Economic Development

Africa is poised to move up global value chains as global firms source products and services from the continent

October 14, 2015

Africa

  • Africa is emerging as a hub for global manufacturing and services
  • The advantages of several economies in Africa are cheap labour and the abundance of raw materials
  • While infrastructure bottlenecks are gradually easing in parts of Africa, the pace of infrastructure development remains a major constraint
  • Globally established firms are introducing new methods and technologies to improve suppliers’ capacity and quality

The first-mover advantage is very important for global companies looking to establish operations in Africa, but firms need to be willing to make significant investments of time and capital, says a new report from the Economist Intelligence Unit.

The report , sponsored by Standard Chartered Bank, is based on five case studies of multinational firms that are focused on developing local talent and boosting local supplier capacity and quality in Africa.

The report finds that while the continent is still faced with an infrastructure deficit, bottlenecks are gradually easing. For example in the past ten years, the average time it takes to export goods from sub-Saharan Africa has been shortened by 20% to 31 days and from South Africa by 36% to 16 days. Low labour costs and the availability of raw materials are also key advantages in larger economies. 

The companies featured in the report all shared the view that moving their Africa-based operations further up the value chain to reduce reliance on imports and improve profit margins is desirable for all stakeholders, including policymakers. Some governments are using incentives such as duty-free exports and cheap land leases to encourage private sector development and attract business from international companies. 

“Africa’s leaders want investment, so if you’re willing to come in and invest in developing supply chains and building up the economy, and not just sell things or take out raw materials, then it’s a very amenable situation,” Jay Ireland, president and CEO of GE Africa, says in the report. GE had said that it plans to invest US$2bn in Africa from 2014-18, with around half earmarked for Nigeria.

Kevin Plumberg, the editor of the report, said: “It’s clear that developing supplier capacity and improving product quality in Africa, even with improvements in the business environment and infrastructure, still require hard work and patience. Nonetheless, more companies are exploring opportunities in Africa because of the growth potential to become a vital link in global supply chains.” 

The report, part of a series exploring emerging-market supply chains that also includes infographics and articles, is available to download .

This report serves as a starting point for discussion on supply chains in Africa that will culminate in an event in Nairobi, Kenya on November 17th, 2015 that will bring together speakers from government, the private sector and The Economist. For more information, click .  

 

Press enquiries:
Mathew Hanratty, corporate communications manager
+44 (0)20 7576 8546

 
Kevin Plumberg, senior editor
+65 6428-2671

 

Notes to editors
Cultivating sources: Africa’s changing role in global supply chains is a report that draws on desk research and case studies based on interviews with five executives from companies that have formed extensive sourcing networks in Africa. The report is part of the Growth Crossings series examining how supply chains in emerging markets are evolving. For more discussion on the topics covered in the report, look for the Twitter hashtag .

About The Economist Intelligence Unit
The Economist Intelligence Unit is the world leader in global business intelligence. It is the business-to-business arm of The Economist Group, which publishes The Economist newspaper. The Economist Intelligence Unit helps executives make better decisions by providing timely, reliable and impartial analysis on worldwide market trends and business strategies. More information can be found at or .

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