Africa is Not the New Asia (When it Comes to Global Sourcing)
Perhaps the most overwhelming challenge of sourcing and managing operations in Africa in most areas is the rampant corruption and theft at all levels. At least within China and India, corruption is predictable (and improving, in some cases), accounting for only a fraction of a product's export value. But in Africa, corruption is a way of life. In one case, I heard about a company sourcing from and doing business in a region who decided to divert some its profits into installing a water pump to bring safe drinking water to villages. But they quickly found that unless the pump was guarded 24 hours a day, thieves would break it up and sell its pieces for scrap value. The mindset was that if one person passed by without stealing it, then it still would not be there for the community the next day because someone else would come along and rip it off shortly thereafter.
In other cases, African suppliers and facilities are unreliable due to the ravages of AIDs. Co-workers of diseased employees -- whose HIV positive tests often reach or exceed 25 percent in some areas -- prop up their sick colleagues to work and collect a check despite the fact that they cannot do work of consequence. And in some areas, if debilitating AIDs in the workplace cases was not enough to bring productivity to a grinding halt, then tribal attacks between groups in the workplace -- who often need to be separated in different areas based on their background -- can also make predictable supplier output a risky proposition at best.
In my view, we would all do well to invest our tourism dollars in a continent as beautiful as Africa, not to mention our charity donations for medical care, safe drinking water and nutrition programs -- among other causes -- in the region. But Africa is about as far away from becoming a leading low cost supplier as it gets, unless, of course, you take the colonization and mercantile approach that China has adopted in the area (which, fortunately, is something that Western companies and countries can no longer get away with).
- Jason Busch
Surely Africa will become a hotbed of quality offshoring, eventually. But not for a while.
An anecdote from my own experience: When I was last looking for a new software development team I looked in various countries including Mauritius. Apparently Mauritius was going to be the next big thing for software development outsourcing. It turned out that there was no software development industry to speak of at the time in Mauritius and, believe me, I did look quite hard. In the end we went to Eastern Europe.
Check AT Kearney's index of offshoring locations here:
http://www.atkearney.com/res/shared/pdf/GSLI_2007.... for some examples of offshoring locations - and note the absence of "African" countries.
http://www.howardwfrench.com/archives/2007/08/21/n...
EITI has emerged as a solution because, as you rightly point out, companies can longer get away with the mercantile approach. So if it can work for extractives why not for all other industries? We already see signs that this successful model will be extended into other industry sector supply chains.
We should remember that corruption is a two way street and it is my experience that foreign investors contribute to the problem on the supply side because they come to the market with a defeatist attitude and presubscribe to a view that corruption is an inevtiable cost of doing business. we must not perpetuate this myth further. Foreign investors have huge influence and need not be in actuality or play victims. It takes competent management skill and determination to operate in these markets but it is eminently feasible.
With regard to HIV AIDS, this is a mixed picture. You are right to say in some parts of Southern Afica infection rates reach 25% or more but In Nigeria which maybe seen as the power house of the regional economy the rate is 3.9% according to Unicef.
With regard to cultural and racial conflict, well let us put it into context. The US and much of Europe too had it's divisions in the workplace based on race right up through the civil rights movement and beyond. We have are gradually overcoming this and so will Africa and economic growth will go a long way towards easing such tensions whre they exist.
The World Bank Africa Development Indicators 2007 report is decidedly bullish on Africa reporting avergae growth rates of 5.4%, rates of direct foreign investment have 'rocketed', real governance reform and economic development buoyed by high commodity prices. The fact is, Africa's top 5 performing economies stack up very well indeed relative to competing Asian economies.
Yes there is risk in Africa but also handsome reward. But since when do global business leaders turn their backs on high potential markets for fear of risk that is perfectly manageable? Hardly the spirit of free enterprise. Besides continued exclusion and isolation of Africa and it's problems only raises the risk of the more negative externalities boiling over to disrupt the larger global economy sooner rather than later.
