AFRICAN economies have the opportunity to position themselves as major contributors to global supply chains by capitalising on their vast reserves of essential materials required by high-tech sectors and their expanding consumer markets. The United Nations Conference on Trade and Development (UNCTAD) emphasised this potential in its newly unveiled Economic Development in Africa Report 2023, launched in Nairobi on Wednesday.
Supply chains, which encompass the intricate networks and resources essential for the development, production, and transportation of goods and services, are at the heart of this strategic proposition.
UNCTAD Secretary-General Rebeca Grynspan expressed the significance of this moment for Africa, stating, ‘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.’
The report highlights Africa’s abundance of critical minerals and metals, including aluminum, cobalt, copper, lithium, and manganese – essential components for technology-intensive sectors. This places the continent in a favourable position for manufacturing, especially as trade disruptions, geopolitical events, and economic uncertainty compel manufacturers to diversify their production locations.
Beyond its rich resources, Africa offers other advantages, such as easier access to primary inputs, a dynamic and adaptable labour force that is tech-savvy, and a growing middle class with increasing demand for sophisticated goods and services.
Creating an environment conducive to technology-intensive industries could lead to higher wages on the continent, addressing the current monthly minimum wage of $220, which stands in stark contrast to the average of $668 in the Americas.
Moreover, deeper integration into global supply chains would enhance the resilience of African economies against future shocks, contributing to their diversification.
Expanding energy supply chains within Africa presents an opportunity to accelerate climate action. The continent’s substantial potential for renewable energy, particularly in solar power, can reduce production costs and dependency on fossil fuels.
However, realising these prospects requires substantial investment in renewable energy infrastructure. Presently, only about 2 percent of global investments in renewable energy are directed towards Africa. UNCTAD suggests that increased investment in renewable energy could facilitate local manufacturing, such as solar panels production.
The report cites the example of the Democratic Republic of the Congo, which is a prominent copper producer in Africa. Beyond extraction, the country’s potential extends to refining metal products for the electric vehicle industry.
To fully seize these opportunities, significant investment in infrastructure is necessary to establish Africa as a robust supply chain destination.
Multiple African countries, including Angola, Botswana, Ghana, and South Africa, have already instituted local content regulations to foster local supply chain growth, technology transfer, job creation, and value addition within their borders.
The report underscores the importance of securing favourable mining contracts and exploration licenses for metals crucial in high-tech products and supply chains. This move would bolster domestic industries, enabling local firms to handle all aspects of production.
Embracing innovative digital technologies is pivotal in optimising supply chain processes. Countries like Kenya have made strides in this direction, evidenced by the increasing adoption of digital skills across Africa.
UNCTAD urges governments to establish sound policies, create enabling regulatory frameworks, and scale up programs to encourage widespread technology adoption.
Additionally, UNCTAD reiterates the call for improved financing solutions that provide affordable capital and liquidity to African countries and businesses. Supply chain finance, which bridges payment gaps between buyers and sellers, enhances working capital access, and reduces financial pressure on small and medium-sized enterprises, needs more attention.
While the value of the African supply chain finance market grew by 40 percent between 2021 and 2022, reaching $41 billion, the report highlights the need for more progress in this area. Removing barriers to supply chain finance, including regulatory obstacles, perceived high risk, and lack of credit information, can unleash greater potential.
UNCTAD also emphasises the necessity of debt relief to grant African countries fiscal space for supply chain strengthening investments. On average, African countries pay four times more for borrowing than the United States and eight times more than European economies. This relief could contribute significantly to their development endeavours.
