It is economic déjà vu for Zimbabwe as the central bank battles spiralling inflation. The Reserve Bank of Zimbabwe is attempting to introduce ever-higher denomination notes; but inflation still approaches 400%.
COVID-19: When ‘local sourcing’ is more than buzz words, but a reality
The COVID-19 crisis has forced far greater local sourcing, as ports and planes ground to a halt. But, for this welcome change to be permanent, structural reforms are needed.
For Lillian Kidane, a partner at consulting firm Dalberg, one silver lining of the pandemic might be that ‘local sourcing’ becomes more than just a buzz word in Africa. Getting agriculture right has been the launch pad for industrial revolutions around the world.
The problem is that homegrown often means more expensive. “Something has to change if we want to build resilient local food manufacturing capacity on the continent. Only 35% of raw materials used in typical African fast-moving consumer goods operations are sourced from Africa,” says Kidane at an event organised by The Africa CEO Forum.
Vimal Shah, chief of Bidco, a Kenyan consumer goods company, sees two conditions for a true shift towards local sourcing. “First, governments need to say: ‘Let’s take action. We want to process locally.’ Number two concerns tariff structures. I think many tariff structures are still geared towards importation.”
Farmers will also need to bump up productivity, with average African yields often 50%-80% lower than elsewhere in the world. “Increasing domestic production means that you need to be open to technology and to favourable policies at the farm level to allow invest- ments,” says Wandile Sihlobo, chief economist at the Agricultural Business Chamber of South Africa.
“Governments don’t like agriculture because it’s a long-term investment,” argues Imad Bouziane,
a senior vice-president at Nitron Group, a chemical and fertiliser company. “It’s a lot of hassle
and requires more complicated programmes to be put in place. […] Most of the time, they would rather go for fast-return businesses.”
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Another long-term investment is infrastructure. Uche Ogboi of Lori Systems, a logistics platform, says this is the key constraint. “Fix the roads! Governments must think about multimodal systems of transportation.” Ikenna Nzewi, CEO of Nigerian logistics startup Releaf, concurs: “If we are able to ensure that trucks are loaded on every trip and that they don’t have to make one empty trip, that automatically reduces transport costs.”
Bidco’s Shah sees the Africa Continental Free Trade Area (AfCFTA) as a great opportunity. “Borders are the barriers that we need to bring down in Africa. AfCFTA […] will be a big boost for African agribusiness.” And he also points to the potential for technology: “We can actually accelerate the competitiveness of our agriculture through digital solutions.”
Progress is being made. Take Tanzania, where projects have improved the lives of 500,000 farmers. “Two-thirds of the palm oil consumed in Tanzania was imported, and cheaper than the locally produced sunflower oil,” says Kidane. “With investment in machinery and distribution networks, locally sourced and produced sunflower oil became cheaper than imported palm oil.”