Covid-19 is an opportunity to bolster local supply chains

Not all is doom and gloom amid the economic toll caused by the Covid-19 pandemic. Notably, President Cyril Ramaphosa’s call for consumers to buy local this holiday season — as a way to support South African businesses that have suffered a loss of income because of the lockdowns — is an opportunity to bolster local supply chains and improve SA’s economic resilience.

One of the most striking opportunities to emerge is for local producers to profit from the shortening of supply chains. This phenomenon, in part, rolls back the increasing reliance on global supply chains that had prioritised cost over security of supply.

Many businesses are re-evaluating their reliance on imported goods and materials, and are looking to local suppliers for certain of their inputs. “This is not happening only in South Africa but in many countries where governments are looking at the structure of their supply chains.

This is a big opportunity for businesses and entrepreneurs to identify gaps in the local market for them to supply goods or materials that have previously been imported. The most important outcome from such a shift, however, is that it will build greater resilience into the local economy.

Heeding the President’s call to buy local would support engines of economic growth that would help to bolster economic activity at a time that consumer spending is under pressure.

However, the longer-term benefits stem from local businesses buying from local suppliers.

As the global pandemic highlighted, many companies had become overly reliant on sourcing their goods and materials from lower-cost destinations. However, as soon as lockdowns were announced, many common goods were suddenly unavailable on shelves.

This effect is evident across sectors, which can have serious consequences in certain cases. The pharmaceutical industry, for example, has been heavily reliant on imports for active ingredients used in drugs and other critical supplies.

No one can deny that the pandemic brought to the fore certain supply chain weaknesses that we weren’t aware of before. We can’t afford to repeat this, which is why government and businesses are seriously relooking their supply chains. We need to build greater resilience to unexpected shock.

The knock-on effect is particularly significant if every cent spent by consumers is circulated in the local economy, rather than being paid to foreign firms.

We need greater resilience in our economy to provide protection against these global shocks, and localising supply chains is the ideal way to do this. So, not only should consumers be buying local, but businesses should also be looking to see what they can source locally.

Saliegh Salaam, portfolio manager at Old Mutual Investment Group’s Customised Solutions.