Local sourcing - the key to sustainable growth in Africa

Jacques Vermeulen, Managing Director of Coca-Cola Beverages Africa.

These are uncertain times for the global economy, and for emerging markets in particular. The period of synchronised global economic growth that saw a 40 per cent rally in emerging market stocks in 2017 is on shaky ground and risks of a downturn are rising.

Trade tensions between the world’s great economic powers are sending shockwaves through the global economy and threatening to bring the recovery to a premature end, while a shift towards higher interest rates in the US has decreased the relative attractiveness of emerging markets to investors.

This is unwelcome news to us in Africa, because global demand for the primary commodities with which the continent is blessed has been a driving force, along with improved policies and governance, behind improvements in prosperity and human development recorded over the past decade. Indeed, multi-dimensional poverty fell in 30 out of 35 African countries between 2005 and 2015.

Even countries without rich mineral resource deposits made significant progress in areas such as health, education and improved quality of life. But to sustain this progress in the face of escalating tensions and a faltering global trading system, African nations will increasingly have to rely on that which they can control to keep their economies growing – a conducive policy environment for private sector investment, further improvements in governance, fiscal prudence and transparency, investment in enabling infrastructure and human development, and the promotion of intra-regional trade and investment, among others.  

Increasingly, accelerating economic growth will depend on African governments passing the baton to the private sector. While public investment in the region almost matches other regions of the world, private investment in sub-Saharan Africa lags behind. There is a strong link between sustained growth and improvements in the quality of institutions, sound fiscal management to keep public debt at sustainable levels, monetary policy geared toward low inflation, and policies promoting external trade, while reducing market distortions domestically.

With its relatively youthful population, Africa has an opportunity to reap the benefits of a demographic dividend, leading to higher levels of saving and investment that would enhance potential and current growth.  But the IMF estimates that to achieve this, sub-Saharan African economies would have to create on average about 18 million jobs a year until 2035.

This calls for deliberate policies to shift resources from the informal low-productivity sector to higher-productivity activities such as manufacturing. However, times have changed, and the combination of trade tensions and increased automation brought on by the fourth industrial revolution makes manufacturing-led economic growth harder to achieve than it has been for other regions in the past.

African governments will have to adapt, working harder to identify and remove the obstacles and imbalances that are holding back private-sector activity in order to stimulate productivity growth. For Africa’s youthful population to derive the benefits, economic growth must also be accompanied by higher levels of employment - what economists term labour intensivity - and this means greater localisation of production inputs wherever possible to encourage industrialisation.

Coca-Cola Beverages Africa appreciates that the future of the company is tied to the wellbeing and prosperity of the communities it serves on the continent, which is why it targets to source locally 80 per cent of the raw materials which are currently imported by 2022. This process is already well advanced.

As an investor - in jobs, capital structure and local businesses within its supply chains – Coca-Cola Beverages Africa has been a significant tax contributor; recognising that governments need revenues to fund public services for their citizens.

When President Uhuru Kenyatta launched Kenya’s first nitro hot-fill juice line in Nairobi, it was a celebration of substantial investment, the jobs we created, the impact on 30 000 local farmers, creating a new market for their harvests, and our smashing of the 40 per cent local content requirement. The new plant fits in with the president’s Big Four agenda dramatically to change the lives of ordinary Kenyans.

The company also sources local fruit pulp for the manufacture of Minute Maid Mango in Kenya.

The total Coca-Cola Kenya ecosystem estimates that up to a million livelihoods are sustained through auxiliary operations down the value chain, from distributors to wholesalers, kiosks, trolleys and even the advertising and music industries.

These are just some initiatives that illustrate how the private sector can contribute to Africa’s economic development.

Creating a virtuous circle in which the business grows, local suppliers benefit, jobs are created in the community, governments receive taxes and shareholders receive a return on their investment. It is how Africa can ride out the current global turbulence and remain on course to raise all its people out of poverty.

By doing business the right way, we can make a small contribution to this end-goal by improving livelihoods wherever we do business.

-Jacques Vermeulen is managing director of Coca-Cola Beverages Africa