Africa has huge potential to power global supply chains for automobiles, handsets, food, renewable energy, and healthcare.
- The value of the African supply chain finance market rose by 40% between 2021 and 2022, reaching $41 billion.
- Africa has at least a fifth of the world’s reserves in a dozen metals critical for the energy transition.
- African countries need to capitalize on their comparative advantages and bolster technology adoption, improve logistics and leverage trade agreements.
Riding on its key comparative advantage of driving green transition globally, Africa can become a new hub for international supply chain, including for technology intensive industries. However, to realize this ambition, the ball lies principally in the court of policymakers in Africa and businesses to position the continent at an advantage.
These revelations are contained in the new United Nations Conference on Trade and Development (UNCTAD) Economic Development in Africa Report 2023released on 16th August 2023. The report The Potential of Africa to Capture Technology-Intensive Global Supply Chains, says African countries enjoy many advantages that can drive the diversification of global supply chains, including for high-knowledge-and technology-intensive industries.
Africa’s potential lies in playing critical role in global supply chains for high-technology sectors like automobiles, smartphones, renewable energy and health care. Africa has the potential to position itself as a supplier of raw materials for global supply chains.
Russia-Ukraine war, Covid-19 impact on supply chain
The disruption in global supply chains attributable to Covid-19 and the Russian-Ukraine war continues to wreak havoc on economies. By the same token, multipolarism and geopolitical tensions are aggravating the situation. Consequently, manufacturers worldwide are seeking to diversify their geographical footprint and production locations.
However, there is a caveat, in order to attract supply chains, African countries will need to attract investors. According to the report, Africa is emerging as a magnet for consumer markets and products. And this is making it an attractive corridor for supply chain networks. Companies setting supply chains bases in Africa or establishing partnerships with local suppliers, will create jobs.
“This is Africa’s moment to bolster its position in global supply chains, strengthen its emerging industries and create millions of jobs,” UNCTAD Secretary-General, Rebeca Grynspan, noted in the report.
The urgency to transition from fossil fuels cannot be overemphasized as climate-induced natural disasters increase. As demand grows for minerals critical for energy transition, Africa is becoming a big player in the value chain.
According to the Natural Resource Governance Institute (NRGI), Africa has at least a fifth of the world’s reserves in a dozen elements critical for green energy. These encompass about 19 per cent of the minerals needed to power electric vehicles.
Expanding energy supply chains into Africa is also an opportunity to accelerate the continent’s free trade plan, AfCFTA. Greening supply chains is also achievable by harnessing Africa’s wind, solar and green hydrogen.
Rare earth elements
Rare earth elements (REEs) refers to a group of 17 metals. They include nickel, manganese, chromium, graphite, lithium, neodymium, samarium, yttrium among others.
They are used in the manufacture of electronics such as computers, smartphones, digital cameras, televisions, fluorescent and light-emitting-diode. Additionally, they are used in renewable energy technology. What’s more, rare earths are finding use in national defense, making satellites, jet engines, GPS equipment, missile guidance, generators for wind turbines, military weapons, and other defense systems.
So, why is Africa not a heavyweight in global supply chain industry? A plethora of challenges plague this lucrative sector. UNCTAD cites low levels of technology, limited capital, weak institutions and regulations and fragmented markets. The current logistics ecosystem needs a major revamp in policy actions to overcome these hurdles.
Turning Africa’s resource ‘Curse’ into Blessing
Africa is endowed with vast natural resources that can turn economies into developed nations. However, Africa’s ‘resource curse’ where foreign powers extract wealth from the continent to develop their nations persists. Minerals from Africa keep powering developed nations, as populations suffer in abject poverty.
Take King Leopold II, who history says was the founder and sole owner of the Congo Free State between 1885 and 1908. Belgian King Leopold II, christened the ‘Butcher of Africa’, killed roughly 10 million Congolese. He exploited upper Congo mineral basin through a series of international companies that brought little benefit to Congo.
Just over a century later, Africans have a seat at the table. They can stop history from repeating itself and turn the tide to their benefit. This is by turning this ’resource curse’ into a ‘blessing’ by tapping resources to develop the continent.
Africa has 30 per cent of the world’s mineral reserves, many of which are critical for green transition. Policymakers have a chance to harness this geostrategic opportunity brought by huge demand for minerals. Data from the World Bank indicates that lithium will triple in demand by 2040. The price per tonne of lithium surged from about $6000 in 2020 to over $78,000 in 2022 in Nigeria. This implies Nigeria cant mint billions, literally, from its lithium resources.
Diamonds in South Africa
The gold rush and scramble for diamonds in South Africa is another example. The country has been lobbying for year for the return of ‘Great Star of Africa or Cullinan I’. This gem is the world’s largest known clear-cut diamond and the largest rough diamond ever found. The diamond, which weighs 530 carats, was cut into nine stones and 97 fragments. It was discovered in South Africa in 1905 and presented to the British monarchy two years later by the colonial government.
Calls for the return of these diamonds especially came to fore after the death of Queen Elizabeth II in September 2022 and recently in May 2023 during the coronation of King Charles III. ‘The Star of Africa,’ was set at the top of the scepter presented to King Charles III, during the coronation ceremony. In addition, Cullinan 2 is set in the front of the crown he wore.
