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Opinions of Friday, 15 July 2016

Columnist: Prof Douglas Boateng

Africa is rising...but for who?

Africa is generally not rising for her ordinary citizens Africa is generally not rising for her ordinary citizens

While independence from colonial occupation and exploitation was often followed by long periods of internal strife and political struggle, democratic transformation and economic rejuvenation has led to significant political and economic advancement on the African continent.

Indeed, increased investment and related economic growth have seen the continent begin to occupy an important space in the global business environment.

According to the African Economic Outlook 2015 report “Africa’s gross domestic product (GDP) growth is expected to strengthen to 4.5% in 2015 and 5% in 2016.” This is following “subdued expansion in 2013 (3.5%) and 2014 (3.9%).” If these predictions are correct, Africa is set to close in on the remarkable growth rates seen before the 2008/09 global economic crisis.

In addition to this, many African countries have improved their investment climate and conditions for doing business, thereby enhancing their long-term growth prospects.

The real beneficiaries of extractive industries Yet, despite these positive milestones, the continued dependence of many African countries on extractive industries (AEO 2015) means that not enough jobs are being created to provide for an ever-expanding population. Although the continent is renowned for its wealth of natural resources, it is still home to six of the ten most unequal countries in the world.

Moreover, approximately 72% of Africa’s youth live on less than US$2 a day, and nearly 50% of Africans live in extreme poverty (Lagarde 2014). This has led to mounting questions surrounding the ‘real’ beneficiaries of Africa’s economic growth.

Such questions are particularly evident when it comes to trade and regional integration. While African exports were expected to strengthen in 2015 and 2016, intra-African trade is still fairly low, especially when compared to the rest of the world.

Low intra-regional trade Intra-regional trading and sourcing is currently estimated to account for between 10% and 12% of Africa’s total trade. This is relatively low when compared to other areas including North America who stands at 40%, Western Europe who has approximately 60% intra-regional trade and the Asia-Pacific Economic Cooperation (APEC) which stands at 67%.

While the EU’s intra-regional trade accounts for about 61% of trade, the North American Free Trade Agreement (NAFTA) supports 41%, the Association of Southeast Asian Nation (ASEAN) promotes 25%, and the Common Market of the South (MERCUSOR) stands at approximately 17%. Buying versus strategic sourcing

As a result of this low intra-regional trade, Africans have become reliant on buying products made outside of the continent. In fact, African governments and organisations are generally recognised for buying products, instead of strategically sourcing them.

Masimba Tafirenyika insists that “trade flourishes when countries produce what their trading partners are eager to buy.” He further argues that, “with a few exceptions, this is not yet the case with Africa. It produces what it doesn’t consume and consumes what it doesn’t produce.” This means that in addition to exporting raw materials, Africa is also exporting money through externally focused buying habits.

According to Anyanwu (2014) over the period 1995 to 2012, over 80% of the region’s exports were shipped overseas, mainly to the European Union (EU), China and the US. Well over 50% of these exports were still raw materials to be converted into work in progress and finished goods, suggesting that Africa is industrialising other regions of the world at a faster pace than what is happening on the continent itself.

Relatively speaking, Africa is not harnessing its collective value-chain resources for its own benefit. Instead, the focus on raw material exports and finished product imports means that Africa’s growth is largely supporting medium to long-term development and industrialisation outside of the continent.

The World Trade Organisation’s (WTO) World Trade Report 2014 listed four major reasons for a lack of trade integration in the continent. These included:

The increasing impact of shocks to the global economy.

Africa is lagging behind in terms of trade growth led by emerging economies and spurred by demand for commodities. African firms have struggled to participate meaningfully in the expansion of global value chains Changing prices of exports of fuels and mining products.

Africa is supporting long-term development outside of the continent Notwithstanding these suggested reasons, imbalances between those benefiting from Africa’s economic growth, and those not, also emerge in relation current procurement practices on the continent.

Far less than 33% of current government procurement expenditure goes directly to African owned and based organisations. This means that Africa is generally supporting long-term job and wealth creation in other regions of the world. In addition to this, procurement practitioners in Africa are often relegated to the backbenches of corporate and public sector decision-making processes.

Since procurement practitioners in Africa are often perceived as ‘not ready’ to take strategic responsibility for supply chain management decision-making, finance is generally promoted to take on the lead supply chain management function. As such, short-term price gains tend to be the focus of African procurement and sourcing processes.

This focus on price, together with many African producers inability to compete with global economies of scale, has resulted in the reduction of collective national and regional effort, limited intra-regional co-operation, and a lack of innovative strategic sourcing practices.

The end result of the current African economic picture is that while the rest of the world is strategically sourcing from Africa to meet their medium to long-term developmental needs, the majority of African organisations are buying from outside the continent to meet short to medium-term needs. This is clearly not sustainable, since it generally offers no major medium to long-term benefits to African people and the region as a whole.

As Byanyima of Oxfam International rightly points out, “Africa is generally not rising for her ordinary citizens.”

Professor Douglas BOATENG Africa’s first ever appointed Professor Extraordinaire for supply and value chain management (SBL UNISA), is an International Professional Chartered Director and an adjunct academic.