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HOW TO SOURCE
GOODS IN AFRICA
HOW TO SOURCE GOODS IN AFRICA
F
rom agricultural products and artefacts to minerals and metals, Africa has abundant opportunities for exporters, and has
the potential of being the next sourcing destination for international buyers.
Rian Geldenhuys, trade law
expert and director at Trade Law
Chambers. SA-based consultancy
provides legal advice on international trade law issues such as
the cross-border movement of
goods, services and investment.
International buyers have several operating options in Africa, for instance, sourcing without representation or outsourcing
a buying office. It is essential to be familiar with the actual market by identifying
the existing challenges and establishing
contacts that you can rely on to navigate
through difficulties.
If you cannot do this yourself, you should
appoint someone (or an entity) that you
can trust and that has a good reputation.
It is necessary to conduct due diligence on
the individual or entity, and to offer incentives so that if something goes awry, your
local partner will take the responsibility
of correcting it. For example, if shipment
goes missing from the harbour, a local representative should feel motivated to assist
in resolving the issue.
Various risks such as non-payment and
non-delivery need to be mitigated. You
may chose to make use of irrevocable letters of credit, which would ensure that payment and delivery occurs, and that specified conditions such as the quality of the
product being sold actually meeting the
specified quality standard are met.
ment will indeed occur, and that delivery
will actually happen.
Not knowing the party you are dealing with
is a concern and especially if they do not
make use of the legal mechanisms alluded
to above. In such instances, it is recommended to do a legal due diligence on the
potential business partner. It is important
to find out if that partner has the authority to act and if he is actually the owner of
the goods being sold. The verification of
such details greatly helps in assessing any
risks associated with a particular transaction and generally, the cost thereof is very
reasonable.
Save for pre-payment, an irrevocable letter of credit is probably the best guarantee
that you will receive payment. It is also the You should always ensure that you have a
best guarantee that you will receive what contract in place - it regulates the terms
you bargained for. However, there are vari- and conditions actually agreed on. Avoid
ous options that traders can explore with verbal promises because they are difficult
their international trade lawyers that can to enforce. Avoid using a standard contract
provide a great deal of comfort that pay- that was not sufficiently amended to cater
for the actual terms of the current deal.
Consider the following when drawing up
contracts:
• Make sure the correct international commercial terms are used, as this affects the
parties’ rights and duties.
• The law of jurisdiction that will govern the There are several regulatory issues that you
contract – legal systems throughout Africa must familiarise yourself with. The actual
differ greatly and this could affect your customs duties involved are very important,
rights detrimentally. Therefore, choose a as this will influence your competitiveness.
country’s law that you are familiar with to
govern the trading contract. This will en- To this extent, you should enquire whether
sure efficiency and cost effective enforce- you could obtain a reduced tariff because
ment of the contract should something go your country of origin has a preferential
wrong.
trade agreement with the country in which
you are exporting.
• A cost issue is often the actual enforcement of the contract. You should make Therefore, you should be acquainted with
sure there are options for litigation, media- the Rules of Origin applicable (the rules
tion and arbitration and ensure that you that determine where a product actually
have well drafted contracts to provide for originates from and if it consists of inputs
these options. I often see badly executed from more than one country).
contracts, which actually end up costing
traders more.
Make sure that your products will not be
the subject of anti-dumping duties, countervailing measures or import restrictions.
Get to know the SPS measures (Sanitary
and Phyto-Sanitary) and TBT measures
(Technical Barriers to Trade) in the export
country as non-compliance with these
standards may prevent you from selling the
sourced goods.
Take the time and effort to get things right.
It may seem costly and lengthy especially
if you want to do the deal right now. The
resources spent at the beginning will payoff and save you a lot of trouble later.
Marie D’Avignon, manager of government relations at American
Apparel and Footwear Association (AAFA). Representing more
than 1,000 brands, the AAFA
advocates for the industry and
contributes $350bn in retail sales
per year in the U.S.
There are factories nailing delivery times,
exceptional skills, cooperative relationships, and more. We attended the Source
Africa 2013 Conference in South Africa
recently and found a wide variety of great
products. Our members are now finding
ways of growing their businesses through
working with the suppliers that they identified.
Nearly all international buyers say trade
With the rising cost of manufacturing in preferences - either those found in the AfAsia and the saturation of key international rican Growth and Opportunity Act (AGOA)
sourcing markets, Africa now has a chance or the Economic Partnership Agreements
of becoming the new sourcing destination (EPA) in Europe – are critical to their Africa
for international buyers. Africa’s problems sourcing decisions. We find the reliance on
are similar to those that exist in many world duty preferences a sobering thought, and
markets - logistical hurdles, bureaucratic one that issues a challenge to stakeholders
costs, unavailability of material, and seg- in Africa and U.S.
mented markets and supply chains, just to
mention a few.
