How African supply chains navigate it’s informal economy

It is no secret that Africa is largely comprised of an informal economy. The secret is more about how African supply chains can successfully interact with this informal economy.

Africa’s informal economy is the largest in the world. Yet it remains one of the most effective. Supply chains can operate with minimal disruptions despite the unique challenges on the continent.

There are a few reasons why, and we will explore them in this article.


1. Strong knowledge of the local market

Successful supply chains have a strong knowledge of the local market. If they don’t, they have partners who do. With this knowledge, they can predict market demands and changes correctly. They can also access real-time information on developments occurring in the market.

This working knowledge of the local market bolsters the supply chains and enhances their ability to navigate the economy better. It facilitates negotiations with suppliers, making it easier for them to easily calculate their returns on any investment.

A strong working knowledge of the market means daily or weekly interactions with market factors. These are the suppliers, farmers, traders, and customers.

Operating in Africa, you will quickly notice that supply chains thrive even when disruptions occur in the market or economy. This is primarily because they are not taken by surprise.

For example, despite the many coups across the African nations, many of these supply chains are doing better than expected.


2. Ability to spot risks and solve them

Many African supply chains are careful about the challenges in the continent. However, they are quick to calculate or analyze the risk involved. This prompts better decision-making.

Although the economy is quite informal, certain factors are still at play. For instance, when solving for security. Yes, it is a challenge in Africa, but many businesses still thrive without any challenges.

This is primarily because of their ability to spot potential security issues and quickly identify measures that can be taken to avoid such. It could be setting up relationships with the community or the local police. They also leverage tech solutions like trackers and GPS.

Still on the security issue. There are so many cases where goods are stolen and then returned. 

The supply chain can simply identify and trigger measures that safeguard their goods. Granted, many times, these measures can be quite expensive. But they are all the price of doing business.


3. Engaging Multiple Vendors

You will be hard pressed to find an African supply chain that is not engaging multiple vendors. They often have one strategic partner and other smaller vendors lined up as backups.

Again, this is all down to the informal nature of the economy. Suppliers tend to disappoint, and when they do, it can be devastating for these supply chains because of the volatility in demand.

African markets are volatile and have little demand for poor lead times or failure to meet expectations. That is why supply chains tend to engage with multiple suppliers to prevent disappointing their customers.

Multiple vendors also give these supply chains leverage when negotiating with other suppliers. However, they will often struggle with balancing the relationships between these suppliers. This is where it gets tricky for them.

As much as suppliers can be unreliable, it is still important for supply chains to manage them effectively. But how do you manage them when you don’t have enough business for them?


4. A large independence streak

Although Africa has quite a few challenges, such as poor infrastructure, poor energy resources, policies, and security, the supply chains on the continent have a “do it yourself attitude” regarding their operations.

They will provide their own security and resources. Many times, they will also have an extensive maintenance infrastructure to better vehicles that suffer from poor roads. 

This approach relies little on the government and fosters a can do attitude for the supply chain and its personnel. However, it also translated into how African supply chains interact with the informal economy.

Many of the supply chains were forced to rely on the informal sector to survive, prompting evolution.