The risk to supply chains in sub-Saharan Africa could increase in the wake of concerns over a Chinese slowdown, falls in global commodity prices and US interest rate increases.
According to the CIPS Risk Index, sub-Saharan Africa’s supply chain risk score fell slightly in Q4 2015 from a record high in Q3. Macroeconomic improvements in Cote d'Ivoire, Namibia and Senegal were the main contributory factors.
However, the underlying trend is one of increased risk, the index shows, with the global supply chain risk score increasing to a record of 79.3 in Q4, as global economic slowdown exposed emerging markets’ vulnerabilities.
The index, which tracks the impact of economic and political developments on the stability of global supply chains, said that the slight drop in Sub-Saharan Africa’s risk score was driven by measures taken by Cote d'Ivoire, Namibia and Senegal to diversify their economies away from commodity exports to China and boost investment in transport and energy infrastructure, as well as keeping budget deficits under control and debt distress risks remaining low.
However, supply chain risk in Malawi and Zambia increased over concerns about economic instability as a result of low commodity prices and energy shortages, as well as rising domestic debt and rampant inflation.
CIPS said many of the key economies in the region remained over-dependent on commodity exports to China, and large external and fiscal deficits were another area of concern.
Foreign investors had also become more cautious about lending across the African continent and some countries were likely to struggle to service their debts, faced with increasing interest payments, falling revenues and depreciating currencies.
Andre Coetzee, managing director CIPS Africa, said: “The Chinese slowdown, further falls in global commodity prices, and the prospect of a rapid capital outflow as a result of the US interest rate increase are having an uneven impact on supply chain risks across sub-Saharan Africa’s key economies. Countries which fail to take action to diversify their economies or control national debts are likely to face economic and political instability, translating into increased supply chain risks.
“For businesses in the region with international supply chains, it’s crucial to have processes and plans in place to cope with uncertainties and disruptions, from both a regional and global level.”