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Local sourcing: the key to sustainable growth in Africa

In Ethiopia, we built a factory, literally in the middle of nowhere, but once other companies saw what we had done, they started looking for investment opportunities themselves. Today, the plant is run by local staff, all of whom are under the age of 30, writes Jacques Vermeulen.

These are uncertain times for the global economy and for emerging markets in particular. The period of synchronized global economic growth that saw a 40 percent 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. The record of economic growth in sub-Saharan Africa shows there have been some consistent common denominators.

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 labor intensively - and this means greater localization of production inputs wherever possible to encourage industrialization.

Coca-Cola Beverages Africa fully appreciates that the future of our company is tied to the wellbeing and prosperity of the communities we serve on the continent, which is why we have set ourselves a target to source locally 80 percent of the raw materials we currently import by 2022. This process is already well advanced.

In Ethiopia, we built a factory, literally in the middle of nowhere, but once other companies saw what we had done, they started looking for investment opportunities themselves. Today, the plant is run by local staff, all of whom are under the age of 30.

Furthermore, as a business we have always recognized the fact that governments need revenues to fund public services for their citizens. As an investor - in jobs, capital structure and local businesses within our supply chains - we have been a significant tax contributor to all societies where we operate.

We employ more than 1 750 people in Ethiopia and we have invested a substantial amount in the country, paying more than 34.5 percent of our net sales revenue in tax. We have introduced new products and discontinued old ones as we seek continually to do what we can to make a positive impact in Ethiopia; stimulating the economy, empowering entrepreneurs and employing and training local staff.

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

We strive to create 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 its entire people out of poverty. We believe that by doing business the right way, we can make a small contribution to this end-goal by improving livelihoods wherever we do business.

Ed.’s Note: Jacques Vermeulen is managing director of Coca-Cola Beverages Africa. The article is provided to The Reporter by Coca-Cola Beverages Africa.  The views expressed in this article do not necessarily reflect the views of The Reporter.

Contributed by Jacques Vermeulen
Contributed by Jacques Vermeulen