The AGOA, which allows nearly 40 countries in sub-Saharan Africa to export some
There is strong demand for compliance and goods free of duties and quotas into the
transparency and software tools to ensure United States, is expiring in 2015. Lobbysocial compliance to ensure supply chain ists should now begin work to secure a
coordination and transparency, and to timely and long-term renewal.
satisfy the price, quality, and delivery time
demands of retail customers. It is encour- However, the basis for a long-term African
aging to see private companies and gov- competitive strategy cannot be the renewal
ernments working decisively and in tan- of AGOA. African countries and companies
dem to overcome these obstacles.
need to develop and control their own
competitiveness by building on the things
Governments have a role to play in limit- that they do well and fixing those things
ing the costs associated with bottlenecks that are not great.
such as those presented by lack of power
and water or by burdensome customs pro- Perhaps the biggest challenge facing Afcedures. African textile, apparel, and foot- rica and its efforts to attract more business
NEARLY ALL INTERNATIONAL BUYERS SAY TRADE
PREFERENCES ARE CRITICAL TO THEIR AFRICA
SOURCING DECISIONS.
Although Africa forms a small part of the
sourcing portfolios for many companies,
we have learned that it does play a role in
portfolios. Some brands are servicing Europe and the United States from Africa.
Others are selling into the local market,
which is has been identified as a top market for retail and apparel. We have heard
of many success stories of folks doing
business in Africa, and have seen strong
interest from our members who are actively
pursuing leads and identifying partners
and suppliers.
and partnerships with U.S. firms is the lack
of knowledge. They are many that have not
fully appreciated the resources that Africa
has to offer because they cannot see beyond the challenges. As companies share
experiences and perspectives, we expect
more of the industry to realise that Africa
is an increasingly important sourcing and
retailing destination.
Flickr: LukeBosman
wear companies are also actively building
up their own comparative advantages so
they can ultimately be competitive without
trade preferences. Mauritius has showcased itself as one country with this agenda, and is pushing into higher end design
and fashion.
Wikimedia: Michal Osmenda
Madeleine Rosenberg, CEO of
Responsify AB, a consulting firm
specialising in sustainable textile
and leather production.
ufacturing of goods moved from Europe to
Asia, and now due to rising costs we have
to look for new hubs that offer affordable
manufacturing facilities.
In Africa, you can find very good prices,
Responsify is a Swedish company that people that are looking for long-term and
assists international companies with their sustainable business relationships, and
businesses and expansion in Africa. We you can get a lot of support from governare mainly focused on the textile and leath- ments.
er industries but are planning projects in
other areas such as agriculture. We work To be successful, you need to find people
with companies such as H&M, Stadium, with abundant local knowledge. Have a
KappAhl, and some of the biggest interna- long-term perspective, be patient and try
tional hotel chains in the world. We act as to understand cultural differences. Ensure
their representative in Africa and help them you are one-step ahead when it comes to
with sourcing, production planning and fol- planning and follow-up, and do not take
low-ups, business development, logistics unnecessary risks.
and sustainability.
There are challenges of working here, for
We operate in most of Africa and have example, communication barriers, scarce
production facilities in several countries management resources and cultural differincluding Ethiopia, which is increasingly ences. Other challenges include the qualbecoming an attractive for light manu- ity of raw materials and knowledge of the
“IN AFRICA, YOU CAN FIND VERY GOOD PRICES,
PEOPLE THAT ARE LOOKING FOR LONG-TERM
AND SUSTAINABLE BUSINESS RELATIONSHIPS,
AND YOU CAN GET A LOT OF SUPPORT FROM
GOVERNMENTS.
facturing. We have set up a factory in the products and on-time delivery.
country and have found huge potential that
is supported by a large workforce, cheap These challenges can be resolved by havelectricity, the second largest population of ing a local presence, and establishing
cattle in the world (for leather), access to strong partnerships with local partners and
cotton, a government that is offering sub- communities - this is essential if you want
sidises to the textile and leather industry. A to source goods from Africa. You must cullarge number of international companies tivate a well-established contact network
are investing in Ethiopia’s manufacturing and prioritise all relationships that you have.
sector.
