COVID-19: Impact On Supply Chains and The Implications For Business

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Saturday, April 18, 2020 /03:00PM / Bukola Akinyele for WebTV / Header Image Credit:  Hub John  Hopkins

 

Brickstone Africa founder, Mr. Femi Awofala has called for the ramping up of investments in the manufacturing sector and the creation of Agro-Industrial Parks across the country.

 

Speaking from a business perspective, Awofala said that the country must ease into a long time planning mindset during the COVID-19 lockdown, this requires a business mind frame that is locked into a concept of sustainability and continuity.  He said that post COVID-19 social distancing will still be a major issue which will affect business activity. The social interaction trauma would, according to Awofala, ease by 2021 but he insisted that the aftershocks of the COVID-19 period must be navigated intelligently and carefully as it was unlikely that the old normal would subsist into the coming year.


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MD/CEO Frontier Africa Report, Mr. Boason Omafaye, spoke on what he saw as the development imperatives of the COVID-19 era and was of the strong opinion that supply chain networks need to be created in the domestic market with a view to protecting the economy from future external shocks. He said, "we need to get everyone to understand the COVID-19 lockdown  from a health perspective, a business disruption dimension and on a personal individual basis".  

 

He spoke further on the challenges of domestic supply chains noting  that, for a country like Nigeria with a huge physical infrastructure deficit  and a very large informal economy the current realities serve as a learning curve and country must be sure that it manages the pandemic, with minimal dislocation to daily lives, businesses, supply chains, logistics and other service flows that could cripple domestic productivity and employment.

 

He charged the government to use the opportunity of the COVID-19 challenge to strengthen local supply chains. The COVID-19 period according to Omofaye, should not be seen as an opportunity for a productivity and production holiday. The critical message of the period is for the country to fashion strong disaster recovery initiatives that ensure that the country's economy is structured with the resilience to continue running within a healthy framework that does not stop livelihoods and employment.


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Omofaye expressed the view that the contribution of Nigeria's  public service to the Gross Domestic Product (GDP) was meagre at roughly 3%. At a time of a COVID-19 pandemic, the contribution should be expected to be much lower.

 

The CEO of Frontier African Reports said that Nigeria needed to find another way to go for a more efficient fiscal arrangement by adopting what he called  E-government.


Awofala,on the other hand, noted that production supply shortages, transport interruption and the virus containment measures taken  by the government was limiting market access and hampering manufacturing activities and nudging the economy towards an inflationary recession with the manufacturing sector being hard hit .

 

He said, the  niggling issue of employment was becoming ever more critical as a growing number of people were becoming victims of job losses. He noted that with the large presence of companies owned by foreign nationals, the return of these nationals to their countries of origin is seeing businesses significantly scale down operations or simply close shop. He noted that this was particularly true for Asian and European companies in the country.  


Awofala observed that in terms of raw materials supply,  60-70%   of manufacturing companies especially in the small and medium-scale segment of local business import equipment and raw materials from china and other parts of Asia. He said there would likely be a glut in the market post COVID-19 whereby the biggest buyers would go to their foreign suppliers  and negotiate preferential supply price cuts. Awofala called on manufacturers in key sectors of the economy to start to think of import substitution as a means of preventing future supply shocks.

 

In the area of movement and logistics, Awofala said it would be  a big issue under the prevailing situation because with the  era of social distancing vehicles would not be  in apposition to move freely from one location to the next. Issues of  Movement of goods and services may lead to significant supply delays. The situation may, however, throw up opportunities for entrepreneurs to take advantage of the need for sourcing raw materials along more efficient commodity routes and methods such as railways.  


Giving further insight the development around supply chain, Mr Femi speaks on the area of disruption as it is very critical because for  business model  based on getting raw materials from china or Asia may not have that raw materials in the next 6months but may still have a viable market or demand to provide for. 

 

He was optimistic that it is likely for the economy to go in to an exchange rate deviation which will means raw materials we are buying from the manufacturers will go at a higher price. He said, We need to speed up development in three key sector which is the agriculture,  solid mineral sector and textile sector.

 

Awofala gave further insight into how to develop the local raw materials sector in an effective manner . From his standpoint Awofala argued that a number of beverages still get imported from overseas with minimal local value addition. He insisted that the country would need to go up to 90% of local sourcing of raw materials in the food and beverage sector.

 

He said, it was time for federal government to introduce a new set of incentives to look at the food and beverage sector to provide sustainable financing arrangements that make industries in the sector competitive.  He charged the Central Bank of Nigeria [CBN]  to step back and map out the value chain to critical sectors in the economy and encourage low cost financing along the different value chains. 

 

According to him, there are some sectors that are already developing but not yet standardized there should be a logical pathway to enable raw materials be provided at competitive prices and within the right global standards.

 

Omofaye, on his part, said the latest policy by the Central Bank of Nigeria (CBN)  addresses some of these concern with the CBN now talking about raw materials processing for local and export markets.

 

The new policy reforms speak to how the CBN ould intervene from the farm to market and in between within the local value chains, he said.


On equipment for the  Agro allied sector Omofaye noted that, the CBN  spoke about assisting the manufacturing sector to acquire needed machinery in conjunction with commercial banks.

 

In further analysing policy needs, Awofala said the CBN should exercise care in the way it looks at the stimulus required to grow the domestic economy in the face of an impending global recession.

 

He noted that there  was need for close integration with the fiscal authorities. He charged the CBN to work with ministry of trade and investment and other sustaining ministries to ensure that the right entrepreneurs were the ones targeted for support.

 

 He suggested that the government should run a Guarantees scheme and Co-invest with Nigerian banks such that when a Nigerian bank or any other institution lends money to a particular sector the CBN through its intervention fund would mark that lending so that the initial risk would be taken up by the bank themselves and the loan beneficiary rather than the CBN. 

 

Speaking on Policy pathway to adopt to solve the issue around supply chain in Nigeria. Awofala said, the first  key issues has to with the financial stability of the manufacturing company and their supply chain model. 

 

On entrepreneur perspective as a manufacturer  we need to look into supply chain and identify local options that are available. A number of multinational companies have to do a bit of backward integration and getting this farmers to provide an equipment's and other things.  Infrastructure that is available for manufacturers to be able to move goods from one place to the other. He said Awofala noted that Nigeria needs to develop Agro- Industrial parks whereby you can have a numbers of rice farmers everywhere who are not far from each other which will also have a road network that will make them get to urban areas.

 

Speaking further, Awofala said that, another creative way for CBN was to invest in mobile processing plants instead of carrying tomatoes from Kaduna down to Lagos. Processing is critical to reducing avoidable transport costs.

 

In his final submission, Awofala noted that the domestic supply chain  was critical for government in getting the right equipment for local producers, he said that there should be increased R & D by local universities who should create specialized post-graduate schools that focus on research, while also recruiting and training fresh lecturers who focus on research and product/process development to grow the domestic manufacturing sector.  


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