The Next Region for Globalization: East Africa?

Our logistics study suggests that Russia and Eastern Europe are the regions that 20% of respondents identified as a growth region. Both Russia and Eastern Europe represent high growth but also high risk countries to operate in, that are fed by growing energy resources, but which have a difficult government regulatory environment to operate in. This represents a dynamic and growing market, fed by energy-rich growth. Another 15-20% of organizations are expanding into India, Africa, the Middle East, and Central America. These are all regions also characterized by unreliable logistics supply chain infrastructures, difficult government regulations, and a lack of logistics talent. Also of note is the growth into China which is at a much lower rate of growth than in the past.

One important note of interest is the growth of Africa as a region for global expansion. Along Africa’s Atlantic coast, garment factories are giving up African couture to assemble scrubs, aprons and lab coats. A December 1, 2012 story in the Wall Street Journal notes that this switch comes as global suppliers seek out Africa’s low-cost, English-speaking labor and ports that are 10 days closer than Asia’s garment factories are to the U.S. eastern seaboard. In terms of delivery leadtime and working capital, ten days is a significant factor that is driving many large retailers such as Wal-Mart to sourcing items such as hospital apparel in regions such as Ghana. As minimum wages in India, Malaysia, Thailand and China have increased by as much as 10% in 2012, wholesalers have invested in sources of supply in East Africa. Although these regions have not seen the volumes that China’s factories have seen, law such as duty-free exports passed by the US government has encouraged such industries to spring up. The fact that Ghana is an English-speaking nation with a stable democracy has also helped speed up growth in this region, although productivity rates still do not match those of China.

One of the big challenges in this and other regions of Africa will be the roads.  Charles Edwards of the North Carolina Center for Logistics presented at our recent SCRC meeting, and shared his experiences on the poor conditions of many roads in Africa.  In some cases, organizations expanding in this region need to factor in the cost that they will have to build their own roads and infrastructure into some regions.  This should be considered part of the investment picture.  A lack of harmonization, the looming impact of corruption, and a weak communication infrastructure are also hurdles that must be navigated.  Nevertheless, the promise of Africa is one that many early adopters have already jumped on.  The US is somewhat lagging in this case, but signs are that this is starting to change.