Local companies do often have strong reNegative perceptions about Africa still lin- lationships with the communities so it is
ger, and it is common to find foreign execu- important to be a part of the social develtives who are not fully aware of the oppor- opment in the community in which you are
tunities on the continent. Yet Africa has a operating as well. Everyone should be haplarge number of the natural resources that py that you are doing business there. Being
we are looking for in the world. It is also the well appreciated by locals could determine
last unexploited market in the world. Man- whether your venture will be sustainable.
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Charles Weller, regional head for
West Africa at Deutsche Bank
financing and is likely to grow in the near
future.
International and niche banks can access a Financing for exporting SMEs
broad spectrum of business opportunities The ease of accessing financing for SMEs
in Africa’s trade financing market. Deut- involved in export and import trade varies
sche Bank has operated in Nigeria since from country to country. South Africa, with
the late 1970s through a representative of- its highly developed banking system, can
fice in Lagos.
largely meet the needs of importing and
exporting SMEs, whereas in many East
During that time, we have disbursed huge and West African countries this is not the
amounts to trade businesses that range case.
from oil to fast moving consumer goods.
Nigeria mainly exports oil and staples such Whilst we are seeing initiatives in the fields
as sorghum, groundnuts and cotton.
of micro finance and SME development
programs, the demand outstrips the supOil exports run smoothly because the par- ply. What seems to have totally fallen by
ties involved are internationally well-known, the wayside in past years, compared to
with established relationships and the fi- the 1970s and 1980s, is the willingness of
nancial standing to structure and process international trading companies to partner
transactions with relative ease.
with smaller businesses in East and West
Africa in order to grow relationships and
Most exporters are cautious and will only develop financing skills.
transact on either advance payment or
letters of credit. This forces the importers For international companies that are willto arrange funding or at least arrange suf- ing to assume an amount of calculated risk
ficient trade financing lines in foreign cur- in order to penetrate new markets, East
rency (predominantly U.S. dollars).
and West Africa offer great opportunities
across a range of fields. I believe that the
The process of obtaining importer letters domestic banks will gradually build up exof credit is fairly complex, time consuming perience and develop products to meet
and expensive when compared to other the demands of the SMEs and as they do,
countries. In addition, given that there are trade and trade financing will grow further.
no meaningful medium to long-term hedging possibilities for the local currency, trade Demand for structured finance
parties are exposed to currency fluctua- There is increasing demand for structured
tions and risk.
finance solutions to accommodate larger
loans. Sizeable transactions such as infraPort and terminal turnaround times are structure projects and aircraft finance need
other factors that are a challenge for trade structured trade finance solutions.
in Nigeria. Whilst improvements have been
made over the past years, port facilities still We have seen structured deals with tenlack capacity considering the volumes that ors of three, five, seven and more years in
pass through the country’s main harbours.
sub-Saharan Africa and specifically South
Africa, where there has been significant inIt takes weeks to clear cargo and this adds vestment in energy and other infrastructure
to the cost of trading in and with the coun- projects.
try. More than 50% of the cargo coming
into the Port of Cotonou, in neighbouring Longer-term export credit is available and
Benin, is bound for or from Nigeria simply banks and corporates are structuring deals
because there is faster and more effective accordingly. Turning to West Africa, the avharbour and port management. Such chal- erage tenor of trade transactions is problenges can discourage potential new in- ably under 12 months. Commodities and
vestors or trading partners from investing foodstuffs tend to run to 180 days, while
in Nigeria’s market.
some larger transactions are being seen
at 360 days (mainly driven by refinancing
Rising demand for trade risk insurance
requirements) and the occasional two-year
The increasing business and growing size transactions – increasingly coming out of
of transactions, there is raising demand for Ghana – are also being seen.
trade risk insurance in West Africa. This has
led to greater usage of Political Risk Insur- Governments and credit agencies do
ance and insurance. Oil price hikes alone maintain programs for a long list of African
have accounted for increases in trade fi- countries for export and structured funding.
nance needs - letters of credit amounts or However, this can be a costly alternative,
guarantee amounts – of more than 30%.
especially in West Africa because many
financial institutions (FIs) lack the experiBoth limit amounts and the number of pro- ence and knowledge of such programs.
viders have increased and we are starting There is certainly the opportunity to eduto see Asian insurers looking at West Africa cate and train regional FIs on structured
and providing coverage. Therefore, risk in- export programs.
surance is important in West African trade
Opportunities
Given the political uncertainty, currency
weakness and faults in the banking and
financial systems, trade finance provides
the security and certainty that entrepreneurs dealing in these regions want. At
present, perhaps the largest volume of
trade business is happening in the emerging oil economies of Angola, Ghana and Nigeria. Countries like Benin, Kenya, Senegal
and Tanzania continue to show consistently stable trade flows and trade finance
volumes.
