By Francis

Copyright thebftonline

By Kofi O. Asenso

The global economic landscape features complex supply chains, primarily based on traditional manufacturing centres in Asia, Europe and North America.

For decades, Ghanaian businesses have followed a common path, sourcing almost everything, from raw materials to finished products, from these distant regions.

While this strategy has been successful in the past, recent global disruptions, including the COVID-19 pandemic, geopolitical tensions, the Suez Canal blockage, and rising shipping costs, have exposed significant vulnerabilities in long, complex, and geographically concentrated supply lines.

Amid these changes, a new opportunity emerges on the African continent: the African Continental Free Trade Area (AfCFTA). Now ratified and operational, the AfCFTA aims to create the world’s largest free trade area, bringing together 54 countries with a total GDP exceeding US$3 trillion and a market of 1.3 billion people.

For Ghanaian businesses, the AfCFTA is more than a policy initiative; it is a vital step toward creating resilient, cost-effective, and sustainable sourcing strategies that extend beyond traditional markets in Europe and Asia to explore the vast potential within Africa. This article explores the practical steps Ghanaian businesses can take to shift their sourcing approach.

Why Shift Sourcing to AfCFTA?

The traditional sourcing model offers advantages such as competitive pricing due to economies of scale and lower labour costs, but has significant downsides.

High Logistics Costs and Extended Lead Times: The journey from Guangzhou to Tema or from Rotterdam to Takoradi is long and expensive. Freight charges have soared since the COVID-19 pandemic, which makes up a considerable portion of the final product cost. In addition to cost, lengthy lead times create inventory holding costs, expose businesses to demand changes, and hinder agility. Sourcing from Nigeria, Côte d’Ivoire, or South Africa, for example, could drastically reduce transit times and transportation costs.

Forex exchange Pressure : Ghanaian businesses importing from outside Africa often rely on major international currencies, primarily the US Dollar. The continuous depreciation of the Ghana Cedi against these currencies makes imports more expensive, shrinking profit margins and requiring significant foreign exchange reserves. Sourcing within the AfCFTA allows transactions in regional currencies or the Ghana Cedi in some cases, easing forex pressure and reducing currency risks. This leads to more stable input costs and predictable business planning.
Improved Supply Chain Resilience: The “just-in-time” model, designed for efficiency, faced major challenges during global disruptions. Diversifying sourcing geographically, especially within a continental framework, enhances resilience. If a specific region experiences political issues or natural disasters, alternative suppliers within the AfCFTA may be more accessible than those from other continents. This regional support helps protect against single points of failure.
Supporting Regional Economic Growth and Integration: Sourcing internally within Africa helps advance the continent’s industrialisation and job creation goals. By creating demand for locally made goods, Ghanaian businesses foster regional economic growth and catalyse a positive cycle of production, innovation, and trade. This also aligns with national goals to strengthen local industries and reduce reliance on imports.
Lower Carbon Footprint: Shorter supply routes naturally produce lower emissions from transportation. As global and national focus on sustainability increases, a regional sourcing strategy positions businesses as environmentally conscious, appealing to a growing group of consumers and investors.

Practical Steps for Ghanaian Businesses

This guide presents a straightforward, four-phase plan for businesses looking to transition their sourcing from traditional markets to regional suppliers within the African Continental Free Trade Area (AfCFTA).

The strategy includes four clear stages. It starts with assessing and organizing internal operations. Next, it moves to finding and evaluating suppliers. The third stage establishes logistics and contracts. Finally, the focus shifts to managing and improving long-term relationships.

Phase 1: Internal Assessment and Strategic Alignment

First, conduct a spend analysis to understand current procurement details and identify items that can be sourced from Africa instead of Europe or Asia. Second, assess your organisation’s internal capabilities to ensure readiness for this sourcing shift.

Third, use the spend analysis to define and prioritise sourcing categories, starting with lower-risk products. Fourth, develop a phased implementation plan, beginning with a pilot project to manage risk. Finally, secure executive support by clearly presenting the benefits and challenges to get the necessary resources.

