Madini Africa Whitepaper ©2021 Original from Bluegate Business Solutions, LTD - Kajiado – Kenya Technological disruption is transforming markets and societies across Africa in ways that wouldn’t have been possible even five years ago. And this opens up huge and still largely untapped commercial potential for domestic and international businesses. From the demographic dividend of a young and rapidly expanding to an increasingly affluent and aspirational middle class, Africa has the potential to become a new powerhouse of production and consumption in the 21st century, just as Asia was able to do in the late 20th. As PwC explores in their five global megatrends (see PwC Figure 4), accelerating consumer demand and urbanization will create new target markets for domestic and international businesses. The availability of working age labour could also see a large proportion of manufacturing and service output shift from ageing Asia, Europe and North America to Africa by the middle of the century, though only if there are major improvements in education, infrastructure and health. Cutting across all these transformational trends is technology. Three-quarters of the 153 African business leaders taking part in PwC’s latest annual global CEO survey see technology as one of the three trends that will transform customer, employee, government and other key stakeholder expectations over the next five years. In Disrupting Africa: Riding the wave of the digital revolution, PwC explores how disruptive innovation is transforming markets and societies across Africa. The report is divided into six key themes reflecting the challenges and opportunities opened up by new technology and their implications for businesses and policymakers: (i) Driving efficiency in business and public services (ii) Strengthening trust and combatting corruption (iii) Improving market access and ease of doing business (iv) Strengthening healthcare and crisis prevention (v) Promoting education, innovation and job creation (vi) Bringing the informal sector into the mainstream economy The transformational innovations, the use of blockchain ledgers to combat fraud to harnessing robotics and big data analytics to map the prevalence of disease and target medical aid. Disruptive technologies can create their own demand dynamics – the smartphone is an enduring example. But in most cases, disruptors probe for gaps and weaknesses in existing value chains and then seek to offer services that are faster, easier and cheaper. Disruption also operates across blurred lines – companies are using repayments on solar systems to create credit histories for their customers and hence provide access to loans, for example. Seizing the prize The keys aren’t just technology, but customer insight and the ability to apply innovation in Africa’s diverse and distinctive markets. Clearly, obstacles will need to be overcome to realise the full potential. These include promoting financial inclusion, consumer awareness and the development of a reliable digital infrastructure. They also include combatting corruption and vested interests. But by democratising technology and fostering empowerment, disruption can play a key role in clearing away these barriers to progress and prosperity. Supply chain impact – Some key challenges in Africa With low projected growth in the US and EU, and the realisation that the BRIC countries won’t be able to do it all on their own, there is renewed interested in Africa. It is a continent with enormous potential with some of the fastest growing economies on the planet. However, for any company new to the African continent, there are a number of challenges to consider. The lack of hard currencies and qualified personnel, the low credibility of supply, the key role of finance and accounting, contract breakdowns, long lead times, moral values, high prices, corruption, and supplier apathy all combine to produce a frustrating and complex set of challenges. Infrastructure – Anybody that has tried to move goods from point A to point B in Sub-Saharan Africa (bar South Africa) has realised the challenges associated with transportation and infrastructure. However, in many African countries (e.g. Tanzania & Ethiopia) there have been great improvements in infrastructure. However, reaching lower tier cities (not to mention rural markets) remains a challenge. Distances – African commercial centres are often far apart, increasing cost and making economies of scale difficult to achieve. For example, many low cost distribution models piloted in Asia (e.g. India) and Latin America (e.g. Mexico) will likely fail, as distances are greater and the numbers of commercial clusters are not comparable with these continents. Fragmented markets – Modern trade (e.g. Shoprite supermarkets) in African countries (with the exception of South Africa and Kenya) is still in the very early stages of development and the contribution is in the low single digits. Reaching large numbers of traditional outlets (e.g. Mom & Pop, Dukas, Sooks) is difficult and costly business. Distributors – Finding the right distributors to reach the vast numbers of traditional outlets is difficult (if not impossible) and it requires enormous development and training. As with many emerging markets, the outlet base keeps evolving as outlets open and close. Keeping the outlet list up to date can be a difficult undertaking. Access to capital – Finding a good distributor is just a start as sources of capital are limited. Many organizations need to support their distributors and partners during the start up phase and in many cases also provide loans or bridge capital to support their cash flows. Risks – As recent events in Nigeria, Sudan, Somalia, Uganda -just to name some- have demonstrated, there is still significant political risk in a number of African countries. Some of these countries, including Nigeria, hold significant potential in a number of sectors. However, companies need to have a good understanding of the political risk and potential impact on their business. Technology – When navigating the business landscape in Africa, you realise that most companies operate on a combination of software (e.g. ERP), Excel, pen and paper. Mobile technology holds great potential, but few companies have viable commercial models. Finding the right solution for your company will take time, money and innovation. Electricity challenges – In many countries electricity is in short supply and power cuts are common during peak periods. Even more advance economies such as Kenya or South Africa are experiencing major challenges. In some countries (e.g. Guinea) the generator remains a major source of energy and energy cost can be a major consideration. Lack of visibility – Poor information technology also leads to a lack of visibility in the supply chain with increased out of stocks (OOS). Increasing visibility can take time and might include a combination of technology and manual processes. Lack of an organised Third party logistics (3PLs) and skills gaps – In many countries organised 3PLs revolve around independent transporters with limited number of vehicles. Many 3PLs might also lack the required skills and professionalism. Normally, ongoing training and support are required. Due to poor remuneration, staff turnover is high, and this will also have a negative impact on cost. Incentives – Many distributors and 3PLs also lack the required incentives schemes to motivate workers. Companies sometimes need to play an active part in setting incentives and rewarding partners. Warehouse – Many warehouses for rent are also poorly designed, with poor yard management, ventilation and equipment. Finding a professional warehouse operator can be a daunting experience. Counterfeit, corruption and parallel imports – For many organizations, counterfeit and parallel imports remain a major concern. African markets remain a dumping ground for many importers and exporters that buy expired (or close to expired products) from European retailers. Large trading groups, operating out of the Middle East (e.g. Dubai), are normally a great source for importers. Pharmaceutical companies are also fighting an uphill battle against counterfeit products on the continent. However, even with all these challenges, Africa holds great potential and companies ignore the continent at their own (and shareholders) peril. A number of multinationals and large numbers of SMEs have overcome or mitigated these challenges. And as the saying goes, if it is easy to do business, it is probably too late for entry. Africa’s Supply Chain Challenges Africa currently offers investors unparalleled growth, but supply chain hurdles are preventing many businesses from making inroads to the continent. It is, however, possible to overcome these. Africa is currently viewed by the rest of the world as offering great, unchartered expanses of opportunity. In 2013, according to the African Development Bank, Africa maintained an average growth rate of about 4%, compared to 3% globally. Sub-Saharan Africa performed even better at 5% on average. There is no question that Africa is the place to be. However, one of the most significant challenges that businesses face when considering expanding into Africa is logistics. Supply chains as the rest of the world knows them simply do not exist in Africa. Transport infrastructure, goods supplies and markets are entirely different here. This presents some problems. For one thing, transport in Africa is expensive. In some cases, it is more expensive to move goods between African