Sub-Saharan Africa contributed slightly less risk to the global economy in Q1, from 2,46 points in the first quarter of 2016 to 2,47 in Q2, according to the CIPS Risk Index.
However, underlying risk to supply chains heightened as countries in the region battle with food shortages brought about by extreme weather conditions while trying to cope with the impact of low commodity prices and China’s slowing growth.
Sub-Saharan Africa has been swept up in a wave of natural disasters and extreme weather systems which have hit supply chains this quarter. South Africa and Ethiopia in particular are struggling to cope with the prolonged drought caused by the El Nino weather system. These adverse weather systems are having inevitable implications on the agricultural industry’s output within Sub-Saharan Africa.
Global supply chain risk Q1 2016
South Africa in particular has seen output of white corn fall by 31% this year due to the effects of El Nino. In order to cope with this disruption to production, the country will have to import 3,8m tonnes of maize which will inadvertently place increased strain on the country’s foreign exchange reserves.
In addition, the risk of floods and landslides brought by El-Nino damaging the infrastructure in certain parts of the region further threatens supply chain and business continuity in the region.
The impact from adverse weather conditions are compounded by economic headwinds facing the region. Sub Saharan Africa’s largest economies are dependent on commodity exports to China. With commodity prices remaining persistently low and China’s growth slowing, these continue to put stress on businesses and supply chains in the region.
Globally, supply chain risk rose for the second consecutive quarter, from 79,3 in Q4 2015 to 79,8 in Q1 2016, the joint highest recorded level of supply chain risk in a first quarter since records began in 1995.
Natural disasters are contributing to heightened supply chain risk in other parts of the world too, however, the extent of disruption to supply chain activity is determined by a country’s capacity to cope with such damage. Despite a 6,4-magnitude earthquake in Taiwan and a 5,8 magnitude quake in Japan, manufacturers in both countries were able to swiftly resume production, using stock reserves to plug any gaps.
“The latest Risk Index shows that regardless of international political relations, supply chain activity will always be exposed to the threat of natural disasters and extreme weather,” says Andre Coetzee, Managing Director of the Chartered Institute of Procurement & Supply (CIPS) Africa. “The effect of drought on South Africa and the Sub-Saharan African region has quantified this in recent months.
“A fundamental step in sustaining a resilient supply chain is identifying areas of risk, and establishing precautions which work to minimise the disruption caused. The experience of businesses in Japan and Taiwan reflect how the magnitude of disruption was overcome effectively”.
According to Oana Aristide, Interim Lead Economist, Country Risk services, Dun & Bradstreet, soft commodity prices and the lack of global growth engines combined to increase supply chain risks in the first quarter.