Finally ,Dennis Howlett, James Governor & Thomas Otter have also been doing the running on this debate this week here :http://theotherthomasotter.wordpress.com/2007/11/2... http://www.accmanpro.com/2007/11/22/in-berlin-with... http://www.redmonk.com/jgovernor/2007/11/23/toward... with lively commenting from the folks at Transparency International It am genuinely pleased to see you also join the frey on this important debate. It needs a good airing.
Thanks so much for contributing -- or should I say leading -- the dialog on this subject. I am most certainly not an expert on Africa sourcing. Rather, I'm sharing a few anecdotes and opinions, which could be misleading (but the folks who I've heard them from have significant experience sourcing in the region).
Above all, let's consider this a start to the Africa sourcing discussion on Spend Matters. And I'll be only one of the contributors to it.
Yet this overlooks the fact that with the strong moves towards good governance in countries such as Nigeria and Kenya (I admit it's relative), as well as increasing investor and IP protection in AGOA / EBA signatory countries, the risks are becoming much more palatable.
Moreover, while the HIV/AIDS pandemic is indeed a large issue, prevalence rates outside of Southern Africa are sub 10%. Furthermore, this doesn't take into account increasing population growth across the Continent which will see several urban centres more than double in size. Suddenly the population density needed to create large, educated, english speaking workforces will be present in cities such as Nairobi, Dar es Salaam, Kampala, etc.
Evidently this doesn't eradicate the risk but as the previous commenter noted, risk is a necessary partner to reward. The key is finding the right hosts for investment, those with the labour force to fill needed roles, and the government policy environment that motivates capital and investment. Companies such as GM, Chrysler, Delta Airlines have all invested in those locales.
And finally, let's not forget that Africa is not one country. It's 53 countries with extremely varied levels of infrastructure, growth, corruption, etc.
http://www.purchasingcourses.com/2007/11/sourcing-...
This post disappointed me.
This is a very glib overview of business in Africa. Yes, crime and corruption are big challenges, but to dismiss the whole continent on the basis of a couple of anecdotes is ignorant, arrogant, condescending and plain wrong.
Major manufacturers such as BMW, Daimler, VW use South Africa as a key part of their global supply chain. See this on Catalytic converters, http://findarticles.com/p/articles/mi_m3012/is_5_1...
I plan to respond in depth on my place.
I responded in more detail here. Trackback seems to be playing up.
http://theotherthomasotter.wordpress.com/2007/11/3...
A thorough analysis ... I'm running out of the office, but I'll respond on Monday with another post.
IBM Plans Investment Increase in Sub-Saharan Africa
Targets Development of New Markets, Skills Over Next Two Years
JOHANNESBURG, SOUTH AFRICA - 04 Dec 2007: IBM (NYSE: IBM) today announced a series of investments in Sub-Saharan Africa that are designed to accelerate development of new markets, enablement of crucial ICT skills and creation of new jobs.
The company, which has operated in Africa for nearly six decades, expects to increase its investment by more than $US120 million (more than R820 million) over the next two years. In the coming year, IBM expects to hire up to 100 students from Sub-Saharan universities to meet the growing demand in services, global delivery and software development.
"The Sub-Saharan African market is poised for double-digit growth flowing from the development and expansion of telecommunications networks, power grids and transport infrastructure," said Mark Harris, Managing Director, IBM South and Central Africa. "Private and public sector investment in the region is transforming the ability of the market to participate in the global economy."
http://www-03.ibm.com/press/us/en/pressrelease/227...
IMO, there are two kind of views re Africa: 1)Those that recognize the NECESSITY to actively support sSAfrican nations transition into the global economy and 2) those who prefer their support in the form of famine relief airdrops.
This isn't to gloss over real problems. I'm simply saying there are toeholds to be found on the African continent, if we seek them out. And it is in global economy's best interest to do so.
I have given this blog post a more detailed reply at the link below. You raise important points that represent some fairly basic misunderstandings and misconecptions. But the debate is so important and the stakes are high if Africa fails to develop. You and the readers of this blog are important global economic influencers. I hope you will take time to reconsider and try to see the opportunity in Africa.
http://jamesfarrar.wordpress.com/2008/01/17/nigeri...