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Investment required in flat-rolled iron/steel plant
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COMPANY PROFILE
Tue, 30 Oct 2012 16:08
With higher oil prices, single transaction
values - basically oil cargoes - have risen.
Increased oil revenues have also boosted
spending on imports. In addition, we are
seeing a slight shift in trade flows in favour
of trade between Asia and Africa.
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AIGA International
Region: South Africa
Membership: Premium
The Richards Bay IDZ is seeking partners to set up a flat-rolled iron/steel manufacturing
facility in KwaZulu-Natal
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Overview
EXECUTIVE SUMMARY
Metallic and non-metallic coatings protect steel from corrosive elements found in the environment;
certain coatings also have a decorative quality.
REGIONS
Flat-rolled products are plated or coated with tin usually by electrolytic deposition. Some uses for this
material include food and beverage containers and electronic equipment. Flat-rolled products of
These products are coated with zinc or with zinc-nickel alloy (9-16% nickel/balance zinc) by means of
electrolytic deposition applying a coating of another metal on steel by means of an electric current and
electrolytic solution. Some uses for such coated material include automotive body parts, appliances
and architectural applications. Flat-rolled products of non-alloy steel are made following ASTM
Electrolytic chromium-coated steel is also referred to as tin-free steel (TFS). This is black plate (very
Nigeria has long been a trade finance
country that historically experienced incidents of risk, which include military coups,
oil crises, debt restructuring and currency
slides.
DEAL OVERVIEW
South Africa
Deal stage
Concept Phase
SECTORS
Date for expressions of interest
1st March 2013
Manufacturing
Aiming to complete funding by
Deal amount
EXECUTIVE SUMMARY
iron/steel factory.
of the uses for such coated products include beer and soda three-piece cans and ends, ends for food
cans and caps and crowns for glass containers.
GVA growth will result from the creation of a
These also include those that have been coated with paint, varnish, lacquer or plastics. Some
examples of these coatings are plastisols, polyesters, epoxies, acrylics and polyvinyl chloride (PVC).
These also include products coated with zinc-rich primers such as Zincrometal.
manufacturer being located in the Richards
Bay IDZ. It was shown that given a
R58-million investment, 208 employment
opportunities would be created of which 68
would be direct and 139 would be indirect.
INVESTMENT STRUCTURE: EQUITY
Total equity
40%
Company value
Share price
40%
US$ 1 billion
US$ 2.86
DEAL SUPPORT NETWORK
Demand
ACTIVITY
components, automotive parts, food and beverage containers, household and cooking appliances,
and various
of /equipment
and machinery. Some of the uses for this type of coated material
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31st May 2013
US$ 400 million
Rchards Bay IDZ in South Africa is seeking
Lawrence Fishburn
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Region: South Africa
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tractors and outboard motors.
Pieter Johannes Louw
There are more than 200 automotive component manufacturers in South Africa, and upwards of
another 150 that supply the industry on a non-exclusive basis. The component industry has a turnover
of about R50-billion, or approximately 2% of the country's GDP, and is looking to strong growth as
exports potential continue to increase.
Region: South Africa
Membership: Premium
South Africa exported R30-billion worth of auto components in 2006, a 32% increase over 2005.
Catalytic converters continued to be the country's most exported vehicle part, accounting for almost
half of all component exports.
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Max Anderson
Region: South Africa
Membership: Premium
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CONTENT AND PROMOTIONS
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Research has indicated that the sample
area of the Umgungundlovu District Municipality
PERSONALstudy
COMPANY
However, we are seeing significant growth
in trade and trade financing there, and all
signs point to continued growth in imports
and exports, and a further strong upturn in
trade flows.
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Canada
65
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12
United Kingdom
75
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75
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DEAL SUPPORT NETWORK REQUIREMENTS
2010 revealed that the import demand for this product experienced an average annual growth rate of
United States
65
42% from 2005-2010.
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R58-million investment, 208 employment opportunities would be created of which 68 would be direct
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SUSTAINABILITY
uncoated steel/iron; this manufacturer could potentially act as a support industry for a coated
EMPLOYMENT
There are more than 200 automotive component manufacturers in South Africa, and upwards of
another 150 that supply the industry on a non-exclusive basis. The component industry has a turnover
of about R50-billion, or approximately 2% of the country's GDP, and is looking to strong growth as
exports potential continue to increase.
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