Geopolitical events such as the strained relations between the US and China, the Russia-Ukraine war, Asian territorial disputes, China’s zero-Covid policy, high tariffs, trade sanctions and barriers to entry can cause businesses, especially those in the manufacturing sector, to find it difficult to source raw materials. That hurts seamless, multistep logistics and supply chains.
For instance, a few weeks after Russia invaded Ukraine, many of the world’s largest economies immediately limited their economic ties with Kremlin.
As the war continued, the prices of wheat, grains, cooking oil and other foodstuffs skyrocketed, exposing millions of food-insecure communities across the globe.
A report by the Food and Agriculture Organisation and the United States Agency for International Development posits that Kenya loses at least Sh72 billion in food waste and post-harvest losses at different stages of the supply chain.
The loss is due to poor marketing, inadequate or unhygienic handling equipment, poor product quality, lack of equipment and absence of price incentives for efforts to improve quality, skilled personnel shortage along the food supply chains, poor transport equipment and handling practices as well as a lack of market intelligence.
According to the Agriculture Ministry, the annual post-harvest losses in fresh crops like bananas are estimated at more than 50 percent due to poor storage and handling.
Kenya Agricultural and Livestock Research Organisation estimates food supply chain losses to be 25 percent due to diseases, harvesting and post-harvest handling.
Supply chain disruptions can be reduced by having contingency plans to speed up response time and mitigation strategies that can save time and money, preventing losses.
According to United Nations Conference on Trade and Development, to resolve these supply chain crises, developing countries should develop and strengthen value chains through regional pacts.
These can ensure that small firms cooperate to reduce transaction costs and benefit from economies of scale.
Small firms may be unable to tap into value chain opportunities or scale up production because of inadequate funding at affordable prices. The manufacturing sector needs long-term financing to boost production.
Brookings institution identifies six ways to mitigate the impacts of geopolitical tensions — boosting domestic production through on-shoring and near-shoring, easing transportation jams, prioritising public health, managing labour shortages, increasing resilience in supply chains and fighting anti-competitive practices.
To rejig local supply chains, firms must also work with insurers to protect them from the increased risk of geopolitical conflicts.
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