Resource Development and Supply-Chain Nationalism in Africa: Time to Act?
10 Oct 2017 - by Duncan Bonnett
The development of Africa continues apace, with investment in a wide array of sectors and projects. Increasingly, governments are also demanding that host countries benefit from more than simply extraction and taxes, with local content and supply becoming a new norm. For some, this is simply a policy fad, but evidence points to a growing determination to unlock industrialisation on the back of resource and infrastructure growth.
In a previous article, the recovery of commodity-driven projects and emergence of development hotspots was discussed, along with how South African companies are not taking advantage of the long-term prospects that these offer. The old model of waiting for orders to arrive whilst sitting at a desk in Sandton or Cape Town simply doesn’t work anymore, especially as companies from other countries (including host nations in other African markets) target key growth areas aggressively.
Increasingly too, African governments are demanding that their countries, companies and citizens derive more benefit from resources than simply supplying ‘secretaries and security guards’ into projects. A snapshot of this is provided in the map below and clearly illustrates the growing nature of supply-side nationalism in the region. It’s not an exhaustive map but simply illustrative of developments in many of South Africa’s key trading partners in the region. Initially, many countries focus on only the key resource industries – oil and gas or mining – but this often translates into business in general or is then modified to include other sectors as well. The extent to which these programmes and regulations benefit countries is debatable, but that’s not really the point – the point is that they are happening and they are happening in more countries and across more sectors.
Source: Africa House
In recent months Nigeria announced that over 50% of all contracts in the oil and gas sector from 2014 to 2016 were awarded to Nigerian companies, with over 80% of engineering contracts awarded to Nigerian companies over this time. Total contract values stood at US$2.5bn or around R33bn over this period. According to the Nigerian Content Development and Monitoring Board (NCDMB), Kenya, Congo-Brazzaville, Uganda, Gabon and Angola have requested Nigeria’s mentorship of their Local Content initiatives. In 2016, a delegation from Uganda visited the NCDMB to assess how Uganda could learn from Nigeria as it embarks on an estimated US$20bn in oil developments over the next few years.
Mozambique has hosted several conferences aimed at increasing local procurement share in the developing mining and gas sectors – indeed, the key players all have local content programmes aimed at increasing local share of goods and services. Waiting for a meeting with the port developers in Nacala a couple of years ago, we counted over 40 different companies’ vehicles entering or leaving the port area, with at least half of them belonging to local companies.
Most recently, Kenya Power released a list of products that it will aim to source locally as part of the Buy Kenyan Build Kenya initiative of the government there. The initiative is being expedited to form part of Kenya’s Vision 2030 to become a middle-income country. A recent visit to Kenya to investigate trade and investment opportunities in a specific manufacturing sector revealed a government and industry representative bodies determined to push for local manufacture rather than imports – and bullish about the prospects too.
Ethiopia most famously used the massive Grand Ethiopian Renaissance Dam (GERD) and other key infrastructure initiatives in power, roads, rail and agri-industrial development to unlock major investments in its cement industry, and more recently into the power sector supply chain. Tanzania has demanded that retailers and restaurants source meat and other locally, thereby encouraging larger players to invest in ventures with farmers and in farming value chains.
Thus, whilst many companies debate whether or not to venture into the rest of Africa, the rest of Africa is getting on with the business of investing in itself and attracting investment from the world – with countries such as China, Turkey, India, Pakistan, Nigeria, Korea, Canada, Australia and a host of others all making serious commitments to the region. South African companies would do well to heed this, to assess where the countries or growth nodes are that best meet their profile, and look at a more structured and permanent presence in those markets.
To reiterate the point, the twin drivers of local content and/or preferential procurement, combined with growing global competition, are already seeing South African companies losing market share throughout the region. As the South African government engages and pursues a regional industrialisation policy based on the drivers outlined above, this is a critical time to actively entrench businesses into the broader regional development through targeted investments in those countries.
Duncan Bonnett is a partner at specialist Africa-consultancy, Africa House, and is Director: Market Access and Strategy. Duncan has over 20 years' experience in consulting to companies, governments and industry bodies on how best to access business opportunities in Sub-Saharan Africa. Duncan's core competencies include market identification strategies, market feasibility studies and market entry strategies. Duncan has worked in over 20 countries in Africa during this time, as well as several in Europe, Latin America and Asia providing strategic market intelligence for governments and companies in these regions.