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Africa’s GDP and the COVID 19 link

The economic impact of COVID 19 has been seen very clearly on the Chinese economy and its future effects have already been factored into major stock markets falls all around the world, despite the best efforts of major economies to counter the fears with economic stimulants. A global recession now seems inevitable, as suggested by JP Morgan and others.

Africa is working hard to put plans in place to manage the spread of the virus with significant actions in place to limit the contagion. Countries closest to Europe and those who rely heavily on tourism and foreign travel have been hit hardest as seen in the graph below.

However, deaths on the continent from COVID 19, can still be counted on one-hand. This next tracker will follow how this will sadly but undoubtedly grow over the next weeks and months. We know Africa’s health care facilities will be put under tremendous strain. Spending on health care in South Africa is about 8% of GDP. The rest of the world is closer to 10% but many poorer African countries spend less than that off a much lower base. Without specifying the percentage by country, this metric may be a useful way to predict and understand the impact of COVID 19 as this situation unfolds. Only time will tell and we pray Africa is spared the brunt of the impact given its already fragile economic health and limited infrastructure.

Click on the graph below to watch the progression of cases of COVID 19 in Africa. The size of the bubble represents the number of deaths, which at this point, stands at 6 in total. Only Egypt (2), Morroco (1) and Algeria (3) have recorded deaths so far.

Africa_ COVID 19 Cases - size of dot represents deaths

South Africa takes conservative approach

Today saw a significant jump in both new countries in Africa recording index cases and an equally significant increase in the total number of cases reported, in fact a full 50% increase. See the updated tracker to see how this has changed.

In South Africa, President Ramaphosa declared a National Disaster after cases jumped from 38 to 61 in 24 hrs and announced a robust response. Here is a quick summary of Presidential Address concerning the Coronavirus, shared by a friend:

1. Declared national disaster.
2. Limit contact between person.
3. Imposing travel ban between high risk countries.
4. Cancelled/revoked visas.
5. Reframe all forms of international travel.
6. Self isolation and testing on citizens returning from international countries.
7. Strengthen screening at airports.
8. SA has 72 ports of entries, 35 will be shut down effective Monday.
9. Discourage all national travel.
10. Gatherings of more than 100 people prohibited.
11. Small gatherings unavoidable prevention and control needed.
12. School closes 18 March till Easter week-end.
13. Visits to all correctional services are suspended for 30 days.
14. Businesses to intensify hygiene control.

Be safe everyone and let’s use this opportunity to pull together as a nation and a continent!

Africa COVID 19 - March 2020 -3

COVID 19 – Africa (March)

Click on the image below to see the animated bar graph on cases.

Africa has perhaps had a chance to get a head start on preparing for COVID 19. In watching the graphic you will notice that for several weeks Egypt just had a single case and then it suddenly makes a huge jump. Some would say Africa has just been slow to detect cases but they may in fact be more experienced in monitoring communicable diseases. Either way, the numbers are starting to add up. I will keep this tracker updated from time to time as a visual indicator of the reported cases. Egypt and South Africa certainly appear to be affected more than most, although South Africa took longer to record its index case. Figures are from WHO Situational reports and Africa news sites and official SA Government site.The South African Government site is an excellent resource to monitor the situation in South Africa and access advise and guidelines.

Have you put a plan in place? This will require some careful thought, a friend recently described this scenario as a flock of black swans flying in. Another suggested today this disease may bankrupt more people than it kills.

In understanding the implications for business, McKinsey has useful material to help guide your thinking. It considers both the economic impact, considering some 3 different scenarios, and some thoughts on how to respond. In reality, this situation has so many implications and these need to be careful weighed up for each individual business. However, their proposed 7 immediate actions do are a good starting point:

  1. Protect your employees, providing practical guidelines on work, travel and hygiene.
  2. Set up a cross functional response team with 5 key work streams: employees, financial stress testing and contingency plans, supply chain, marketing and sales and other (ie all the elements specific to your situation)
  3. Understand the implications on your financial liquidity through some scenarios and build a contingency plan
  4. Stabilise the supply chain – (this is where we can help with some analysis of your situation and some workshops to work through implications and plans)
  5. Stay close to customers to understand how you can support their specific needs
  6. Practice your response plans for different scenarios with you leadership team
  7. Demonstrate purpose by being involved in the wider crisis where you can.

Africa COVID 19 - March 2020 -2

A case for “cost to serve” analysis!

