Procurement is key to long-term regional wide Industrialisation, SMME growth and socio-economic prosperity26/02/2016
Strategic Sourcing is key to industrialisation in Africa07/07/2017
Africans do not want handouts, Africans want jobs. In a time of intense market competition and widespread unemployment, businesses and governments alike need to look for innovative and effective ways to create jobs and promote socio-economic stability in the region. Africa’s current overreliance on government and ‘big-business’ jobs needs to come to an end, and small, medium, and micro-sized enterprise’s (SMME’s) need to be supported in their job creation capabilities on the continent.
Global examples have illustrated the benefits that long-term SMME growth and enterprise development can have for industry improvements at both a national and regional level. In relation to this, the role of procurement, a sub-process of supply chain management, in facilitating SMME growth and development needs to be considered as an important avenue for socio-economic development in Africa.
Current procurement practices do not support medium to long term SMME growth
In a recent longitudinal study conducted by PanAvest International and Partners, the procurement attitudes and activities of various public and private organisations were examined. The study found that although procurement has been globally recognised as playing an essential role in local and regional wide industrialisation, current purchasing and supplier selection practices do little to support SMME growth on the continent.
Indeed, it was found that while over 55% of African government spend went towards purchasing and procurement of goods and services, less than 10% of that spend was directed towards local suppliers. In addition, over 80% of the government organisations participating in the study were unaware of the true origin of the goods and services that they were spending their money on – indicating a clear lack of focus on long-term SMME and enterprise development thinking.
Private sector statistics were no more promising with both locally and internationally owned businesses indicating a limited focus on SMME development and local supplier support.
Of the locally owned organisations and corporations involved in the study, 92% admitted to not having any medium- to long-term SMME strategies and implementation plans, and 90% indicated that they did not currently have any internal supplier diversity and SMME policies in place. This is largely a result of the overwhelming majority of participants (80% – 82%) viewing SMME development and support initiatives as the responsibility of on the one hand, national governments, and on the other hand, large global organisations operating in the region.
When it came to internationally owned businesses’ and organisations’ perceptions of SMME development on the continent, the study’s findings were somewhat similar. International participants indicated a significant lack of medium- to long-term internal supplier development and SMME policies, and the majority (84%) of participants viewed local supplier development as an aspect of corporate social responsibility, rather than an integral part of business practice. In particular, international participants saw local supplier development and SMME support as the responsibility of government, and not necessarily the private sector.
Public and private sectors need to commit to supporting SMME development initiatives
In relation to the findings of this study, it is evident that support for local African SMME and enterprise development initiatives is currently lacking in both the public and private sectors. This needs to change before the power of procurement can be effectively harnessed for long-term SMME growth and related job creation in Africa. In order to realise this change, governments and the private sector need to work together to coordinate local supplier diversity, enterprise development, and SMME growth. They need to be bold and aggressive in their approach to SMME development and commit themselves to long-term strategic thinking instead of focusing on short-term economic gains.
When it comes to public sector input, African governments need to provide clearly defined national and regional procurement and supply chain management strategies related to SMME development. Such strategies should focus on increasing regional wide intra-African SMME trade through strategic consumer and industrial sourcing. In this regard, sectors which have significant long-term growth potential, such as agriculture, tourism and ICT should be important areas of focus, and governments should consider committing at least $70 million of their annual tax revenues (approx. R1.1billion) directly toward SMME and related local supplier diversity initiatives over the next 10 years. In addition, governments need to offer attractive incentives and rebates to local and international businesses with long-term interests in SMME and supplier development.
The private sector can also contribute to SMME growth and development in various ways. To begin with, they need to be open to working with government in their initiatives to improve SMME growth and enterprise development on the continent. Business needs to accept that procurement is more than just a cost saving function, and that SMME growth and supplier diversity needs to be viewed as a medium- to long-term business imperative, rather than a simple short-term ‘social responsibility’ requirement. As such, organisations may need to consider collaborating on joint region-wide procurement strategies which will contribute towards both organisational performance and industrialisation. Finally, businesses in the private sector can begin to have a significant impact on SMME development and job creation by contributing between 0.5 and 5% of their gross annual profits to SMME and supplier development initiatives.
In the end, if African countries are to realise their inherent potential and experience long-term local and regional socio-economic success, it is imperative that both governments and businesses start to take bold steps towards supporting enterprise development and SMME growth on the continent.