Africa can be key link in global supply chain

Fencing keeps a zebra out of harm's way as it grazes by the tracks of the Mombasa-Nairobi Standard Gauge Railway in Kenya on July 28. DONG JIANGHUI/XINHUA

Continent's abundant resources, large consumer market offer key advantages

Africa could become a prominent manufacturing destination for technology-intensive industries and a key link in global supply chains, thanks to the continent's abundant resources coupled with its growing consumer market, according to a new report.

The United Nations Conference on Trade and Development, or UNCTAD, launched the Economic Development in Africa Report 2023 on Wednesday in Nairobi, Kenya's capital. The report said Africa holds 48 percent of global cobalt reserves and 47.6 percent of global manganese reserves, both of which are vital metals for producing batteries and electric vehicles.

Africa also produces chromium, lithium, natural graphite, nickel, rare earth metals, silver, tellurium and titanium, which are important for the low-carbon transition.

In addition, the continent offers advantages such as shorter and simpler access to primary inputs; a younger, technology-aware and adaptable labor force; and a burgeoning middle class known for its growing demand for more sophisticated goods and services, the report said.

At the launch event, UNCTAD Secretary-General Rebeca Grynspan said geopolitics and trade dynamics, including the African Continental Free Trade Area, renewable energy, and demographics drive the huge opportunities for Africa.

"Geopolitically, countries and businesses are seeking diversification because reliance on one supplier is as risky as commodity depending on one raw material," she said. "Diversification and diversification of risks is something that is happening in the trade dynamics."

Conducive environment

Grynspan urged African countries to create a conducive environment for technology-intensive industries that would raise wage levels in the continent.

Collective average minimum wages in Africa is about $220 per month, compared with an average of $668 in America, she said.

While the value of the African supply chain finance market grew by 40 percent between 2021 and 2022, reaching $41 billion, it is not enough, Grynspan said.

Small and medium-sized companies in Africa are still grappling with supply chain finance, which could bridge the payment time gap between buyers and sellers, improving access to working capital and reducing financial strain, she said.

"The continent can mobilize more funds by removing barriers to supply chain funding, including regulatory challenges, high-risk perception and insufficient credit information."

Paul Akiwumi, director of UNCTAD division on Africa, least developed countries and special programs, said 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.

Increased investment in renewable energy could also promote manufacturing of solar panels on the continent, he said. Currently, only about 2 percent of global investments in renewable energy go to Africa.

Instead of only supplying raw materials for low-carbon transition, African countries should strengthen value chains by converting raw materials into intermediate products within the continent, Akiwumi said.

The UN report highlighted the necessity of balanced mining contracts and policies encouraging connections between large-scale mining and local industrial development. These factors are crucial for African countries to seize the chance to join high-value global supply chains.