5 May 2022
For Africa’s economy (formal and informal), 2022 started with a lot of optimism. I don’t need to say this again but 2020 and 2021 were tough. For most businesses, it was all about survival. Survival depended on learning new things fast and hoping the client / customer base would be responsive to these changes. Customer experiences were redefined to ensure loyalty was built anew. Ratings for doorstep delivery practices is an example that comes to mind. Not to say that it was never there, but it was now more emphasised, for the right reasons, off course. Because growth took place in 2021 but didn’t return most economies to 2019 achievement levels, most companies felt that 2022 would be the year that a big difference would be made. Most, if not all, of the catching up would happen, with the continent’s economy bringing new and more exciting opportunities for both existing and start-up businesses.
But this hasn’t really been the case. In a way, we’re still in survival mode. Fighting new battles and dealing with this “demon” that won’t go away, despite how hard we try to overcome. From a business standpoint, COVID is now synonymous with limiting or diminishing. In the business of sport, for example, earnings are down based on games being played with fewer or no spectators. The entire ecosystem is hurt by this. The ticket sellers, the stadium stall owners, the merchandise sellers (formal and informal), producers of the merchandise, beverage and food sellers, transporters, cleaning companies, and so on. Because of these crowd limits, we must admit that employment opportunities are also dwindling. Even though new industries are being created like building out and expanding the distribution sector for online purchasers and businesses – it isn’t happening at a pace that is fast enough to absorb what we’re losing on the other end. This suggests that from a policy viewpoint, a new way of doing things at a macro level needs to be established to ensure that most of the continent’s eligible working populace can earn a living and progress the economy.
In addition to COVID, rising fuel (even before the Ukraine – Russia war) and energy costs have brought margin hurt to hopeful business Africa. Across most African states, inflation is a pest we fight every moment. Sadly, African economy currencies are just not stable enough to keep inflation under control for long periods. There’s always something happening that limits buying potential both domestically and internationally, requiring us to often readjust budgets and money flow. Perhaps the instability emanates from the way our economies are structured (resource based with us being price takers and not makers), particularly our manufacturing capacity limitations. This results in the continent having to import so many produced goods and services from the more developed economies. Even if we do manufacture our own goods, we look down on them (not sure why) and they end-up falling within the second-, third- or fourth tier of preference when compared to what is supplied from abroad. But most times, we simply don’t have the goods and have no choice but to purchase from abroad. Fuel is one example, with capital and transport equipment being a second. Perhaps, further implementation of the African Continental Free Trade Agreement over the next few years could help integrate the economy and bring some of the needed currency and economic stability through encouraged regional trade which adds value to what we currently have and serves as a springboard for a brighter continental economic future.
Lastly, the war between Russia and Ukraine has added to Africa’s 2022 woes. I’ve already mentioned oil but other sizeable imports from Eastern Europe include wheat and corn. If the war persists, it is anticipated that it will contribute to increasing food prices both on the continent and globally. Although most African governments have committed to become food self-sufficient (as a solution) through promoting the expansion and progression of respective agricultural sectors, the rate of expansion is slower than what is required to substitute the imports with what is produced locally. For the continent’s agricultural expansion to be a success, the sector’s input sector also needs to be developed. Fertilizer and other agrochemicals are mostly imported from Asia, North America, and Europe (including Russia which is the world’s largest fertilizer exporter) and this position limits sector progression in terms supply and affordability. Imported fertilizer is costly and often subsidized to render it affordable for the small-scale farmers who account for most of the continent’s grower base. Most of these farmers don’t have access to credit facilities and have to rely on savings to procure fertilizer and inputs for the next cropping season. The higher the fertilizer cost (which is likely to happen because of the war through limited production), the less fertilizer each farmer can purchase. This in turn means less land being cropped and smaller domestic harvests. Ultimately, more food will have to be imported and because of scarcity, the food prices will increase further. So, the war is and will cause serious economic pain for most of the continent over the next few years.
But it isn’t all doom and gloom. As stated before new industries are being developed at an encouraging pace. Start-ups within the Smartech space are popping up across many industries, tackling issues that were otherwise being ignored by larger corporate Africa. Improving the distribution of money at more affordable rates, addressing last mile delivery, introducing finance and insurance products that are relevant and more affordable for the continent’s majority, increasing healthcare access through digital interventions and leveraging renewable energy to electrify areas that would never have received gridded power. These (among other) developments are exciting to hear about and transforming the way the continent builds and progresses its economy. Sadly, Africans are not taking advantage of these developments with most of the funding for these start-ups and scale-ups, again, coming from the more developed world. Perhaps we don’t have enough resources (finances) to invest in such endeavours. I find that hard to believe. Grouping together and co-funding such investments will be critical for us to build further wealth from within.
It all comes down to belief and understanding that for our economy to thrive for the rest of 2022 and beyond, we need to drive that change. Let’s change our preferences, giving more chances to locally produced goods. Sure, in certain instances, they may not be up to par (to international imports), but improvements can come through initiatives such as the mandating of local entities to commit up to 30% of the profit they generate to research and development (incentivised through tax breaks, waivers and/or subsidies). Kia and Hyundai have progressed based on the South Korean government putting measures in place that encouraged higher domestic purchases of their produced vehicles. The more these entities earned, the better their cars got. Now, they’re the staple vehicle brands in South Korea. Let’s find innovative ways to encourage local investment in African start-ups and scale-ups. This could create and sustain continental wealth. Most importantly, let’s build businesses that are inclusive and relevant to what Africa needs. For example, drones delivering medication to our grandparents in the rural areas at a cost they can afford (done viably off course). No more trekking fifteen kilometres to and from the clinic for their prescribed monthly chronic meds. Such developments promise interesting times for the continent. A time its populace needs to take full advantage of both from an investment and consumption standpoint.
By James Maposa
James founded Birguid in 2015. His vision was to create an advisory firm that delivered research and strategy that were easy to understand, roll out and over time deliver impeccable results. Strategic simplicity aided by actionable insights were words that echoed in his mind as he engaged potential clients and built Birguid.
The results have been encouraging and he looks forward to the future with enthusiasm.
Prior to founding Birguid, James worked in the management consulting sector in the fields of strategic research, and business, brand and customer strategy development, rollout, and evaluation.
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