Thursday, Dec 1, 2022
International Finance
Interview Magazine

The current state of trade value chain in Africa

Interview_Onyekachi-Izukanne_The-current-state-of-trade_colour
Intra-African trade has been around 15 percent over the past five years, necessitating an increased economic integration

Africa has made tremendous economic progress in the last two decades, following the negative per capita growth. The reinstated fact is that African countries would hugely benefit from more intense trade and investment linkages. This even includes higher intra-regional trade, according to a report published by the Organisation for Economic Cooperation and Development. Recent global crises like the coronavirus pandemic and climate change have magnified trade disputes among the world’s leading trading partners.

In this context, it is important for East African governments and industries to make a rapid shift in focus from global value chains to regional ones. Besides the pandemic-related complexities encountered by African countries, there are other substantive reasons to introduce a new strategic approach for regional value chains. This is because some of the existing supply chains are quite complex, even resulting in carbon emissions. Also, the East African markets have resilience compared to their global counterparts due to geographical proximity, thus helping regional industries to sail through the pandemic. So having advanced approaches will help to enhance regional trade on various levels.

On January 1, the African Union introduced the African Continental Free Trade Area, which explores two crucial elements: Tap into manufacturing to mitigate risks in global supply chains and leverage integral and global supply chains. Because the pandemic has stalled production and is reducing trade between several countries, local production capabilities have helped them to cope with the challenges. The report published by the World Economic Forum states that an increase in local production could help to strengthen supply chain resilience.

Technology and connectivity are identified as key enablers for the continent’s growth and innovation on this front. Their impact was portrayed through the African Medical Supplies Platform which is a collaboration between the African Union, foundations, corporations and several international organisations. By the numbers, intra-African trade has been around 15 percent over the past five years, which necessitates an increased economic integration on the continent.

In 2019, intra-African trade had reached $137.6 million, which was 4.6 percent less than in 2018. Of the recorded trade, only 16 percent of total African exports and 12 percent of African imports were transported to and from the continent during that year.

To understand the trade value chain in Africa well, International Finance interviewed with TradePort. Onyekachi Izukanne, co-founder and CEO at Tradeport discussed the trade value chain environment on the continent, identified problems and TradePort’s industry focus at large. Izukanne is a seasoned entrepreneur with 17 years of experience in technology and consultation. He co-founded C2G Consulting, a technology consulting practice that he bootstrapped to become the leading SAP Partner in West Africa by 2013.

What is the current state of Africa’s trade value chain and what is your outlook for the industry in the next five years?
Over the years, the trade value chain in Africa, similar to several other emerging economies, has been defined by a very high-level of fragmentation, a preponderance of informal players and multiple layers of middle-men, often resulting in an inefficient supply chain. To significantly improve this value chain, a lot of investment is needed in infrastructure, as well as in technology to digitise and organise the various operators and operations within the space.

There has been a sizable increase in the level of investment in this regard on the continent in recent years, but nowhere near the levels required to drive extensive transformation across this sector. Over the next few years, most of the world will be recovering from a global pandemic and Africa will be no different. Technology will play a huge role in revitalising the African business landscape, as a whole, and we anticipate more capital flowing into players offering digital solutions to make the market more fluid and address these fundamental challenges.

What are the identified distribution problems on the African continent?
At the core of the challenges, we face in the distribution in Africa is a lack of access to finance. While micro SMEs and other small businesses in the informal sector drive the bulk of distribution in Africa, these players are unable to obtain bank loans, have no access to affordable capital and very limited access to any capital at all, and have to rely on internal funds, or cash from friends and family, to launch and run their enterprises. The World Bank estimates an unmet financing need for micro-SMEs of $331 billion every year in sub-Saharan Africa alone. Coupled with poor infrastructure and significant fragmentation of the supply chain, this results in some of the highest distribution costs per dollar compared to other regions in the world. While the population is increasingly mobile-first, more needs to be done to leverage this access to digital platforms to provide data-driven financing solutions that unlock working capital to these millions of small and micro businesses in a bid to fill this funding gap

In 2018, Partech announced the first Partech Africa fund investment in your company. How has the fund investment added value to your offerings today and are there any prospects in the near future?
Partech led our series A round of fundraising which was pivotal in helping us find and prove our business model. On the back of this, we have built out a platform that facilitates distribution across the value chain, while enabling access to finance and new markets for retailers and distributors on our network. Building on this we have had additional high profile investors come on board to support our push to scale this across more markets in Africa while deepening our value proposition for our existing customer base. We are currently scaling at a very fast pace, and expect this hypergrowth to continue over the next several years.

