Africa Could Become A Global Supply Chain Destination- Report

By Jean-Pierre Afadhali

Africa can become a prominent manufacturing destination for tech-intensive industries and a key link in global supply chains by tapping into its abundant resources coupled with growing consumer marker, the United Nations Conference on Trade and Development said in its Economic Development (UNCTAD) in Africa Report 2023 launched today in Nairobi, Kenya.

African economies can play a major role in global supply chains by harnessing their vast resources of materials needed by high-technology sectors and their own growing consumer markets, revealed the report published by UNCTAD, the UN trade and development body.

Supply chains encompass the systems and resources needed to develop, produce and transport goods and services from suppliers to customers.

"This is Africa's moment to bolster its position in global supply chains as diversification efforts continue. It's also an opportunity for the continent to strengthen its emerging industries, foster economic growth and create jobs for millions of its people," UNCTAD Secretary-General Rebeca Grynspan said.

According to UNCTAD, Africa’s abundance of critical minerals and metals, including aluminum, cobalt, copper, lithium and manganese, vital components in technology-intensive industries, positions the continent as an attractive destination for manufacturing, as recent upheavals caused by trade turbulence, geopolitical events and economic uncertainty compel manufacturers to diversify their production locations.

Africa also offers advantages such as shorter and simpler access to primary inputs, a younger, technology-aware, and adaptable labour force and a burgeoning middle class, known for its growing demand for more sophisticated goods and services, stated UNCTAD in a press release.

Kenya was cited as one tech-savvy countries in Africa with rising digital innovations that contribute to the country’s economic growth and global economy.

According to Paul Akiwumi, the director of UNCTAD's division for Africa, least developed countries and special programmes, the continent hosts more than 600 incubators that support businesses and innovations.

Strengthening African supply chains will boost region’s growth

The report highlights that creating an environment conducive to technology-intensive industries would help raise wages on the continent, currently set at a minimum of $220 per month according to the UN trade and development body, compared to an average of $668 in the Americas.

“Deeper integration into global supply chains would also diversify African economies, boosting their resilience to future shocks,” noted the report authors in a press release.

The 2023 report states that expanding energy supply chains into Africa is also an opportunity to accelerate climate action. The continent's vast renewable energy potential, particularly in solar power, can help reduce production costs and decrease reliance on fossil fuel-based energy sources.

Africa needs more investment in renewable energy to help bridge the significant investment gap and tackle other obstacles to the manufacturing of solar panels on the continent. However, only about 2% of global investments in renewable energy go to Africa, said the report. The growth of investment in renewable energy, as shown by UNCTAD, could promote the manufacturing of solar panels on the continent. Kenya is set to host the inaugural Africa climate Change Summit in September, clean energies investment is on the agenda.

The report notes in 2022, the Democratic Republic of the Congo was the largest producer of copper in Africa, at 1.8 million metric tons – and beyond exploration and extraction, the country is a potential destination for refining metal products for the electric vehicles industry.

Unlock Africa’s supply chain opportunities: Invest in infrastructure, technology and financing

The report advocates for significant investment in infrastructure to bolster Africa’s position as a supply chain destination.

“Seventeen African countries, including Angola, Botswana, Ghana and South Africa, have already implemented local content regulations to support the growth of local supply chains, foster technology transfer, create jobs and add value within their borders, stated UNCTAD in a news release about the economic development report.

Additionally, the report suggests African countries to secure better mining contracts and exploration licenses for metals used in high-tech products and supply chains. “This would strengthen domestic industries, enabling local firms to design, procure, manufacture and supply the necessary components.”

The adoption of innovative digital technologies is also critical to optimizing supply chain processes. UNCTAD commends Kenya for notable progress in this realm, with rising rates of digital skills adoption in Africa.

UNCTAD urges governments to create sound policies, foster an enabling regulatory environment and scale up programmes to promote the widespread adoption of these technologies.

The UN trade and development body also reiterates its call for better financing solutions to offer African countries and businesses affordable capital and liquidity to invest in strengthening their supply chains.

According to the Secretary General of UNCTAD, African countries borrow four times higher than United Sates while its cost of borrowing is eight times higher than Europe.

UNCTAD also underlines the need for debt relief to offer African countries fiscal space to invest in strengthening their supply chains.

A key challenge cited during the report launch that causes Africa’s difficulties in accessing finance is the perception as rating agencies portray image that is not accurate.

International ratings agencies don't help [ Africa], said the Secretary General, UNCTAD.

Meanwhile, the study suggests that the continent can mobilize more funds by removing barriers to supply chain finance, including regulatory challenges, high-risk perception, and insufficient credit information.

According to the report, the value of the African supply chain finance market rose by 40% between 2021 and 2022, reaching $41 billion. But this is not enough, said UNCTAD.