Invest in Manufacturing to Meet Africa's Booming Consumer Demand
By: Leah Ngari
Manufacturing in Africa is growing. Increasing urbanization and access to electricity has increased the demand for manufactured goods and the continent’s capacity to produce them. From car assembly to ceramics, textiles, and mattresses, industrial production is taking off.
Africa’s Consumer Market Biggest Draw for African Manufacturers
Many businesspeople share the misconception that manufacturing in Africa is only profitable if they sell the manufactured products outside the continent. In fact, international companies now building factories on the continent are often trying to meet the demand of Africa’s rapidly growing consumer market. Those who understand the opportunity can thrive while contributing to Africa’s sustainable economic development. Sun Jian, a Chinese ceramics manufacturer, recognized the local market’s potential after visiting Nigeria to explore cheaper relocation alternatives for his Chinese manufacturing operations. Despite his higher electricity costs, the ceramics manufacturing plant he established in Nigeria now enjoys a 2% increase in profit margins compared to what its Chinese counterpart.
Volkswagen is another international company that has been setting up shops in strategic locations all over the continent. With vehicle assembly facilities in Ghana, Nigeria, Ethiopia, and Rwanda, Volkswagen is targeting areas where the local market for vehicles is growing steadily. And as locals’ purchasing power increases, local demand for products will continue to rise.
Intra-African trade has been growing and is expected to increase further thanks to the passage of the African Continental Free Trade Agreement, which went into force last year. The AfCTA will give African manufacturers access to a sizable, readily available market. Although trading under the AfCTA was slated to begin July 1st, the date was postponed due to the COVID-19 pandemic. Nevertheless, once implemented, the agreement is expected to increase the market size for companies based in Africa and will propel the continent’s industrialization forward.
Despite the recent manufacturing growth, several challenges still hold manufacturers back from venturing into Africa. Most African countries do not yet have the infrastructure capable of sustaining large scale manufacturing and relatively high labor and capital costs. As a result, manufacturing on the continent is concentrated in only a small number of countries.
The increasing automation of many low-skilled processes may also make Africa less attractive as a manufacturing destination, since automation-heavy factories require an abundance of electricity. And with robots replacing human workers, companies might stop outsourcing production abroad.
Now is the Time for Investments in African Manufacturing
Automation also creates opportunities. Manufacturing companies can strategically involve themselves in developing infrastructure on the continent and use the latest tools and techniques to build functioning roads and ports. Private investment in African infrastructure can yield profits while contributing to the continent’s economic success. The trend away from production outsourcing should not affect manufacturing companies that focus on meeting the increasing demand for consumer products on the continent. Governments can choose to nurture specific sub-sectors, as Nigeria did with cement, to grow their competitive advantage. Entrepreneurs can draw on their creativity and innovation to face the infrastructure challenge and leapfrog over outdated production and distribution processes. Companies that enter the market now may well enjoy a first-mover advantage as they contribute to building Africa’s long term production capacities.