Phase 2: Supplier Discovery and Due Diligence

To find suppliers, first utilise AfCFTA resources like its Secretariat, trade missions, business associations, digital platforms, and Ghanaian diplomatic missions. Next, conduct rigorous supplier vetting to assess their financial stability, production capability, quality management systems, ethical standards, track record, and legal compliance. Lastly, understand the AfCFTA Rules of Origin (RoO) to ensure sourced goods qualify for preferential tariffs, which requires close collaboration with suppliers.

Phase 3: Logistics and Contractual Frameworks

This involves identifying efficient transport routes, selecting experienced freight forwarders, and preparing for potential challenges like border delays. You must also understand and comply with customs procedures.

Next, focus on contract negotiation and management. Draft strong contracts that specify quality standards, delivery schedules, and clear terms for payment, dispute resolution, and performance monitoring (KPIs).

Phase 4: Relationship Management and Continuous Improvement

In this final phase, build strong, collaborative supplier relationships through regular communication and joint problem-solving. Support suppliers through knowledge transfer and capacity building to help them meet your standards.

Continuously monitor and evaluate supplier performance against KPIs and adapt your strategy as needed. Finally, embrace digital transformation by using tools for supplier management and order tracking to improve efficiency and supply chain visibility.

Addressing the Challenges

While the benefits are promising, Ghanaian businesses may face several challenges from quality control, standardisation, logistics infrastructure and efficiency, supplier discovery and information asymmetry, financing and payment systems and regulatory harmonisation and bureaucracy.

Quality control and standardisation is often a primary concern. While many African manufacturers meet international standards, some may not. To resolve this, businesses should emphasise due diligence, factory audits, clear specifications, and assist suppliers in improving capacity. The AfCFTA secretariat should also encourage the creation of robust continental standards bodies.

Next is, logistics infrastructure and efficiency: Poor Road networks, inefficient border crossings, and limited storage can hinder regional trade. Businesses should work with experienced third-party logistics providers that know intra-African routes. Additionally, account for potential delays in lead times and advocate for infrastructure development through industry associations.

Then, there is supplier discovery and information asymmetry. Finding reliable, suitable suppliers across diverse African countries can be challenging due to the lack of centralised databases. Business leaders and executives must actively engage with trade bodies, B2B platforms, and trade fairs, leveraging diplomatic networks, and additionally consider investing in dedicated procurement professionals for regional market research.

Again, financing and payment systems remain a challenge in intra-continental trade. Cross-border payments, especially in local currencies, can be complicated, costly and sometimes impossible. Businesses must explore banks with strong correspondent relationships across Africa and additionally monitor developments related to the AfCFTA-led Pan-African Payment and Settlement System (PAPSS), which aims to facilitate quick, low-cost cross-border payments in local currencies.

Last but not the regulatory harmonisation and bureaucracy. While AfCFTA seeks harmonisation, differences in national regulations can still create hurdles. Businesses can overcome this by working closely with knowledgeable customs brokers and legal advisors and staying informed about the implementation of AfCFTA protocols and national policy changes.

Conclusion: A New Dawn for African Supply Chains

The time of depending solely on distant global supply chains is coming to an end. For Ghanaian businesses, the AfCFTA offers an exceptional chance to redefine their sourcing strategies, moving towards a more resilient, cost-effective, and regionally integrated model. This change is not just about adjusting to new trade agreements; it is about strategically positioning Ghanaian enterprises for long-term growth in a dynamic and connected world.

By conducting thorough internal assessments, engaging in careful supplier discovery, planning logistics meticulously, and building strong regional partnerships, Ghanaian businesses can overcome these challenges and tap into the vast potential of the AfCFTA.

This journey requires foresight, flexibility, and a proactive embrace of the continent’s shared economic future. Moving beyond Europe and Asia is not just a strategic shift; it is an investment in Ghana’s economic independence and a significant contribution to Africa’s collective prosperity.