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Africa’s Opportunity: Transitioning from Crisis

In the wake of the Ukraine Conflict, how can Africa increase manufacturing and use sustainable production?

A cargo truck carrying industrial freight drives through the traffic in Kampala.

The manufacturing sector in Africa has not been exempt from the global economic repercussions of the ongoing conflict in Ukraine. African economy have been particularly hard damaged by the conflict’s interruption of global supply networks due to their high reliance on imports.

The effects can be seen in a number of industries, including electronics, automotive, and soft commodities like maize and barley that are consumed.

Apart from the fact that Russia is one of the region’s major trading partners, many African countries heavily rely on grain exports from the Ukrainian steppe that are customarily transported out of the Black Sea for their food security. Many African countries also depend on imports of components, materials, and finished goods.

The US, EU, and other nations’ sanctions against Russia have reduced trade and investment, which has a negative impact on the continent’s manufacturing output. Value chains for the production of food on the continent have been severely disrupted by the war’s destruction of Ukrainian exports.

All of these factors have combined to bring the vulnerabilities in crucial manufacturing value chains and food production in Africa and the rest of the world into sharp relief.

African nations have the chance and capacity to establish entirely independent supply chains in a variety of sectors within the continent itself, which would help to lessen the effects of the Ukrainian crisis and minimize reliance on imports.

Furthermore, the emergence of the African Continental Free Trade Area (AfCFTA FTA) presents a special opportunity to increase the economic viability of investments in African production capacity, at a time when many OECD countries are starting to develop plans to lessen their dependence on critical nodes of crucial supply chains that are overly concentrated in East Asia.

Large-scale manufacturing ventures may become financially viable if an aggregate market of up to 1.3 billion people and a combined $3.4 trillion in GDP were created.

This would encourage intra-African trade and lessen dependency on external supply chains. Local supply chains for raw materials and finished goods will be easier to build as a result of the AfCFTA’s promotion of regional integration and removal of trade restrictions within individual countries.

This will not only make African manufacturing more resistant to future external shocks, but it may also entice foreign direct investment by ‘friend-shoring’ global supply chains away from their current concentration in East Asia, further fostering the continent’s economic development and job creation.

Executives supervise the roasting of cashew crops before further processing.

The ability to reorient the structure of the continent’s economies exists as both domestic and international variables work together to increase the financial benefits from investing in home manufacturing capabilities.

African countries should seize the opportunity by prioritizing AfCFTA implementation and market integration while also allowing targeted investments in the production of specific upstream value chain components, like petrochemicals, steel, and beneficiated industrial metals, in order to launch new domestic supply chains.

Africa’s nations may advance their industrialization and raise the value of their exports by increasing domestic production of both intermediate materials and completed commodities.

African nations might join the value chains of alternative suppliers of parts and materials from nations and regions like India, the European Union, and Brazil in addition to creating their own local supply networks.

The impact of external shocks can be lessened by integrating African production nodes into supply chains, and this will also increase the competitiveness of African firms on the international market.

The globe can grow its manufacturing output while reducing its over-reliance on existing low-cost production hubs like China for the global supply chain thanks to this win-win investment opportunity.

China has long been the preferred location for businesses wishing to outsource manufacturing activities since it is the world’s factory.

The COVID-19 epidemic and rising geopolitical tensions, however, have brought to light the global supply networks’ susceptibility to hyperconcentration and underlined the significance of industrial diversity.

Due to its underdeveloped manufacturing sector and anticipated population increase over the coming decades, Africa presents a tremendous growth opportunity with high returns on capital intensification.

Africa should portray itself as a desirable choice as the globe looks for substitute manufacturing locations. Africa is a natural investment destination for manufacturers due to its low labour costs, wealth of natural resources, and increasing aging population.

The AfCFTA will give African nations the ability to capitalize on their comparative advantages, market themselves as destinations for production, and create specialized industries.

AfCFTA might play a key role in enabling the development of regional supply networks within the continent and production nodes that can be incorporated into global value chains by providing an initial market to promote the construction of scale production.

