African economies are hampered by supply chain hurdles, including poor logistics, low levels of technology, fragmented markets, limited capital sources and weak institutions and regulations
Photo: iStock Africa can emerge as a significant manufacturing hub for tech-intensive sectors like automobiles, mobile telephones, renewable energy and health care by harnessing its vast resources of raw materials, according to a new report by the United Nations Conference on Trade and Development (UNCTAD).
The continent’s reserves of critical minerals and metals could provide an opportunity for the diversification and resilience of global supply chains, particularly in tech-intensive industries, noted The Economic Development in Africa Report 2023: The Potential of Africa to Capture Technology-intensive Global Supply Chains report.
However, the African economies are hampered by supply chain hurdles, including poor logistics, low levels of technology, fragmented markets, limited capital sources and weak institutions and regulations, noted the document launched on August 16, 2023.
It provided insights into how Africa can diversify supply chain in knowledge and technology-intensive sectors like automobiles, mobile telephones, renewable energy and health care.
The continent’s critical minerals and metals, including aluminium, cobalt, copper, lithium and manganese, position it as an attractive destination for manufacturing.
As recent crises — trade turbulence, economic uncertainty, a global pandemic and geopolitical events — continue to disrupt the global economy, relocating some supply chains to Africa is expected to reduce transportation costs and promote environmental sustainability and supply chain diversification, UNCTAD pointed out.
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.
While most African countries (84 per cent) supply raw and semi-raw materials, some — South Africa, Morocco, Algeria and Egypt — are manufacturing hubs. The Democratic Republic of the Congo, which holds about 46 per cent of the world’s cobalt, is venturing into producing cathode precursors, a main component in batteries, it added.
Key players and stakeholders are looking to strengthen the existing supply chains by diversifying their sources. This may create an opportunity for African economies to heighten their involvement in global supply chains.
In this report, supply chain diversification considers two principal factors: Diversification of the direct supplier base and diversification of the customer base. There are plentiful opportunities for Africa to benefit from supply chain diversification through integration into both the supplier and customer bases.
Venturing into Africa as a supply chain destination will require enormous investment in infrastructure, as well as the availability of human capital and technology.
In many African countries, the state of infrastructure development — transport, warehouse and other facilities — is not on par with other developing and emerging counterparts, the report pointed out.
In Africa, many small-and medium-sized enterprises are not part of the global supply chain network due to their limited use of digital technologies. They face challenges such as a lack of skills and funding gaps. To optimise supply chain opportunities, Africa needs to go digital and improve access to supply chain finance, UNCTAD suggested.
Though the value of the African supply chain finance market rose by 40 per cent between 2021 and 2022 (from $29-$41 billion), it is inadequate.
“Most African countries can be attractive destinations for the diversification of global supply chains if inherent challenges to linking African businesses are addressed,” said Rebeca Grynspan, secretary- general of UNCTAD.
Creating enablers and leveraging incentives to facilitate financing, technology transfer, research and development and access to production knowledge will be critical, Grynspan added.
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