AFRICANGLOBE – New IT tools combined with rising prices elsewhere in the world could help Africa become the next de facto destination for low-cost manufacturing.
The prediction comes from a report by analysts IDC called Is Africa Poised to Become the Low-Cost Manufacturing Hub of the World?, which is largely upbeat in answering its titular question. As labour costs have risen in China, Taiwan, India and Malaysia, it says, so brands such as H&M, Coca-Cola, GE, Pepsi, Nestle and Renault have begun to invest in African manufacturing capacity.
One of the traditional weaknesses of many African economies has always been that they produce raw materials in abundance, but for a variety of reasons, most of the value-add goes elsewhere. Now even China, which is better known for investing in infrastructure like roads and rail for getting raw resources out, has begun to put money directly into manufacturing. According to a Chinese government report, more than 30 percent of investment into the African region was in manufacturing.
While the authors of the IDC report caution that graft, bureaucracy and “undeveloped financial systems” remain barriers to investment, a lack of existing IT infrastructure in many areas is part of what makes them attractive.
“It is impossible to ignore the role that IT can play as an enabler of faster development for manufacturers operating in Africa,” says the report. “IT deployment is much simpler in emerging African factories as vendors are often able to design IT environments from scratch due to the lack of existing infrastructure… This will give an immediate boost to process efficiency and operational quality, potentially paving the way for Africa to take its place as the undisputed low-cost manufacturing hub of the world.”
IDC’s Martin Kuban, who wrote the report, says that the light manufacturing, clothing and simple electronics industries may be the biggest beneficiaries, especially in northern countries with clear export routes to Europe. Recent improvements in connectivity across the continent will fuel this kind of growth, though.
“The internet is an undeniable force for economic growth and social change. Not only has it unlocked new forms of communication and connectivity, it has also provided an outlet for innovation and entrepreneurship,” Kuban says. “The African Development Bank estimates that Africa’s mobile industry contributes around 3.5% of the total African GDP, with [mobile industry body] the GSM Association estimating a contribution of 4.4 percent to the region’s GDP when including the effects of mobile technology on employee productivity.”
One other area in which this high-tech, low cost manufacturing boom may take hold, is around smartphone manufacturing. Hisense, a Chinese consumer electronics brand, is adding production lines to build low-end smartphones at its Cape Town plant, alongside the TVs that are already produced there. South African firm CK Electronics, meanwhile, has also announced that it is to begin assembling phones from imported parts within the country, hoping to undercut competitors who are subject to high import taxes on electronic goods.
Ebrahim Khan, deputy general manager of Hisense in Africa, says that manufacturing locally doesn’t just bring cost benefits.
“With a world class manufacturing facility in Cape Town,” Khan says. “It enables speed to market and more efficient management of our supply chain and distribution channels. It also allows us to develop bespoke products based on what certain niche clients require, whereas before, this was not possible. It also provides significant confidence to our customers by validating our commitment to the long term growth envisaged for the region.”
It’s also thought that Korean giant Samsung has been investigating the possibility of opening a plant on the continent too.
Renewable energy is another high-tech area in which several South African firms are investing in capacity. Local distributor Mustek sells solar systems in which only the panels are imported, while ARTSolar opened a plant to manufacture PVs themselves in Durban last May.
By: Adam Oxford