The impact of the pandemic on global supply chains has prompted governments around the world to look at ways to fix the broken links. In Africa, the launch of African Continental Free Trade Area (AfCFTA), has provided the continent with new opportunities to strengthen its regional supply chain.
Virusha Subban, Head of Indirect Tax at Baker McKenzie in South Africa, explains that there were massive breakages in key links in global supply chains during and after the pandemic, with issues including, among many other things, route congestion and blockages, manufacturing shutdowns, a deficit of skilled labour, a global shortage of key logistics components including shipping containers, a lack of space in warehouses, a spike in transportation costs and substantially increased demand for goods around the world, post-lockdown. As a result, countries have been looking at ways to relink broken chains.
In February 2021, President Biden addressed this issue by signing an Executive Order on America’s supply chains. He ordered federal agencies to review and identify vulnerabilities in key US supply chains and develop policies to ensure those supply chains would be more resilient to future shocks.
Similarly, the European Union Policy Department for External Relations issued a report on Post Covid-19 value chains: options for reshoring production back to Europe in a globalised economy. The report noted that, against the background of both supply shortages due to the pandemic, and the shift in global trading patterns, reshoring of production, the process of bringing production activities home, had become a topical issue in recent EU policy debates.
Last year, the African Union African Peer Review Mechanism 2020 published a report on Africa’s governance response to COVID-19, which highlighted Africa’s supply chain challenges and overreliance on foreign trade and suggested that the continent boost its manufacturing capacity to build a strong African supply chain that could not be weakened by global blockages.
Marc Yudaken, Partner and Head of the IMT Sector Group at Baker McKenzie in Johannesburg, notes that supply chains in Africa were already under pressure before the pandemic, due to inadequate infrastructure, corruption and security issues, poor trade logistics, overreliance on foreign imports, onerous regulatory requirements and complex customs procedures.
He explains that a recent Baker McKenzie report – A License to be Bold: Transforming Industrials outlined areas of post-pandemic focus for supply chains in the IMT sector, which included being able to adapt to new markets, embrace digitalisation and enable the disruption-proofing of supply chains. The report noted that disruption arising from COVID-19 accelerated trends already apparent in the industrials market, particularly digitalisation and trade volatility, and transformation has now gone from a “nice to have” to a necessity.
Yudaken notes that due to the global supply chain disruption, many African countries have begun looking at ways to improve their manufacturing capacity so that they can produce local components that don’t need to be imported and that can be traded within the continent.
“Reliable transport and utilities infrastructure is vital in terms of ability of the IMT sector to scale up production for regional export and to develop its manufacturing bases. To improve transport infrastructure in Africa, large projects have been announced or are in progress, including, for example, the Trans-Maghreb Highway in North Africa and the North-South Multimodal Corridor, connecting extensive parts of Southern Africa, as well as the Central Corridor project and the Abidjan-Lagos Corridor Highway project.
Further, Africa needs an adequate supply of water and electricity to increase production capacity and incentivise foreign companies to set up facilities on the continent – energy and utilities infrastructure is direly needed across African jurisdictions. Domestic policy changes that address these issues are therefore playing a crucial role in disruption-proofing Africa’s supply chains at present.”
Subban agrees that improving manufacturing capacity is a key way to remove reliance on global supply chains. A Baker McKenzie report, with Oxford Economics, AfCFTA’s US$ 3 trillion Opportunity (AfCFTA report) looked at African imports from outside the continent and revealed that manufactured products industrial machinery and transport equipment constituted over 50% of Africa’s combined needs. Currently, Africa’s external imports account for more than half of the total volume of imports, with the most important suppliers being Europe (35%), China (16%) and the rest of Asia including India (14%). By contrast, imports from other parts of Africa account for only 16% of total merchandise imports. Manufacturing GDP represents on average only 10% of GDP in Africa. This means that limited production capabilities within Africa are currently being compensated for through foreign imports. This manufacturing deficit could be eventually satisfied within the continent and enabled by AfCFTA.
“Further, in terms of rapid global digitisation, a sophisticated legal and regulatory framework that enables digital transactions is vital for full participation in global digital trade, which is expected to play a leading role in a post-pandemic trade environment.
“The trade in services, for example, is an especially pertinent area of focus for all countries in Africa and could represent a way to overcome the current production and supply chain limitations that threaten to hold up the Africa-wide trade in goods. Because a service can either be traded directly or serve as an input into the production process of a product, the liberalization of trade in services is not as hindered by current infrastructural or logistic deficits as the trade in goods. In this way, Africa’s service trade sector can benefit from bypassing the industrialization phase,” she says.
