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How to enhance supply chain resilience in South Africa

Brokers can help a company manage supply chain risk, not only by placing insurance cover and ensuring a full understanding of the technical aspects of a policy, but also by identifying its potential vulnerabilities.

11/09/2023 · 5 minute read

South Africa is often called the “jumping board” for trade into Africa, but due to failing port and rail infrastructure, it’s becoming increasingly difficult for exporters to get their products to market and for importing companies to get essential parts in time for shipping deadlines.

Companies can take action to mitigate the risks embedded within the region’s supply chains and facilitate the continuous manufacturing of goods and provision of services. However, it is necessary to first understand the risk.

Main supply chain risks in Africa

Numerous, complex, and constantly evolving, the region’s supply chains are vulnerable to many risks, including:

  1. Shortages of key parts — Many industries have been impacted by global shortages of raw materials and components, such as semiconductors. These have been exacerbated by the Russia–Ukraine conflict and stop-start COVID-19 lockdown policies that have hampered production in China. Shipments of crucial materials have been delayed as a result of port congestion, protracted inspections by customs officials and inefficient customs processes. Additionally, insurance complications can arise when penalties or fines are imposed.
  2. Unrest — The International Monetary Fund reflects on a turbulent four years between 2019 and 2023, with political instability, high food and energy prices, and economic strains impacting many countries and their supply chains. South Africa, for example, has long been grappling with an unstable energy grid, high levels of unemployment and episodes of political instability as evidenced in the July 2021 riots that saw widespread looting and infrastructure damage.
    In Kenya, the high cost of living and lack of trust in the government brought about weeks of nationwide protest action against a proposed tax bill, resulting in increased tension across the region as neighbouring governments feared similar unrest. Such protest action can delay the transport of goods by blocking the main traffic corridors, while strikes can reduce manufacturing production.
  3. Natural catastrophe risk — Insured losses estimated at US$2 billion as a result of repeated flooding in KwaZulu-Natal between 2022 and 2024 are a stark reminder that the region’s supply chains are not immune to natural catastrophe risk. Cyclones, droughts, earthquakes, water scarcity, and heat waves can also impact the region’s transport and trade corridors.

How to reduce supply chain risk

An end user unable to receive a product will usually go to the competition. This could result in reputational risk for the company formerly supplying that customer as well as lost revenue. Delays in receiving key parts can lead to business interruption, contract risk — even environmental damage. For example, if parts needed to maintain an oil refinery are unavailable, emissions could increase.

There are several steps companies can take, however, to improve their resilience amid supply chain challenges:

  • Diversify suppliers and transport networks. Companies should not depend on a single supplier or transport route. Consider using suppliers closer to home and ensuring the security of transported goods.
  • Entrench deeper communication lines. Companies should be aware of every aspect of their supply chains to ensure they understand the existing conditions at any given moment. If delays are likely, a business needs to inform end users and manage their expectations.
  • Engage industry bodies. Companies have an important role to play in working with governmental and other relevant organisations to push the agenda on improving infrastructure and other supply chain components.
  • Manage inventories. Balancing “just in time” with “just in case” logistics can help businesses build supply chain resilience. For example, keeping critical spare inputs on-site or knowing how to source them rapidly elsewhere can keep production flowing. Companies can consider investing in technology that provides visibility of their supply chains.
  • Obtain relevant insurance cover. Companies can mitigate their key risks with insurance. However, they should be fully aware of what their policies cover in the event of a claim.

Navigating a challenging landscape

Risks associated with a company’s supply chain should be identified, classified and prioritised. Companies can carry out mock drills for multiple supply chain scenarios to increase their preparedness. They should also anticipate future supply chain risk and embed strategies within their businesses to mitigate those hazards.

It is important that an entire organisation be involved in mitigating supply chain risk — from procurement to operations to the legal and environmental, social, and governance teams. Managing supply chain risk should never be the responsibility of one department or business.

Brokers can help companies manage supply chain risk, not only by placing insurance cover and ensuring a full understanding of the technical aspects of a policy but also by identifying potential vulnerabilities. If there is a dispute over an insurance payout, a company can go to court to try to resolve the disagreement — a process that can take years. Alternatively, the company can contact its broker, which may be able to negotiate payment of a large part of the claim on the business’s behalf.

For more information on managing your supply chain risk, please contact your Marsh adviser.

Our people

Milind Jain

Milind Jain

Credit Speciality Leader, Middle East and North Africa

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Pieter Dingemans

Credit Speciality Leader, India, Middle East and North Africa

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