Africa has a chance to fill the lower-value output gap left by ascending China
Young population, raw materials, cheap labour and an ability to scale quickly puts continent in pole position
Those of us still deep in the Covid-19 trenches have observed over the last few months, in sheer amazement, how China has roared back. From shuttered factories and ghost industrial towns just more than a year ago, the world’s second-biggest economy and largest global supplier is projected to grow 8.1% in 2021 due to strong exports and a gradual recovery in household consumption. GDP growth in 2022 is projected to be 5.5%, according to the Asian Development Bank.
China is clearly back with more than just a bang, and with its re-emergence goes — or so one would imagine — the aspirations of anyone who thought to use the pandemic as a launch pad to supplant the Asian nation as the world’s main source of production. Yet despite China’s stunning turnabout, the pandemic provides Africa with an opportunity to become the world’s alternate supply chain.
While China has been quick to shake off the effect of Covid-19, the rest of the world has not — and the global pandemic (just the first of many, according to experts) has reinforced the dangers of the world’s over-reliance on one source of production. China’s recovery has thus not negated the world’s desire for alternate sources of production but has highlighted the need for it.
Africa — with its young population, abundant raw materials, low cost of labour and an ability to scale quickly — is in pole position to take up the mantle. But how can Africa, which almost consistently fails to live up to its promise, do it? On the back of industrialisation.
China went from a Third World country to a global powerhouse in 30 years, leveraging its low cost base of employees to manufacture low-value items. It has now moved up that curve, leaving a gap for the lower-value items that Africa, with its abundance of low-cost but well-skilled labour, can easily fill. Apart from its growing population, abundant raw materials and the low cost of labour, several recent developments have greatly improved Africa’s ability to realise its industrialisation ambitions.
The most significant is the African Continental Free-Trade Agreement (AfCFTA), which came into force in January. While change will not be felt overnight, AfCFTA is a game-changer for Africa as it will assist in driving down economies of scale for production on the continent. While being unable to generate the economies of scale China was able to produce, AfCFTA will allow Africa to come very close.
Better technology will help Africa achieve the lower end of the cost curve that it previously had difficulty in doing, strengthening its credentials to be the world’s next source of production.
Local industrialists, entrepreneurs and businesses are committed to and in a position to drive the industrialisation of the continent. Industrialists such as Aliko Dangote and others are already taking steps to upend the status quo.
In his quest to reverse the decades-old system of exporting crude oil and importing refined petroleum products such as petrol, diesel and lubricating oil, Dangote, Africa’s richest man, is building a 650,000-barrels-a-day refinery in Nigeria. The refinery, set to be the world’s second biggest — is scheduled to start operating at year’s end. As part of his industrialisation drive, Dangote has also established a granulated urea plant in Nigeria that will produce fertiliser products.
TRT Investments has taken a substantial stake in SA’s largest non-food fast-moving consumer goods (FMCG) contract manufacturer, KAS, to expand it to East and West Africa in the next few years. By rethinking where we intersect with the production cycle, we plan to turn KAS into the world’s largest non-food FMCG contract manufacturer in five to six years.
Traditional beneficiation models focus on starting at the beginning — at processing raw materials, then moving on to intermediary goods and ending up with finished goods. Yet Africa lacks the intellectual property to do that from the outset. We are able to produce things in Africa, but we haven’t created finished goods or brands out of them, which is where the real value lies.
Take chocolate, which is made from cocoa that is mostly sourced from West Africa. The region exports the cocoa to the developed world where it is processed and then exported worldwide, including back to Africa, at a premium.
But the developed world does more than just produce chocolate from cocoa; it creates brands and demand for these brands — such as Lindt, Ferrero Rocher, Nestle, Cadbury and Nutella — that enable them to sell it at a premium. This is where the real value lies, not in the raw materials but in their processing, packaging and branding.
Instead of starting at the beginning, we thus plan to start at the end of the cycle, move backwards and vertically integrate as we go along. We will create intellectual property out of those products that will allow us to generate the most value out of it. That is how Africa will achieve its industrialisation ambitions and become the world’s alternate producer.
We will take what we have in abundance — manpower and raw materials — throw in technology and the vacuum that has opened up due to China moving up the value curve, and add AfCFTA and agents of change such as Dangote and similar-minded individuals.
The result will be a different ending to previous efforts — it will ensure that Africa becomes the alternate source of production for the world. It will take Africa from the global menu to a seat at the world’s economic table, or maybe even more ambitiously, allow us to create our own table on our own terms.
• Molai, an African industrialist, is founder of TRT Investments, which has operations in Nigeria, SA, Zimbabwe, Zambia, Mozambique and Botswana.
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