Africa: Access global supply chains through natural resources

Africa: Access global supply chains through natural resources

Africa: Access global supply chains through natural resources

Africa can play a major role in global supply chains for high-technology sectors like automobiles, mobile telephones, renewable energy and healthcare.

UNCTAD’s Economic Development in Africa Report 2023 says the continent can do so by harnessing its “vast resources of materials needed by high-technology sectors and their own growing consumer markets”.

The report shows that the value of the African supply chain finance market rose by 40% between 2021 and 2022, reaching $41 billion. 

“This is not enough. The continent can mobilise more funds by removing barriers to supply chain finance, including regulatory challenges, high-risk perception, and insufficient credit information,” the report says.

Global factors drive diversification in supply chains

Opportunities for African governments and businesses lie in manufacturers worldwide having to diversify their production locations and geographical footprint. This is being driven by recent disruptions due to trade turbulence, economic uncertainty, a global pandemic and geopolitical events.

“This presents to position the continent as the new destination for global supply chains,” the report points out,” the report says. “It has an abundance of critical minerals needed for high-tech and green products and is home to a young, tech-savvy population, an adaptable workforce and a burgeoning middle class.”

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The African Continental Free Trade Area also offers advantages by easing access to regional markets and strengthening production chains across the continent. Supply chain hurdles African countries face, include poor logistics, low levels of technology, fragmented markets, limited capital sources, and weak institutions and regulations. 

The report cites South Africa, Morocco, Algeria and Egypt, as examples of countries with supply chains in the automobile markets. These countries manufacture automobiles while most (about 84%) supply raw and semi-raw materials.

“Untapped potential lies in producing non-automotive grade components, such as batteries and lamps, which are less technology-intensive than parts like motors.”

Opportunities also abound in mobile telephone supply chains, the report says. 

“For instance, the Democratic Republic of the Congo, which holds about 46% of the world’s cobalt, is venturing into producing cathode precursors, a main component in batteries.”

Leveraging renewable energy sources to tap into global supply chains

Africa can also harness its potential for solar energy

“Egypt, Morocco and South Africa already manufacture solar panels and further prospects exist in assembling solar fields, which require components like ball joints and cables that are used by many industries.”

But the continent requires more investment to boost manufacturing. Even with renewable investments in Africa soaring by a yearly average of 96% since 2000, the continent attracts a mere 2% of the global total, the report states.

The report also highlights the potential of pharmaceutical and medical product supply chains. Africa provides 12% of global exports of vital minerals used by the medical industry. But intra-African trade in the sector remains weak. 

“For instance, South Africa, the world’s leading exporter of titanium and platinum – essential for medical devices – accounts for just 5% of African imports of these metals.” 

The report says for Africa to optimise supply chain opportunities, it needs to go digital and improve access to supply chain finance. It mentions Kenya as having made “notable progress in this realm, with rising rates of digital skills”.

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Another global supply chain hurdle for Africa is that many small and medium-sized enterprises (SMEs) are not part of this network due to their limited use of digital technologies. They face challenges such as a lack of skills and funding gaps.

“Collaboration between large firms and SMEs through mergers and acquisitions can allow companies to streamline operations by acquiring their own suppliers, manufacturers and distributors,” the report says.

Some of the report’s recommendations include: 

Automobile industry

  • Provide new vehicle-financing mechanisms with lower interest rates to capitalise on Africa’s growing demand for automobiles. 
  • Set up multi-brand mega-factories in countries with small assembly plants like Ghana, Kenya and Nigeria to attract the production of parts and components.
  • Improve collaboration between African countries and the private sector to fund technical institutes and adapt curriculums to reflect new industry developments, such as electric vehicles. 

Renewable energy technologies 

  • Stimulate demand for solar panels in Africa through structured renewable energy procurement programmes.
  • Ensure local companies are included and local content requirements are considered by development finance institutions in tender procedures, to avoid excluding them from large-scale projects.

Mining Industry 

  • Provide support to African countries during contract negotiations to ensure they receive fair value for their minerals from the extractive industries.
  • Provide support to African countries during contract negotiations to ensure they receive fair value for their minerals from the extractive industries.

Mobile Phone Industry 

  • Promote local assembly and manufacturing in resource-rich countries by creating special economic zones and fostering favourable investment environments.
  • Address environmental, social and governance (ESG) issues, such as raw materials transparency, to ensure the sustainable development of the sector.

Healthcare industry 

  • Increase demand and access to medicine by promoting pooled procurement and financing programmes like the Africa Medical Equipment Facility and the Africa Medical Supplies Platform.
  • Support cluster formation, such as Medicine City in Egypt, to ensure access to essential infrastructure for pharmaceutical operations and attract investment.

See the UNCTAD Economic Development in Africa Report 2023