Foreign cash 'affects buying'

3 September 2009

4 September 2009 | Jake Kanter

The influx of overseas investment in Africa is "significantly" impacting procurement, research by SM shows.

Of nearly 200 buyers in 31 African countries, more than 55 per cent said foreign shareholders have substantial influence over their organisation's purchasing processes.

Some 34 per cent said procedures were "moderately" impacted, while only 10 per cent said overseas investment had made no difference to their purchasing operations.

All the respondents said their country had some form of foreign investment, with over a third suggesting this presence was "large".

Earlier this year Fanuel Banda, president of Zambia's Mine Suppliers and Contractors Association, told SM that procurement processes in the country's industry favour foreign investors' indigenous suppliers.

He added that takeovers mean that 80 per cent of contracts are awarded to vendors outside of Zambia.

More than 40 per cent of respondents to the SM survey agreed that they are pressured to contract with suppliers in the investor's homeland, while nearly 55 per cent fear their country will become a "satellite for other economies". Many said shareholders have no intention of promoting local industry, with some suggesting the issue is "killing" entrepreneurship.

A Malawian purchaser, who wished to remain anonymous, said: "Local suppliers are not able to cope with competition because they do not have direct links with foreign investors."

Another added that local suppliers are "not trusted to perform".

Douglas Maseka, senior buyer at Barclays Bank Zambia, believes this brings additional problems for procurement. "Since local supply market or industry growth is hampered, international buying has become the major focus. With this comes the challenge of overcoming unstable exchange rates, increasing shipment costs and high taxes. Ultimately procurement savings models have been affected."

Others said that foreign firms do not follow procurement regulations in their host country and employ unqualified buyers, which leads to a rise in corruption.

But not all the buyers had negative views. Many said foreign investment creates jobs for local workers, improves technology and stabilises currencies.

One Ghanaian buyer said that it has helped her organisation secure savings by creating more competition in the supply base, and increased the quality of materials the business can access.

Umar Matovu, administration and procurement manager at Ugandan financial services organisation Pride Microfinance, added: "Investment has introduced new technologies and services and created a great deal of jobs.

"Foreign competition also improves the efficiency of local firms and makes Uganda more visible to the world."

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