The Impact of the EU Supply Chain Act on Africa
In a time where Artificial Intelligence (AI) is rapidly consuming the world in almost every facet of life, we see a paradoxical lawful regime strongly imposing a weight of responsibility towards humans and the environment.
In May 2024, we were introduced to the passing of the EU Supply Chain Act by the European Union (EU) Parliament. Despite opposition, particularly from the German Free Democratic Party (FDP), the majority of MEPs voted in favour.
The EU Supply Chain Act, also known as the Corporate Sustainability Due Diligence Directive (CSDDD), will require companies to comply to its human rights and environmental standards throughout their supply chains.
Our consultancy, based in Kenya, Africa, has sung the song of how precious the people and natural environment of the African continent is.
We envision the impact of the EU Supply Chain Act to powerfully disrupt the way EU and African companies do business together. Whilst we work with many companies who are sensitive to human rights, and follow ethical labour and environment practices, we have equally witnessed the opposite.
We undoubtedly support the purpose of the EU Supply Chain Act to strengthen human rights around the world, and align with the precedence to combat exploitation, child labour, and environmental pollution.
The pursuit of EU-based companies to capitalise business in Africa is exponential. Large sized EU businesses with over 1,000 employees and €450M+ annual turnover will be directly affected by the Act.
These big businesses are expected to identify and address any negative human rights and environmental impacts in their supply chain regardless of whether the harm occurs in or outside the EU.
Non-compliance will result in hefty penalties of up to 5% of global annual turnover.
So, whether you are an EU company entering the African market searching for supply chain partners, or African businesses desiring to become suppliers to European companies, we are adamant that the understanding of upstream and downstream supply chain activities is critical, almost a non-negotiable.
We are of the strong opinion that the greater extension of the real-time work is of course how the human and environmental elements are treated, taken care of, and if abused, then rectified immediately to adhere to the EU Supply Chain Act.
At AMENA AFRICA, one of our key strengths is bonded in diverse relationships across the African and European Supply Chain Activities.
Our on-the ground relationships, due diligence and market research capabilities in the upstream and downstream supply chain activities includes:
Upstream Activities
- Manufacturers of goods and the provision of services, such as:
- Product development
- Raw material extraction
- Sourcing and processing
- Transportation
- Delivery and storage of products or components
- Indirect upstream suppliers are included in the Act
Downstream Activities:
- Distribution, transportation, and storage for or on behalf of companies
- Indirect downstream partners are excluded from the Act
An add-on to the law, companies must determine how their business model supports the goal of limiting global warming to 1.5 degrees above pre-industrial levels.
Even though indirect downstream partners are excluded, we believe it should not be ignored, as it has a potential ripple effect on the overall compliance of the EU Supply Chain Act.
Be it life, a law, a policy or act, we are cautiously aware of the existence of the advantages and disadvantages that may result.
The Consequences of the EU Supply Chain Act on Africa?
As a consultancy that promotes businesses to and from Africa, we are inspired at the following positive outcomes of the EU Supply Chain Act:
- Improved Labour Standards lead to stringent labour laws that promote better working conditions, fair wages, and reduces exploitative practices like child or forced labour.
- Environmental Benefits of consistent sustainability procedures could decrease deforestation, pollution, and other environmental damages in industries like mining, agriculture, and manufacturing.
- Market Access into European markets could be made secure by companies who adopt sustainable practices, thereby helping them gain competitive edge as preferred supply chain partners.
- Capacity Building could result in the compliance efforts driving technology transfer, training, and local investments.
- Transparency promotes accountability in African supply chains, deterring corruption and unethical practices.
On the other side of the positive coin is the negative. We see the negative outcomes as stepping stones to increase knowledge and develop solutions to counteract or lessen their consequences when planning and implementing the EU Supply Chain Act.
- High Compliance Costs in the form of financial and administrative could challenge SMEs in meeting the strict requirements.
- Market Exclusion of non-compliant businesses are high, and they risk rejection from EU supply chains, resulting in job and revenue losses.
- Worker Displacement could result from formalising operations. This may displace informal workers, and affect vulnerable populations.
- Unequal Impact means that larger corporations may dominate, sidelining smaller enterprises struggling to comply.
- Risk of “Greenwashing” could see the entry of superficial compliance measures that would undermine the act’s objectives without genuine improvements.
We anticipate that the EU Supply Chain Act would impact key sectors like Mining, Raw Materials, Agriculture and Manufacturing. It would involve intentional scrutiny of their labour conditions, use, destruction and preservation of the environment, unsafe working conditions and unfair wage practices.
An added point we would like to emphasise, is that, the EU Supply Chain Act will allow victims to receive compensation for any violations.
We see some broader implications that could stir the pot, such as:
- African nations may turn to less regulated markets like China or the Middle East who have less stringent regulations if compliance with the EU Supply Chain Act proves too challenging or costly.
- The act could drive African governments to create their own sustainability regulations and systems, fostering intra-African trade.
- NGOs may help monitor compliance and support African businesses in adapting.
The EU Supply Chain Act has the potential to yield long-term benefits for Africa by promoting sustainability and ethical practices. However, without adequate support systems and a fair implementation approach, it could worsen existing economic and social disparities.
The EU Supply Chain Act and related regulations have several implications for African businesses, including:
- Due diligence: Companies are required to evaluate and address risks in their supply chains, covering issues such as human rights, environmental impact, and labour laws.
- Sustainability: Companies must assess how their business practices contribute to mitigating global warming.
- Deforestation: Companies need to ensure that products exported to the EU are free from deforestation.
- Accountability: Companies benefiting from human rights violations could face accountability.
- Partnerships: African businesses have the opportunity to strengthen their partnerships with EU companies.
- Global value chains: African companies can secure a position within global value chains.
While compliance with the EU Supply Chain Act may involve additional costs and operational challenges, we believe that it can also create opportunities for African businesses to improve their sustainability practices.
Our hands-on experience and expertise of understanding the African people and environment has poised us well in-advance to support the practical application and adaption to the EU Supply Chain Act.
AMENA AFRICA - Equipped to Prepare Businesses
Our advisory firm is at the forefront of local changes and challenges. Our research and expert team are ready to tackle concerns, questions and solutions of what the EU Supply Chain Act could mean for your business.
We are an active, on-the-ground team based in Kenya, with regional offices in Nigeria, Ghana, and South Africa.
We are strategic partners and thought leaders for any local or international business wanting to tap into the African Markets.