Which African countries are evolving the most in the trade supply chain and why? Are those markets in TradeDepot’s focus?
There are many similar retail markets across Africa, in terms of size, retailer profiles, manufacturers and consumers. For example, we see an opportunity to replicate what we are doing in Nigeria across some of the main cities in South Africa and Ghana, alongside other similar markets in East Africa and French-speaking West Africa. Several of these countries benefit from favourable business environments and relatively stable economies, and we will continue to explore expansion on a city-by-city basis across these countries.

How is your company’s 360° solution well-integrating actors in the trade value chain, such as manufacturers, distributors and retailers?
Our platform aggregates data from the different players in the value chain, providing us with key insights to facilitate and accelerate trade. One key area in which we currently leverage this data to transform the value chain is in the provision of inventory financing to retailers on behalf of manufacturers and distributors with our Embedded Finance offering. We leverage purchase performance histories for these retail store owners to determine creditworthiness and on the back of this extend working capital in the form of short term loans in partnership with commercial lenders and other aligned credit investors.

These loans allow these retailers to order additional goods, repaying the loan once they’ve sold the stock, allowing them to sustain and scale their businesses. For the manufacturers, this availability of working capital to retailers makes it easier for them to get their products into the millions of small retail stores, allowing them to sell more at a lower cost-to-serve.

Why are retailers in some African countries subject to some of the highest product distribution costs globally?
The factors behind high distribution costs vary but some of the main issues include high costs of financing, inefficient supply chains, fluctuations in currency, infrastructure efficiencies and tariffs imposed by governments.

Last year, TradeDepot raised $10 million to expand its business in financial services and credit offerings for retailers. How have the proceeds from the investment contributed to developing supply chain services for its African SMB?
Small retailers often need fast and flexible loans but the existing mix of microfinance banks and co-operative societies are complicated, fragmented and time-consuming. It, therefore, made business sense to plug this credit gap in retail by offering solutions that enable the circular flow between manufacturers, retailers and consumers. Our ShopTopup embedded lending product enables retailers to buy larger quantities of stock when the need arises, which also benefits manufacturers and leads to a circular flow in the informal economy.

Who has the pandemic impacted Africa’s trade and value chains and how are they picking up pace as we move into 2021?
In some ways, the pandemic has sped up the digitisation of many of the processes in the retail supply chain. From a supply perspective, one of the biggest impacts we observed, at a high level, was the improved performance of fast-moving consumer goods. Consumer demand for food items significantly grew, as was the demand for home care items, electric appliances and home building supplies. Some restaurants that embraced home delivery also had a good year despite the pandemic. There’s nothing to suggest that 2021 will be remarkably different to 2020. We expect at least the first half of the year to be very similar in terms of pandemic behaviours, such as maintaining social distancing. Ecommerce is projected to see real growth and demand from small retailers for digital solutions in the supply chain should also be higher as the capacity to access wholesalers remains limited.

What is TradeDepot’s supply chain goal in the next five to 10 years and what are its planned efforts to become the supply partner for Africa’s retail stores?
We will continue to invest in expanding our footprint across Sub Saharan Africa, first in the number of states we serve in Nigeria as well as other countries across Africa. We will also focus on expanding our Embedded Finance business which kicked off mid-2020. Ultimately we are building the future of distribution in Africa, and by digitising these retail stores and providing them with access to financing we can execute our mission which is to create better everyday lives for retail store owners in emerging markets.

Leave a Comment

* By using this form you agree with the storage and handling of your data by this website.