Economic instability widens Africa's opportunities in the global supply chain

In mid-August, the United Nations Conference on Trade and Development (UNCTAD) published its report on the African economy entitled “Technology-Intensive Global Supply Chains: Africa's Potential”. The aim of the report is to “highlight the opportunities for Africa to better integrate into global supply chains, by contributing to the diversification of these chains into knowledge- and technology-intensive sectors”.

“With abundant resources and a growing consumer market, Africa could become a leading manufacturing destination for technology-intensive industries and a key link in global supply chains,” said UNCTAD Secretary-General Rebecca Grynspan.

For several decades, African markets have not contributed significantly to the global economy. However, the emergence of competition between the major countries, led by China, the United States, France, Germany and more recently Russia, is making investment in Africa more attractive. In an atmosphere troubled by trade turbulence, geopolitical events and economic uncertainty, Africa has a considerable asset with which to attract investors to the continent and develop its economy: its subsoil.

According to the UN organisation, the countries of the African continent can become major players in global supply chains by exploiting their vast resources. “The abundance of important minerals in Africa, including aluminium, cobalt, copper, lithium and manganese, vital ingredients in technology-intensive industries, positions the continent as an attractive destination for industry”, said Rebecca Grynspan.

According to French media Les Echos, the UN's specialised agency explains that the abundance of resources essential to global technology on the continent and the growth of a local consumer market make Africa a relevant geography in which to set up production units, particularly for automotive parts, smartphone batteries, basic medicines and photovoltaic cells.

For example, the automotive sector has been severely affected by supply chain crises, particularly during the coronavirus pandemic. Today, new car production remains low, representing around 1.2 % of world trade volume. In Africa, the car industry is dominated by South Africa, Morocco, Algeria and Egypt.

Similarly, the need for diversification in the smartphone industry is making Africa more attractive to investors. The report notes that most of the metals and materials used in the manufacture of smartphones can be mined in Africa (cobalt, copper, graphite, lithium, magnesium and nickel). The pharmaceutical industry, meanwhile, is focused on generic medicines, which are characterised by a simple and limited production process for active ingredients.

Strong demand for renewable energy is also driving energy industries to Africa. Al-Arab news estimates that between 2000 and 2020, the volume of investment in Africa's clean energy sector grew at an annual rate of up to 96 %, thanks to the region's vast solar energy potential. However, UNCTAD has warned that the continent is suffering from an investment gap, receiving around 2 % of global investment volume in the renewable energy sector. Indeed, production of solar photovoltaic panels is limited, with some emerging opportunities in Egypt, Morocco and South Africa.

Today, Africa needs more investment in renewable energies to fill the significant gap and tackle the other barriers to solar panel manufacturing on the continent. In addition, one of the continent's main obstacles is its lack of appropriate infrastructure for a smooth supply chain. While several measures and initiatives have been taken, such as the African Union's Programme for Infrastructure Development in Africa, these remain conditional on increased foreign investment in the continent.

According to the UNCTAD report, seventeen African countries, including Angola, Botswana, Ghana and South Africa, have already implemented local content regulations to support the growth of local supply chains, promote technology transfer, create jobs and add value within their borders.

Indeed, the creation of an environment conducive to technology-intensive industries would increase wages on the continent, which are currently set at a minimum of $220 per month, compared with an average of $668 in the Americas. Greater integration into global supply chains would also diversify African economies and make them more resilient to future shocks. Finally, the expansion of energy supply chains in Africa is also an opportunity to accelerate climate action.

The African continent also has another advantage: its demography. By 2030, one in five of the world's consumers will live in Africa, and one in four by 2050. These young populations are increasingly attracted by technology and are accelerating their spending: around 2,100 billion dollars expected in 2025 according to UNCTAD, compared with 1,400 billion ten years earlier.

The report estimates that the value of the African supply chain finance market will increase by 40 % between 2021 and 2022, reaching $41 billion. However, this is not enough.

According to the UN organisation, the continent can mobilise more funds by removing barriers to supply chain finance, including regulatory challenges, perceptions of high risk and insufficient credit information. It also highlights the need for debt relief to provide African countries with fiscal space to invest in strengthening their supply chains.

Indeed, Africa continues to pay on average four times more to borrow than the United States and eight times more than European economies.