The AfCFTA report shows that the trade in services in general currently accounts for over half of gross value added in Africa. In order to fully realise its benefits, however, there needs to be a better understanding among policymakers of the important role that services can play in regional value chains. This will allow the continent to address the structural constraints on growth in these sectors. The report notes that easing restrictions on foreign government policy throughout the continent will increase the flow of service trade between countries. For example, allowing more access to the information and telecommunications systems would encourage companies to enter new markets. Further, lowering the cost of access and usage of communication and fortifying network security will encourage businesses to set up or ramp up operations in the continent
“Addressing infrastructure shortfalls, boosting manufacturing capacity, and leveraging the benefits of digitisation will add strong links to Africa’s regional supply chain, ensuring it can withstand breakages and disruption,” adds Subban.
RFA calls for 5l water donations and community drop-off points
The Road Freight Association (RFA) is calling on its members and all industry stakeholders to support the call to provide desperately needed water and other essentials to communities devastated by the floods in KwaZulu-Natal. “Whether you are a large trucking operator or operate bakkies, vans, motorcycles – or someone who would simply like to support our ‘Truckers Making a Difference’ campaign – you too can help those who have been devastated by the floods,” says Gavin Kelly, Chief Executive Officer of the Road Freight Association.
“There are a number of ways in which people and organisations can assist our ‘Truckers Making a Difference’ campaign,” explains Kelly. “Everyone can make a donation – even a 5-litre bottle of water will bring relief to those in need. Although food, blankets and shelter are also needed, water is the overwhelming need for communities right now. KwaZulu Natal Premier Sihle Zikalala indicated earlier today that it could take months to repair flood damage to the Tongaat Water Works – the RFA would like to do what we can to make even a small difference in making the lives of flood victims easier.”
For those wishing to donate water or other essential items for flood victims, there are two drop-off points: Airport Lodge Guest House, 6-273 Koppie Ave, Kempton Park, 1619, and 309 Malcolm Str, Garsfontein, Pretoria.
More drop off points will be announced on rfa.co.za and @RFA on Facebook as they become available
The Association is also calling on its members – and any other stakeholder – who have depots and storage facilities, to open these facilities as community drop-off points.
The communities of Tongaat, Umdloti and The Bluff have appealed for urgent assistance and have been targeted as the initial priority areas.
Organisations and individuals wanting to make donations or facilities available to “Truckers Making a Difference” can contact Charlene on [email protected] or call 074 490 0974.
Durban port working to clear backlog of thousands of containers
Durban port will, within days, clear the backlog of thousands of containers that came to a grinding halt during the disastrous floods that lashed KwaZulu-Natal’s road, rail and port infrastructure last week.
Minister of Public Enterprises Pravin Gordhan assured businesses and local manufacturers during a joint media briefing with Minister of Trade, Industry and Competition, Ebrahim Patel, at the city’s port on Tuesday afternoon that the backlog of between 8000 and 9000 containers would be cleared within the next six days. He said the port had moved from the emergency phase of the recovery process and was now “fully operational”.
Gordhan attended a meeting with Transnet, Eskom and eThekwini Municipality officials at the port where he was briefed on the status of its business recovery plan.
He said between 40 and 60 ships had been serviced – loaded and offloaded – in the port since Saturday (16 April) after a 72-hour clean-up operation to remove debris, including logs and appliances such as fridges that had washed into the port. Three rivers and at least 52 canals run into the port’s waters.
“That continues to improve with each day. Durban harbour is functional – ships bringing in imports are being serviced and ships taking out exports, food and fruit are being serviced,” he said.
“As a result of the impact on Bayhead Road, we had a situation where some 8000 to 9000 containers had accumulated because trucks could not reach the harbour area. Within the next six to eight days those containers will be cleared,” Gordhan said.
“The next work that is being done by the port authority is to ensure that the port remains in a state that it can be used. A dredger that was on its way to Cape Town is now on its way to Durban so it can clear the harbour.”
He said reinforcements had been placed in Bayhead Road which had been impacted by a 60m “crater”. This key port road was now accepting some truck and vehicle traffic, although a temporary route through the Bluff to Island View was also still in use, he said.
Gordhan estimated that extensive damage to Transnet’s rail network to Cato Ridge, which incurred the worst damage, and along the North and South Coast lines, would take from two to eight weeks to repair, depending on the severity of the damage to specific sections of track. He said the Transnet fuel line that transported fuel inland had been briefly impacted due to an electricity outage, however, it was operational within 24 hours and was currently working as normal.
“As far as fuel and KZN is concerned, there is no risk of fuel shortages and the pipeline is functioning as well,” he said.
Patel added that the government would be meeting with business leaders in the province to discuss the economic recovery plan. Businesses are concerned about interruptions to logistics services, the impact on their supply chain and manufacturing processes, and the physical damages caused to infrastructure which also impacts operations.
“The physical damage caused makes it difficult to continue operations for at least a period. eThekwini’s largest industrial plant, Toyota, has been severely affected in terms of the water damage caused and in terms of staff because of disruptions to transport systems, damage to homes, and loss of life.”