CTS5

Lord Kelvin, as a thinker, was a true giant of a man and we owe him much in laying many foundations in physics, engineering and mathematics. He is often quoted as saying “when you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind: it may be the beginning of knowledge, but you have scarcely, in your thoughts, advanced to the stage of science, whatever the matter may be”.

In “cost of goods sold” measurement, the focus is often on inbound logistics costs, raw materials and manufacturing costs, with distribution costs often just seen as an unavoidable expense or black box. By Lord Kelvin’s assessment, there is often very little science involved! But with steadily increasing distribution costs and the growth in e-commerce, really understanding the total cost of servicing your customers at a customer and product level is critical to making the right decisions to remain competitive.

We have found cost to serve (CTS) analysis to be vital in understanding which customers  are actually profitable. By changing the type of products sold, the frequency of delivery and putting in place minimum order quantities, customers which have previously been “margin diluters” can actually become value adding. In other examples, certain routes to customer, required an additional service charge to ensure that they become profitable. This is always preferable to step away from an unprofitable customer.

In other examples, CTS analysis was used to determine the true cost of a client’s existing inhouse distribution versus that offered by a retailer through their DC. This understanding helped illuminate the DC allowance percentage at which both parties in the negotiation benefited. Normally, retailers have the upper hand as they have a great understanding of their own CTS and will demand either a percentage of selling price or a rate per case or unit, depending on which is most beneficial to them. Also, they often “skim off the cream” and take the most cost effective routes to run and leave the supplier with the routes which are difficult and more costly to service.

In some cases, certain products are simply not profitable at all, once the true cost to serve is understood. They may fill the truck and help to share the cost of distribution but often there is a more cost effective way to service a customer than load them with product lines that simply don’t make any money and may even be returned.

Finally, omni-channel options are an expectation for most customers today and you can be sure they have done the “sums” and will choose the optimised solution for their circumstances. Sometimes this results in a shift in volume from what used to be a really profitable retail store to an e-commerce or click and collect option that results in reduced margins for the supplier. Understanding your CTS before venturing into e-commerce solutions is vital. Do the savings, created by reducing your retail footprint, justify the discounted prices and increased CTS of personalised delivery?  Are you really getting profitable growth?

Do you really know what it’s costing you to service your customers?Without this information,  “your knowledge is of a meagre and unsatisfactory kind” and you are “flying blind” in terms of making the right strategic portfolio decisions, customer growth decisions and route to market and supply chain optimising decisions.

Contact us to find out more about what it would take to do a bespoke “cost to serve” analysis for your business!

Go nuts in Mozambique.. coconuts..

IMG_0762
Coconut palms near Inhambane – stretching as far as the eye can see

For many years during the 15 year civil war, Mozambique ranked as the poorest country on earth.. today, it is still ranked just above Malawi in 7th place. Mozambique’s GDP per capita is less than 1/10 that of South Africa, the richest country in Africa by GDP per capita measures, an economy built on the mining fortunes of yesteryear.

Mozambique has a treasure of another kind*, 90% of its arable land is still undeveloped and the Portuguese left a legacy of coconut palms that still to this day, give yields that match the best in the world due to the favourable climate and soil conditions. (*Mozambique also has major aluminium, coal and recently discovered gas reserves)

In a recent due diligence visit to a factory in Mozambique, I was struck again by the raw beauty of this country and its people, where my father served for many years in a humanitarian capacity as a missionary. In fact my first words as a toddler were in Portuguese and included saluting the flag with a shout of “Viva”, much to the amusement of the local militia. Today, the country is peaceful, friendly and alive with opportunity.

But almost everyone you meet will tell you that doing business in Mozambique still has real challenges. For me, the new road in the picture above is a clear sign of hope . It passes through Maxixe and connects the North and South of this long country. It was built by the Chinese but is well maintained and serves as a vital arterial route to access and distribute resources, particularly to and from the majority of the population and the financial hub in Maputo. Of course the other key connection required for any country to thrive is a robust data highway. In Mozambique data is “dirt cheap” compared to neighboring South Africa, something that bodes well for future development as does the building of Africa’s largest suspension bridge in Maputo.

While Chinese companies continue to thrive, many other foreign businesses battle to survive in Mozambique. Our unique experience at Path to Peak, the ability to build relationships, do the due diligence and plot out a path to success, appropriate in the African context, could help you access new opportunities in Mozambique.  And while doing so, help to bring relief to many living in what remains one of the poorest places on earth.