How Brexit can streamline retail supply chains by harnessing the growth of Africa
Brexit can place UK retailers at the vanguard of nascent agricultural and manufacturing supply sectors in Africa, but only if the UK Government retains current tariff-free access to products from the continent.
That was the view of trustees and managing directors from some of Africa’s emerging garment markets, who urged the UK to strengthen ties with companies in Africa at the risk of losing a competitive edge to companies in the European Union (EU) and the US.
Speaking at a House of Lords event organised by non-profit trade facilitators Proudly Made in Africa, Baroness Lola Young of Hornsey said: “The rapid growth in many African economies offers opportunities for greater sustainability in our value chains and there is a creative industries sector that adds value to African natural resources rather than exporting them raw.”
As a trustee of the Aid by Trade Foundation, Young suggested that UK retailers could introduce shorter value-chains that are more transparent and manageable by implementing enabling trade tariffs with Africa.
Currently, garments from Africa benefit from tariff-free access to the UK market due to the EU’s trade policies. This gives products sourced from the continent price advantages ranging from 12% to 32% compared to similar items imported from China.
However, EU companies like Swedish retailer H&M – which has a sourcing office in Addis Ababa – and big name US brands such as Burberry and Calvin Klein have already made moves to enhance relationships with suppliers.
The UK’s impending departure from the EU has created waves of uncertainty throughout many legislative aspects, but through the World Trade Organisation (WTA), UK retailers can still tap into these shorter value chains outside of the EU.
The WTA’s Generalised System of Preferences offers legal routes for developing countries to gain non-reciprocal access to the British market. The system has already been utilised by the US, under the African Growth and Opportunities Act, to great effect.
Factory for the West?
For Proudly Made in Africa Trustee Albert Tucker, zero tariffs would not only provide security for African companies, but also allow the UK to build some “good relations” with the continent to drive growth and reputational benefits for UK retailers.
“The zero tariffs and zero quotas regime is now at risk with Brexit,” Tucker said. “It is essential that the tariff free market access be maintained for African fashion products as it makes the crucial difference for the African supply chains engaging international buyers.
“Britain has some very good relations with Africa and maintaining that will be quite critical to the future of business on the continent. We need to make sure that assurances are given now. There’s huge potential there and we need to give ourselves the chance to capitalise on it. Supporting social enterprises and transparent ethical businesses is good for UK business.”
Baroness Young was quick to warn that the “deep reservoirs of talent in Africa should not be seen as a factory for the West”. But, with sub-Saharan Africa producing 6.5% of the world’s cotton, UK retailers could shorten complex supply chains by boosting economic prosperity in African countries.
Once such country where this transformation is underway is Ethiopia. Ethiopia is the world’s fastest growing economy, growing by 8.7% last year and expected to expand by 8.1% in 2016, according to International Monetary Fund (IMF).
The country exports around $100m in garment products annually, but the installation of a new “state-of-the-art” industrial park looks set to raise this output to $500m. Nine more of these parks are in the pipeline, and for the Enterprise Partner’s – a market developer and job creator in Ethiopia – managing director Nebil Kellow, partnerships with UK brands can ensure a better standard of living for inhabitants.
“Africa’s lions are on the industrial march,” Kellow said. “As China transitions towards higher value-add in manufacturing and services, what we are also witnessing is the beginnings of structural transformation across the continent, whose educated youth are eager for jobs and ready to take up the mantle.
“In places like Bangladesh, you can see some real issues with the supply chains and the workers and their skills, and it can quite easily become this race to the bottom between countries to provide cheap jobs. In Ethiopia, we are working away from this to develop highly skilled workers who can produce high-value goods. There are far more opportunities to create wealth in African markets, and trade is already moving forwards.”
Proudly Made in Africa has built-up a knowledge of producers and factories in sub-Saharan Africa with a more than 500-strong network. The non-profit has also released a new report outlining the economic post-Brexit benefits that can enhance productivity in both the UK and Africa.