Today’s biggest business challenge: Bringing simplicity and efficiency to a complex environment
By Leon Steyn, CEO at Dante Deo
The world is changing swiftly, and the Fourth Industrial Revolution (4IR) is ushering in a new era of innovation and technology. From how we manufacture and consume products and services to how we experience life and work, 4IR is transforming and enhancing every facet of modern life. Digitalisation has become critical for businesses to remain competitive through greater productivity, asset reliability and advanced process control, and there is a huge emphasis on doing things simply and quickly to drive business growth and success.
When a task or transaction is complex, it involves a significant investment of resources, and usually, this ends up being time. The age-old adage of ‘time is money’ comes into play here – organisations can no longer afford to waste time, especially considering the rate of technological change. Ten years ago, it took more than a year for technology to change, but today, it’s anything between three and six months. If a business is stuck in a complex procurement process, your business requirements will most probably evolve so much that you no longer need that specific technology. That’s why organisations need procurement simplicity that enables businesses to be agile and adapt quickly. Finding and prioritising simplicity in an ever-changing, increasingly complex business landscape is key and can set your business apart.
Responding to complexity starts with understanding risk
Increasing complexity is making life more difficult for businesses of all sizes and across all sectors. Considering how quickly our world is shifting, if business owners and leaders don’t have a clear handle on what they’re working through because of complexity, their business risk position increases exponentially.
If you look at software, the major risk five years ago was compliance, with businesses asking themselves if they were consuming the right amount of software and licences versus what they procured and licensed. Today, in the Software as a Service (SaaS) space, the value proposition has become the focus. Businesses should look at software as a consumable – using only what is needed, when it’s needed and by whom it’s needed.
At Dante Deo, we’ve seen many implementation projects fail because organisations don’t understand the risk position or the protection that exists within the contract. Most people don’t even understand the licencing conditions on their phones, let alone the complex transactional conditions, which creates massive risk for most businesses today.
The link between simplicity, efficiency, and agility
The ultimate goal for any business transaction with a vendor is to obtain a benefit that will improve your margin, sustain your margin, or grow your revenue. If your organisation gets stuck in a complex environment, you’re at risk of ‘analysis paralysis’, where you either do nothing and lose the benefit you’re seeking, or you never actually optimise that benefit. Therefore, all businesses need to cut through the complexity and focus on a few critical things that will ultimately deliver the core benefit – that’s where simplicity sits.
More so, finding and prioritising simplicity translates to increased efficiency, optimisation, and risk management – the three core outcomes of every commercial transaction. Simplifying business processes and transactions also allows companies to be agile in the face of change. If you lose your ability to adapt quickly, the odds are your competitor will grab that initiative.
Practical examples of bringing simplicity to complex commercial projects
In my years at Dante Deo, we’ve helped other companies reduce complexity and clarify their own simplicity. During our work with National Treasury, we looked at the incredibly complex IT category across many different spheres of government, bringing everything together with a unified, standardised contractual agreement structure. This simplicity allowed for a consistent, predictable process of obtaining goods and services, saving the taxpayer money in the process.
Similarly, during a reorganisation conducted for one of our multinational customers, we took complex transactions and unified them under a global framework agreement, focused on standardised terms and conditions, and defined processes and risks. In turn, this enabled the business to turn around the procurement transaction in just three to six weeks, instead of the usual months it previously took to put an agreement in place.
We also play a role in the mergers and acquisitions space, dealing with very complex environments and complicated transactions. In this industry, businesses must understand what supply contracts they have and the various details of these contracts. As such, we’ve developed a robust methodology to give these companies an overarching picture of the most critical components and risks in their agreements, and have built repositories of how these details affect mergers and acquisitions in a short space of time. This allowed us to lift, shift and split over 1000 contracts in eight weeks from when the transaction was announced to the market to the listing date on various stock exchanges in SA and Europe.
For us, simplicity comes from the knowledge we have gained over many years of harnessing the power of experience to drive business growth and success for our clients.
Many business leaders may cringe when they read this, but processes, procedures and policies don’t add simplicity to an organisation, instead, they elevate complexity. I’m not disputing that these three Ps are not critical to a business; however, the truth is, they don’t manage risk, don’t offer efficiency, and don’t result in simplicity – they offer predictability, though.
Businesses should focus on understanding the information that is available to them, and most importantly, invest in partnering with the right people who will understand the environment that they need to operate in exceptionally well. Many procurement practitioners just stick to tick-box procurement and don’t have the skill set to understand the complexity of the business. You need to find people who know the commodity and the environment in which that commodity is utilised in order to translate the business complexity to simple, cost-efficient and optimised supply ecosystems where the risks are managed as well. I rarely look for a procurement expert – instead, I opt for specific technical skills in the relevant market. Identifying the gap between the business need and the specific transaction is key – you need to hire people who can fit in this gap.
Pick your partners in this space in the same way you would choose your spouse. Consider that it’s a lifelong commitment; the wrong partner can destroy your business – just look at Eskom today. Put real-time and effort into creating and nurturing a team that will move your organisation forward by offering simple solutions to complex business requirements.