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Other stones are in the possession of Britain’s royal family too or on display in the Tower of London. The demand has renewed the call by other African countries for reparations, including cultural artefacts on display in museums.
The rush for green minerals
Africa’s pivotal role in the global green transition cannot be gainsaid. The continent is home to minerals integral for clean energy technologies. Their demand is growing by the day owing to green transition from fossil fuels. In light of this, the African Union and other regional bodies are developing an African Green Minerals Strategy, to guide on mining policies, regulations, and institutions. This is in an effort to streamline the investment climate, and attract global supply chains among other goals.
Export bans necessary to check exploitation
African countries have been increasingly restricting and enforcing mineral export bans. This is in an effort to bolster manufacturing and processing with the goal of retaining more benefits in the continent. Over the years, multinationals and foreign powers have extracted raw materials from African, only for the continent to import the finished products.
According to the Africa Development Forum, Namibia, Democratic Republic of Congo (DRC) and Nigeria have put in place export controls. They are urging western nations to bring industries to Africa, to build supply chain and ensure local economies get more profits and value. Nigeria turned down Tesla Inc’s request to mine lithium, instead asking the company to set up a battery plant in the West African country.
Africa’s leverage in green energy transition
Africa has an upper hand in the global energy transition, which could revolutionize the supply chain sector. Data from the UN indicates that Africa holds 30 per cent of the world’s mineral reserves. The continent is home to 65 per cent of the world’s total arable land, and 8 per cent of the world’s natural gas. Further, Africa harbors about 12 per cent of the world’s oil reserves.
By the same token, it holds 40 per cent of the world’s gold and the largest reserves of diamonds, cobalt, platinum, manganese, lithium, copper, aluminum and uranium. These minerals are critical in high-tech and green products such as smartphones and solar panels. Another merit is that Africa boasts of endowments in rare earth metals.
A report by South African Institute of International Affairs, indicates that Africa has 30 percent of the world’s mineral reserves, many of which are needed for the green transition, including cobalt in DRC, manganese in South Africa and lithium in Zimbabwe.
In addition, the think tank says Africa refines just a fraction of the world’s mineral wealth. In comparison, China is the global leader in mineral processing. Beijing refines 59 per cent of lithium, 67 per cent of nickel, 40 per cent of copper and 73 per cent of all cobalt.
South Africa has the world’s largest reserves of manganese. Moreover, the International Energy Agency (IEA), shows between 2017 and 2022, demand for cobalt grew by 70 per cent while that for nickel rose by 40 per cent. These minerals are needed for the energy transition and their demand can only grow.
Bolstering mineral industries in Africa
In the race to become climate neutral by 2050, the European Union through its REPowerEU initiative aims to reduce energy dependency on Russia and China. The bloc has been scouring the globe for alternative mineral trade partners.
In light of this, the EU unveiled its Critical Raw Materials Act, in order to avert the risk of supply chain disruptions and its adverse effects thereof. The Act aims to make the bloc less reliant on single suppliers by bolstering mineral industries in African countries such as DRC.
To boot, the US launched Mineral Security Partnership with 11 other developed nations last year. The MSP aims to ensure its miners maintain high standards of environmental and social protection and governance, and invest all along the supply chain so that the countries harness all gains.
Being a part of many trade agreements gives the continent leverage. In addition, investments need infrastructure which includes road, rails and ports. The poor state of infrastructure have turned from sourcing products from African countries due to poor state of supply chain.
Boosting Africa’s Supply Chain Finance
To better position itself in the global supply chain market, Africa needs to digitalize and improve supply chain finance. Technology adoption in Africa’s logistics is critical in unlocking the myriad opportunities the sector has to offer.
The UNCTAD report highlights that between 2021 and 2022, the value of the African supply chain finance market increased by 40 percent, reaching $41 billion which is hardly enough. Digital technologies could also help to address financing needs to achieve sustainable supply chain finance.
Further, technology-enabled solutions such as block chain can improve supply chain financing, especially for SMEs, enabling real-time and verifiable transactions, reducing the need for physical audits.
With better financing, Africa can mobilize funds by eliminating hurdles to supply chain finance, thereby strengthening cross-border supply chains. In addition, debt relief to African countries fiscal space is needed to invest in strengthening their supply chains.
How Can Africa Bolster its Supply Chain Industry?
According to UNCTAD, integration of supply chains and diversification of African economies, can grow resilience and cushion against shocks. The comparative advantage of Africa for integration into global supply chains manifests in procurement, production and distribution.
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Further, Small and medium-sized enterprises (SME’s) can play a significant role in global supply chain diversification and transformation. This is by adopting digital solutions and models to their business performance, operating in a technology-based supply chain environment. Tapping into novel financial tools to increase the participation of these enterprises in supply chains is also achievable.
The report underscores that the deployment of new technologies and digital solutions, can provide comprehensive supply chain visibility and transparency, and facilitate the ability of supply chain participating companies, to respond more effectively to shifting global market dynamics.
Moreover, African firms can play a pivotal role in supply chain diversification, by integrating vertically or horizontally into the supply chain. Greening supply chains is also attainable and is vital in shrinking the carbon footprint of companies.
For instance, green hydrogen wields massive potential for Africa in terms of availing opportunities for decarbonizing supply chains, which is becoming a requirement for companies to curb their greenhouse gas emissions.