Industrialisation Opportunities
Apple shifting some of its production from China was not unexpected, but Africa needs to get in on the action, argues Adam Molai, an African industrialist and founder of TRT Investments which manages a diversified sector portfolio and operations in Southern, East and West Africa.
“When life gives you lemons, use them to make lemonade.”
This was the adage at the forefront of my mind two years ago, in the midst of the first lockdowns wrought by SARS-CoV-2 pandemic.
While it soon became clear that the Covid pandemic would have widespread impact on Africa, I also believed that it would provide a unique and invaluable opportunity to the Continent to set itself up as an alternate global supplier to China.
The pandemic had demonstrated the vulnerability of the world’s economies in being solely reliant for most of production on China. And it was clear that they would start looking around for other suppliers to offset that risk.
Which is why it wasn’t surprising when Apple, one of the world’s most valuable companies, announced in June this year that it had asked suppliers to shift more iPad production to Vietnam – thanks to China’s zero-tolerance coronavirus which caused mass disruption due to factory closures. With over half of Apple’s main suppliers around the Shanghai region affected, iPad production had been hit and the company was reportedly working to compensate.
Later, it was revealed that Apple would also be shifting some of the production of the iPhone 14 to India as well.
Apple’s decision is not surprising given the disruptions to global trade and supply chains over the last two-and-a-half years. But what should concern Africa is that it is not in the frame to take over some of the production.
There will not be many opportunities like this for Africa to grasp the nettle, and the government and the private sector need to commit to fostering the necessary enabling environment to make it feasible for a company like Apple, or another multinational, to outsource their production to the Continent.
Aside from creating jobs for Africa’s hundreds of millions of young people, growing the Continent’s manufacturing capability is a priority if Africa is to realise inclusive and sustained development, achieve high growth rates and diversify its economies.
Among the multiple benefits of manufacturing is the industry’s ability to create employment for a vast number of low-skilled workers – which is essential for reducing poverty – and also accommodate our highly-skilled labour which we are losing to the diaspora for lack of opportunities to absorb these skills.
Studies show that the average percentage of manufacturing employment in African countries remained stagnant at 7.2 per cent between 1990 and 2010 but increased slightly to 8.3 per cent by 2018.
Despite the increase, 8.3% is nothing when weighed against the potential that manufacturing offers to African countries that continue to grapple with how to develop their economies and continue to rely on supply of primary, un-beneficiated products.
So how can Africa go about improving its industrialisation capacity?
Building, improving and maintaining infrastructure is a priority. Manufacturers need to be able to access the raw materials and supplies they need but they also need to be able to transport their goods to ports and railway stations.
So African countries need to place more focus on improving their infrastructure – especially their transport (road, rail, sea / port and air) networks.
This will ironically not only contribute to the ease of doing business for manufacturers but will also create massive employment in the construction phase whilst simultaneously improving the quality of life for citizens – a win-win for anybody who wants to stay in political power.
Next, African countries need to identify which manufacturing sectors they want to pursue and start acquiring the necessary skills, expertise and capacity to become leaders in these sectors.
A useful template for how they can do this is South Africa’s automotive sector.
The automotive market is considered the most globalised of all the manufacturing sectors. South Africa, which accounts for the bulk of Africa’s global automotive output, has been assembling vehicles for 100 years.
As was typically the case in developing countries, the South African automotive industry grew under high levels of protection. Considerable diversified development took place under this protective regime, which included a series of increasingly stringent local content requirements introduced from the early 1960s, according to an African Development Bank paper.
Lower tariffs in the automotive industry were accompanied by import-export complementation arrangements, which enabled firms to rebate import duties by exporting.
Today, imports account for approximately 50% of South Africa’s light vehicle market, but 52% of output is exported, with the EU and rest of Africa being the major markets.
Since modern devices such as smart phones and iPads are also assembled, it would make sense if Africa adopted this model – with some adaptations based on lessons learned – to grab some of the production of modern devices from Asian countries.
They could engage with vendors such as Apple to see what is required and provide the necessary incentives and rebates to lure the company to the Continent.
Third, Africa needs to get serious about beneficiation.
Beneficiation is a word which has long been bandied about by Africa’s governments but none has made a concerted effort to ensure that it is implemented. Twenty-two years into the 21st century and faced with a technological revolution, Africa still imports 70% of the goods we consume while exporting the bulk of its raw materials.
We can start small when it comes to beneficiation; we don’t need to beneficiate whole value chains from the outset. We can look at parts of the value chain which don’t necessarily require massive capital investment and skills and start from there.
While Africa never took advantage of the opportunities to beneficiate through the Third Industrial Revolution, the Fourth Industrial Revolution and the green economy offers Africa another bite at the cherry.
Most of the raw materials that will be required by the green economy are found in Africa and the Continent needs to learn the lessons from the previous gold and platinum rushes and start putting in place the systems that will allow it to process our natural resources on the Continent and export finished – or semi-finished – goods rather than raw materials.
Critical to this, however, is something Africa needs to learn, which is collaboration.
Eighty percent of the world’s platinum is produced in Zimbabwe and South Africa, which as neighbours, could have collaborated to develop value chains.
But the unfortunate inward-looking approach taken by each country militated against this achievement.
In the same vein, if we look at all the components required for the green economy, map out which African countries produce all the requirements and collaboratively develop a value chain, Africa will own the value chain. However, sadly, what we will see happen is Africa will export the raw materials at 1% of their value and become the importers of the finished goods perpetuating the significant balance of trade deficits.
Finally, as always, we need to overhaul our education systems and focus on skills development. We need to focus on providing high-quality reading, mathematics and science instruction to our pupils and students so that the skills are available to drive our industrialisation agenda.
It is clear that what Africa needs to do to industrialise is not rocket science; it merely requires foresight, determination, collaboration and a doggedness to do what needs to be done.
In other words, we need to figure out how to make lemonade, then take the lemons that Africa so abundantly possesses, and just do it.
