Will Africa inherit China’s crown as the world’s manufacturing workshop?
The continent has an immense amount of catching up to do, and the economic forces that shaped China’s success are changing. But according to a recent article in the online publication Knowledge@Wharton, global value chains have reached a critical turning point, and there are signs that the African giant is stirring.
“The developing world is disappearing. We’re a global society with big capacity for growth,” says Edwin Keh, a Wharton lecturer and former chief procurement officer of Walmart’s global procurement division.
For the first time in history developing countries attracted more foreign direct investment than developed countries last year, notes Knowledge@Wharton. Worldwide these investments declined by 18% but inflows into Africa increased by 5% in 2012.
Also, Asia’s advantage as the world’s leading provider of cheap labor is eroding, handing Africa an opportunity to compete more aggressively in margin-sensitive markets.
Still, there are some major obstacles to overcome before Africa can threaten Asia’s dominance.
According to an UNCTAD report, developed economies retain 31% of the value added from exports, while the figures for Asia and Africa are 27% and 14% respectively. In other words, Africa still finds it difficult to hold on to much of the wealth created by its exports.
The article describes a number of reasons for the shortfall. African countries that are rich in natural resources have put much more emphasis on extraction and exporting than on higher-value activities such as refining and manufacturing. An example cited in the article is the production of cashew nuts. Africa is the world’s biggest producer of the crop, but most of the harvest is sent to other parts of the world for processing.
In addition, domestic supply chains are severely underdeveloped, and political instability coupled with high levels of corruption deters companies from investing in the region.
However, many of these issues are being addressed, and the changing world order of nations favors Africa.
For example, the African Cashew Alliance in Ghana is helping farmers to access the financial and technical resources they need to participate more fully in the cashew trade. The Kenya Tea Development Agency, a collective of 150,000 shareholders, has developed a partnership with international food giant Unilever. On a broader level, new sources of finance such as M-Pesa – based on cell phone networks rather than traditional banks – are emerging. The economic success of developing countries such as China is driving “south-south” investments where multinationals from emerging economies invest in other emerging markets.
Cutting through government red tape is another prerequisite for economic growth in the region, and again, some advances are being made. A recent report from the World Bank titled Doing Business 2014: Understanding Understanding Regulations for Small and Medium-Sized Enterprises maintains that governments around the world have stepped up their efforts to ease the regulatory burden on small to medium-sized businesses, and Africa is one of the leaders.
“In 2012/13, more than twice as many African economies in the region made reforms, compared to 2005. Out of the 20 economies that have most improved business regulation since 2009, nine are in Sub-Saharan Africa: Benin, Burundi, Côte d’Ivoire, Guinea, Guinea-Bissau, Liberia, Rwanda, Sierra Leone, and Togo,” says the World Bank.
These are relatively small steps, but indicative of increasing interest in Africa not only as a source of cheap labor, but as a massive, untapped market for goods and services.
Lost in the maze of supply chain financing? Here’s a guide that might help, particularly if you do business in Europe.
Aite Group worked with the EBA to study the supply chain finance market and its opportunities for the guide, based on four layers of work:
The market guide addresses a number of strategic imperatives that are today driving bank interest in SCF. These include meeting essential customer needs that are vital in the post-crisis financial markets.
Payments, cash management, and traditional lending services are also maturing and represent challenges in terms of developing new sources of added value.
One of the other benefits of SCF is its close alignment with the actual movement of goods and payments throughout the supply chain based on improved and automated supply chain management monitoring and event-driven processes. An additional benefit of this alignment is greater visibility and control of bank exposure and earlier warning of potential repayment problems.
“The increasing automation and dematerialization of supply chains are creating attractive new financing opportunities that are short-term, “self-liquidating,” open-account-based, and triggered by identifiable supply chain events,” says Enrico Camerinelli, senior analyst in Wholesale Banking at Aite Group.
For more info contact Marcel Kay, tel: +44 (0) 207 092 8137, email: email@example.com
The Port of Rotterdam in the Netherlands has introduced an online application that helps companies avoid transporting a commodity that no one wants to ship – air.
An estimated 25% of all containers shipped by road, rail, or inland shipping are empty, maintains the port. All that empty space is expensive and environmentally damaging.
The new application is part of Rotterdam’s online intermodal platform, Inlandlinks, which covers more than 50 freight terminals in the Netherlands, Germany, Belgium, and a number of other European countries that have inland shipping and/or rail links to the port.
Called the Empty Depot Tool, the application displays inland terminals where shippers and logistics service providers can pick up and deposit empty containers, and subsequently reuse the boxes for other loads. This obviates the need to return the empty containers to Rotterdam, a common practice.
Inlandlinks was created in 2011 as the first service of its kind to map all the hinterland terminals in various European countries including the Netherlands, Belgium, and Germany. Earlier this year the service was expanded to include an online intermodal route planner used by companies to determine the most sustainable and efficient routes for shipments moving out of Rotterdam via inland shipping and rail connections.