How Africa and LATAM Can Break Free from Import Dependency and Increase Local Production

Written by: Soumaya Hamzaoui, COO, RedCloud

Countries across Africa and Latin America import billions of dollars worth of products annually, from essential food items to industrial goods, many of which could be produced locally. According to research by BBVA, Latin America’s trade deficit in 2015 with China alone was equivalent to US$8 billion, or 1% of total GDP, and this figure continues to increase. Additionally, the FAO reports that as of 1980,  Africa had a balanced agricultural trade, with almost equal imports and exports, but by 2007, had seen its imports outpace exports by over US$22 billion. 

This heavy reliance on imports is costly, leading to increased debts, loss of jobs for local workers in the region, and an increasing threat of food insecurity due to the inability of these regions to pay their food import bills. Fortunately, these regions have immense untapped potential, with rich natural resources and a vibrant workforce that can drive self-sufficiency. 

Soumaya Hamzaoui, the COO of RedCloud, has long been an advocate for empowering local markets, and her passion for helping local brands and sellers across emerging markets is a cornerstone of RedCloud’s mission. This article shows how Soumaya’s vision led to the creation of the world’s first-ever Open Commerce platform, transforming African and LATAM markets with the technology needed to unlock their local production potential.

The effects of import overdependency in Africa and LATAM

Aerial view of crane lifting up container in commercial port.

The effects of Africa and LATAM’s dependence on imports from economic powerhouses like China and India paint a grim picture. This dependency breeds supply chain fragility and leaves the local markets vulnerable to external shocks. A 2007 report from the Food and Agriculture Organization (FAO) shows the struggles of African Nations to balance the trade of agricultural products, with data showing that only one-third (19 out of 53) of African countries had enough agricultural export revenue to pay for their food import bills. Nigeria’s hefty US$8bn annual food import bill for food items like wheat, fish, and other food ingredients that can be produced locally is a stark example of the potential for untapped domestic production.

Additionally, available data shows that LATAM’s trade deficit with China has ballooned since the pandemic.

Another key problem is that many of the imports from these economically advanced countries are extremely cheap, adversely affecting local industries. The WTO’s reports on anti-dumping investigations show a concerning trend of market undercutting by China, with several African countries, including South Africa, initiating numerous cases against Chinese products and businesses. For example, the International Trade Administration Commission of South Africa (ITAC) alleged that China was dumping graphite electrodes used in furnaces and undercutting its prices in the region by over 330%. This led to firms in the region losing their market share and employees losing their jobs. Analysis drawn from over 44 industries in the last decade shows that while consumers might benefit from the availability of cheap goods, especially from China and India, local industries across Africa and LATAM are being forced out of trade. Over the last 10 years, increased imports from China have led to more than 75,000 jobs being lost in South Africa alone, with similar occurrences happening across other countries in the African and LATAM region.

Moving from import dependency to increased local production in Africa and LATAM is critical for economic stability and growth in these regions, as it would make supply chains less vulnerable and easier to manage and would mean a higher employment rate for a large percentage of the population in these regions.  Recognizing the importance of this shift, Soumaya, RedCloud’s COO, has been championing the adoption of new technologies like Open Commerce designed to specifically empower local producers, enabling them to access markets directly, streamline distribution and enhance visibility across the supply chain, leading to a more self-sufficient and robust local economy.

How to unlock the local production potential of African and LATAM markets

The African and LATAM regions are brimming with untapped local production potential, boasting rich natural resources, agricultural products, and a robust, youthful workforce ready to drive the economy forward. Africa, which is home to the world’s youngest population, with 60% under the age of 25, and LATAM, with a median age of 31, are poised for a demographic dividend that could fuel a surge in local production and consumption.

Despite these advantages, local brands and sellers still face significant challenges in distributing their products to an admittedly vast local market and competing with imports. With a growing middle class, which in LATAM forms one-third of the population and is expected to hit 1.1 billion in Africa by 2060. The major challenges limiting the growth of local production include access to credit facilities, a glaring issue identified by the World Bank, which reports a $5.2 trillion financing gap for formal SMEs. This credit gap is particularly acute for small producers in Africa and LATAM, who lack the capital to expand operations and scale their businesses. 

Additionally, the fragmented nature of markets in these regions prevents these producers from capturing the demand in the market, as they are disconnected from potential buyers and unable to distribute their products efficiently across distances. Unemployment is a direct consequence of the inability of these procures to grow, as there are more young individuals than the market can absorb.

To solve these challenges faced by local brands and sellers in Africa and LATAM, governments and regional bodies have initiated several key strategies to boost local production. For example, the African Continental Free Trade Area (AfCFTA) was established under the African Union Agenda 2063 to create a unified market for goods and services across the continent and provide numerous opportunities for suppliers, distributors, and retailers. Similarly, LATAM initiatives, like the Pacific Alliance, seek to improve and consolidate trade among member countries. However, despite the promise of these initiatives, their effectiveness remains hampered by the lack of technology that can level the playing field for local producers.

These producers and sellers cannot compete effectively against the availability of cheap imports from China and India. For example, e-commerce platforms like Temu, Alibaba, and Shein have reshaped modern trade and made it easy for consumers across Africa and LATAM to purchase items from China in a few clicks. In fact, in many cases, it is easier for a consumer in a major African or Latin American city to buy from China using e-commerce technology and online payment systems than to buy from a local producer who is cut off from the market. To increase local production, we need new technologies tailored to these markets to empower local producers and unlock outsized growth.

Under Soumaya’s leadership, RedCloud has developed the world’s first Intelligent Open Commerce Platform™, revolutionizing how local brands and sellers in emerging markets, particularly Africa and LATAM, sell and distribute their products. It provides local producers and smaller brands with direct access to distributors, wholesalers, and retailers who need their products across the market. Now, local producers can tap into demand in previously unreachable areas and expand their market footprint to capture demand.

RedCloud’s Intelligent Open Commerce Platform also helps streamline distribution by connecting buyers and sellers on an open, transparent platform, enabling direct orders and offering various fulfilment options. The platform also has an integrated online payment system that allows buyers and sellers to make and accept digital payments, even without a bank account. By facilitating digital trading in these markets, RedCloud offers millions of local producers the opportunity to establish a verifiable transaction history. This critical data can be leveraged to access credit facilities, addressing the significant financing gap faced by small and medium enterprises in these regions.

With Open Commerce, RedCloud leverages the power of AI to provide sellers with real-time, actionable insights drawn from over 50,000 data points across the market. This unprecedented market visibility allows local sellers to make informed decisions swiftly, driving growth and adapting to market demands with agility.

Beyond just the technology, Soumaya and RedCloud’s commitment to empowering the youth has led to establishing the RedCloud Academy, which trains youths across Africa and LATAM with valuable skill sets that can unlock better employment opportunities. In addition, the adoption of RedCloud’s Intelligent Open Commerce Platform™ by local sellers has created a new job category for “platform handlers”, who help these sellers manage their businesses and products on the Open Commerce platform. 

The future of commerce in LATAM and Africa is open. With Open Commerce, we can strengthen local producers and empower them to replace the importation of cheap goods from China, India, and other countries with locally produced goods that will strengthen the economy.