Developing Market Economies are characterized by low economic development, currency fluctuations, low human development index, lack of adequate infrastructure, an underdeveloped financial system, a focus on primary production, and an undependable regulatory system.   

According to the African Development Bank (AfDB), Africa’s GDP growth fell from 4.1% in 2022 to 3.2% in 2023 mainly due to the shocks from the COVID-19 pandemic and the Russia-Ukraine war compounded by China’s economic slowdown and the general political instability on the continent. However, the economic outlook is positive with growth expected to reach 3.7% in 2024 and 4.3% in 2025 showing strong economic resilience across the continent. 

Procurement teams in Africa face multiple demands in a generally unstable environment. They must mitigate the impact of exchange rate volatility, price volatility, rising inflation, economic slowdown, and an evolving regulatory landscape while managing supply chain constraints and disruptions that threaten business operations. The outbreak of COVID-19 propelled procurement to the forefront as many businesses realized the strategic importance of effective procurement management in achieving their goals and survival in a turbulent business environment. 

This business environment and demands drive the need to shift from a transactional procurement approach to a consolidative and collaborative approach that prioritizes shared value over low prices. 

Navigating the Demands of a Developing Market

Category Management

This is a strategic management approach to procurement where similar or related goods/services are grouped and managed as an account or a small business unit to streamline sourcing and optimise procurement to align with overall business goals. It aims to maximize value by understanding the dynamics of the category and making informed decisions that create opportunities for value capture. Category Management allows businesses to use volume to negotiate better terms and achieve cost savings. This strategy will help your company focus its resources, improve supplier relations and enable standardized processes for efficient procurement operations.  

Digitalization and Data Analytics

Digitalization is revolutionizing procurement. It has increased efficiency, enhanced transparency, streamlined workflows, enabled data-backed decision-making, and reduced human errors. Adopting digital tools and data analytics will create more visibility and allow you to analyze your spending patterns, predict demand changes and optimize your inventory. These are essential for staying ahead of market trends and managing volatility in developing economies. 

Talent Development

Having Human Resources with the relevant skills and capabilities is essential for managing your procurement operations. It is important to carry out regular skills gap assessments and provide the right training to address any gaps found. Providing training in areas such as strategic sourcing, negotiation, contract management, supplier relationship management and risk management will ensure inefficiencies are reduced, cost savings opportunities are found, and potential risks are mitigated. Talent development can be achieved through certification from professional bodies such as the Chartered Institute of Procurement and Supply(CIPS), online courses, workshops, seminars and mentorship programs. Digital skills and continuous professional development will enable your business to keep talent and effectively manage the multiple demands of a developing market economy. 

Supplier Collaboration

It is crucial to work with your suppliers towards achieving shared value. Build a relationship based on trust and mutual respect which allows your business to use the expert knowledge and resources of your suppliers to your advantage. Close cooperation with suppliers can help find cost savings and value-addition opportunities to boost innovation and efficiency in procuring various direct and indirect materials. Strong supplier collaboration will bolster availability, ensure stability and reduce supply risk. 

Forward Contracts and Hedging

Forward contracts allow parties to set a rate for a specific period or future transaction. This is helpful in volatile markets to provide stability and certainty. Using forward contracts will hedge your future needs against economic fluctuations such as exchange rates and inflation. It is important to forecast your long-term needs and secure them with forward agreements to ensure consistent supply at favorable terms in the volatile environment of a developing market economy. 

Simplify Portfolio and Product Specification

Streamlining your product portfolio and simplifying its specifications will enable your business to focus its resources on those with strategic value and impact. This reduces the complexities of individual products and standardizes them to combat inflation. By focusing on fewer and standardized products, your business can use economies of scale and streamline production for cost savings and increased profitability. 

Diversification of Supply Sources

Diversifying your supply base and redeploying your resources are effective strategies for mitigating supply chain risk in a developing market economy. Reliance on single supply sources can lead to cost inefficiencies and increase the impact of political instability and economic downturns in the location of these suppliers. Diversifying your supply base will improve risk mitigation, cost management and supply chain resilience. 

Procurement teams are under pressure to deliver value in a challenging business environment. The post-pandemic economic recovery process has increased the cost of goods purchased and tightened profit margins. The macroeconomic outlook looks challenging for African businesses due to rising inflation and interest rates, unstable exchange rates, geo-political instability and evolving regulations. 

By adopting the strategies in this article, African businesses can better deal with the challenges of a developing market economy and align with global standards to achieve resilience and efficiency in their operations.

_{Featured image source: http://www.vecteezy.com}