The AfCFTA will promote intra-African commerce by encouraging regional integration and removing trade restrictions.

In turn, this will promote the growth of a sustainable manufacturing industry that can compete with major players in the global supply chain, like China.

By promoting and facilitating investment in future-ready sustainable manufacturing techniques and securing a leading position in the developing climate transition industry, Africa can increase its competitiveness.

A trend that has emerged in tandem with the growing recognition of the urgency of the global climate disaster is the diversification away from production supply chains that are dependent on China.

Due to the declining beaches of Lake Chad and instability caused by the climate that is causing dislocation across the Sahel and beyond, Africa is on the front lines of the sustainability wars. What is theoretical and the subject of arguments throughout the developed world is now a lived reality.

The fact that Africa is endowed with some of the highest levels of sun insolation and economically viable wind speeds on earth goes hand in hand with this existential threat.

When you combine these elements, a few opportunities become clear. The industrial sector, which now uses a lot of carbon, needs to adopt sustainable strategies if carbon emissions are to be reduced.

Regulations governing the creation of consumer goods will probably start to aggressively align incentives to encourage the selling of manufactured goods that are favourable to the environment.

Africa can choose to embrace sustainable manufacturing as a competitive differentiator, preparing itself proactively for the new terrain likely to develop as the continent is virtually starting from scratch in terms of its industrial endowment.

This would give Africa the chance to export not only sustainably produced goods but also green manufacturing machinery, parts, and intellectual property.

Even more urgently, a sizable market for both industrial and consumer goods aimed at ameliorating, reversing, and minimizing the impact of climate change externalities will soon arise.

Everything from battery technology that is more effective and electric mobility to sophisticated carbon credit programs and tree canopy restoration will become extremely big business.

Africa is the obvious starting point for this growth since it has access to many of the industrial raw materials essential to these emerging industries and is on the front lines of the recognition of the threat posed by climate change.

Africa should take the chance to serve as the centre for the manufacture and invention of climate-related products, just as east Asia is to semiconductors and silicon wafers.

The processing of lithium, cobalt, tantalum, copper, and manganese, as well as other value-adding steps along the supply chain for batteries, should be a particular emphasis of AfCFTA policy planning, coupled with innovation and afforestry research.

Governments should make deliberate, strategic investments to support entrepreneurship in these regions, and they should also provide incentives that enable the private sector to build these value chains across the continent.

Many nations that depend on Russian oil are now looking for alternate sources of energy as a result of sanctions placed on Russia, which include limitations on the export of oil and gas.

Intense economic negotiations with African countries that have significant natural gas reserves have been sparked by this trend, and green manufacturing techniques have been used as a means of reducing dependency on fossil fuels and reducing carbon emissions.

The introduction of the carbon border tax by the European Union highlights the growing importance of green manufacturing.

The tax emphasizes the significance of environmentally friendly production practices and renewable energy sources by raising the cost of imports from high-carbon emitting nations, such as major Asian manufacturing hubs.

These portend the future of commerce and present Africa with a unique chance to create a defendable onramp to industrialization.

African enterprises can lessen their carbon footprint and gain a competitive edge in the global market by aggressively adopting green manufacturing techniques. Africa has a chance to create manufacturing techniques that are more competitive than those in Asia thanks to its shift toward green manufacturing.

African firms can increase their competitiveness while lowering their carbon footprint by implementing renewable energy sources, sustainable production techniques, and circular economy principles.

A sophisticated plant in southwest Nigeria that processes cocoa is inspected by workers.

The interruption of supply chains caused by the Ukrainian conflict has had a severe negative impact on African industry, reducing investment and output.

The crisis does, however, provide Africa a chance to lessen its reliance on imports as well as a chance for investors in African manufacturing to benefit from differential returns by taking part in the rise of Africa’s manufacturing share of output.

African countries can present themselves as desirable locations for manufacturers aiming to minimize their reliance on China and other global supply chain giants by diversifying supply chains, investing in domestic manufacturing capabilities, and implementing green manufacturing techniques.

In the long run, this can not only assist the economy of the continent expand, but also lower global carbon emissions and production instability.

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