversity. Africa comprises numerous countries and cultures that intersect to define distinct markets, points out Dr. Jarrod Goentzel, Director, MIT Humanitarian Supply Chain Lab. Companies that have targeted Africa as a growth opportunity need to keep in mind that conditions and practices vary dramatically from one part of the region to another.
Consider, for example, the market for truck transportation in Nigeria, says Goentzel. A common sight on Nigerian highways is lines of trucks parked on the hard shoulder, and drivers standing by their vehicles. An uninformed observer might assume that the truck drivers are waiting to enter the country’s congested ports. However, these queues of trucks form even when ports are working and accepting vehicular traffic. They actually function as informal markets, where buyers go to hire drivers to haul loads.
Another variable is the extent of physical and information infrastructure in African countries. This goes beyond the common focus of building roads. For instance, in many communities there is no formal system of postal codes, so finding specific addresses can be problematical.
The march of urbanization. Many Africans are migrating to urban centers, creating new challenges for the companies that serve these communities. For example, in Nigeria, Africa’s largest country by population, the number of people concentrated in urban centers is expected to jump by nine percentage points between 2017 and 2030, reports consulting firm Euromonitor.
A striking feature of this shift is the rise of megacities; cities with at least 10 million inhabitants. According to Euromonitor, African megacities will dominate population growth over the next decade or so. The continent will account for the largest absolute rise in megacities over 2017 to 2030, as Dar es Salaam, Tanzania and Luanda, Angola join Nigeria’s Lagos and Cairo, Egypt, in the world’s league of megacities. Cairo is projected to be Africa’s largest megacity in 2030, with 29.8 million people.
Infrastructure issues. A lack of infrastructure distinguishes Africa from other regions such as Asia. The African Development Bank estimates the investment shortfall in infrastructure to be $68 billion to $108 billion annually. The Bank has launched the Africa Investment Forum, which it claims will be Africa’s largest-ever investment platform. Funds from the initiative will be used to develop the region’s urban infrastructure.
Adapting products for African consumers. Companies need to create products and services that meet the specific needs of consumers in Africa. For example, the lack of cold chain infrastructure in many countries favors food products that require minimal refrigeration.
Leading research organizations such as the MIT Megacity Logistics Lab are helping companies to develop supply chain solutions that enable businesses to compete effectively in Africa. For instance, the Lab designs last-mile supply chains for highly congested, densely populated megacities using data-driven, interactive optimization and simulation models.
Another approach is to partner with non-profit organizations, or NGOs, that have an established track record of operating successfully in Africa, especially ones that experiment with new approaches, says Goentzel.
“These organizations may have deep knowledge about moving goods in Africa. By partnering with them, companies can tap into this knowledge base and accelerate their move into the market,” he says.
For example, the MIT Humanitarian Lab worked with USAID to study how novel packaging technologies can reduce food wastage. The study leveraged experimental design to maximize learning from a pilot that deployed different packaging technologies across shipments bound for Africa. Results showed that there is no silver bullet since the combination of climate conditions including temperature and humidity and port equipment capabilities, change the cost-effectiveness equation. Partnering with a research organization helped USAID to rapidly and rigorously gain market insights.
Established NGOs are extremely knowledgeable about the different stakeholders in Africa, and how relationships drive or impede the efficiency of supply chains. They also have a sense of how technology can be applied in Africa to improve supply chain performance. For example, the World Food Program is engaged on a project in Ethiopia to use blockchain technology to streamline the sourcing of truck capacity for transporting aid cargoes.
“Traditionally, companies have not done much to establish partnerships with these incumbent organizations, and miss out on unique opportunities to learn,” says Goentzel.
For more information on the work of the MIT Humanitarian Supply Chain Lab please contact Jarrod Goentzel at email@example.com
For more information on the MIT Megacity Logistics Lab please contact the Lab’s Director Dr. Matthias Winkenbach at firstname.lastname@example.org