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Economic Development in Africa Report 2023

Economic Development in Africa Report
2023

The potential of Africa to capture technology-intensive global supply chains

UNCTAD’s Economic Development in Africa Report 2023 examines the continent’s potential to become a major participant in global supply chains for high-technology sectors like automobiles, mobile telephones, renewable energy and health care.

Recent disruptions due to trade turbulence, economic uncertainty, a global pandemic and geopolitical events have compelled manufacturers worldwide to diversify their production locations and geographical footprint.

This presents opportunities for African governments and businesses to position the continent as the new destination for global supply chains.

It has an abundance of critical minerals needed for high-tech and green products and is home to a young, tech-savvy population, an adaptable workforce and a burgeoning middle class.

The African Continental Free Trade Area also offers advantages by easing access to regional markets and strengthening production chains across the continent, helping domestic industries become more prepared for the global arena.

The report recommends policy actions to overcome supply chain hurdles African countries face, including poor logistics, low levels of technology, fragmented markets, limited capital sources, and weak institutions and regulations.

See the content in Kiswahili: press release, .

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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

Global supply chain diversification:

Africa’s comparative advantage

With the world’s youngest and fastest-growing population (about 60% of Africans are under the age of 25), the continent is emerging as a magnet for consumer markets and products, making it an attractive destination for supply chains.

Another comparative advantage is Africa's vast reserves of critical minerals – including aluminum, cobalt, copper, lithium and manganese – needed for high-tech and green products like smartphones and solar panels.

Expanding energy supply chains into Africa is also an opportunity to accelerate climate action. The continent has at least a fifth of the world’s reserves in a dozen metals critical for the energy transition – including about 19% of those needed for electric cars.

As the global push for cleaner energy intensifies, demand for such metals will soar – an electric car, for example, needs about six times more minerals than a traditional vehicle.

Besides providing direct access to the raw materials, African economies can help manufacturers shorten and simplify supply chains and cut transportation costs by locally processing the metals into intermediate products, such as batteries or screens.

Africa also offers opportunities to green supply chains by tapping the continent’s green hydrogen potential and renewable energy resources, particularly solar.

To seize these comparative advantages, African countries need to enhance productivity through technology adoption, improve logistics and leverage trade agreements.

Investments in the continent’s infrastructure, including ports, roads and rail, have lagged, contributing to delays that discourage businesses from sourcing products from African countries.

Initiatives like the continental Programme for Infrastructure Development in Africa and South-South partnerships such as the Silk Road Economic Belt initiative could help upgrade the region’s infrastructure.
 

UNCTAD calls for

  • 1
    African countries should secure better mining contracts and exploration licences for metals to strengthen domestic industries and enable local firms to design, procure, manufacture and supply the necessary components.
  • 2
    African governments to design industrial policies that prioritize local sourcing and focus on areas such as science and technology, human capital development, infrastructure and capacity-building.
  • 3
    Investment promotion agencies to establish vendor development programs and facilitate linkages between foreign firms and local suppliers.

High-tech supply chains:

Resetting African economies for mobility and scale

Some African countries, led by South Africa, Morocco, Algeria and Egypt, manufacture automobiles while most (about 84%) supply raw and semi-raw materials.

Untapped potential lies in producing non-automotive grade components, such as batteries and lamps, which are less technology-intensive than parts like motors.

Opportunities also abound in mobile telephone supply chains. For instance, the Democratic Republic of the Congo, which holds about 46% of the world’s cobalt, is venturing into producing cathode precursors – a main component in batteries.

Africa can also harness its potential for solar energy. Egypt, Morocco and South Africa already manufacture solar panels and further prospects exist in assembling solar fields, which require components like ball joints and cables that are used by many industries.

However, the continent requires more investment to boost manufacturing. Even with renewable investments in Africa soaring by a yearly average of 96% since 2000, the continent attracts a mere 2% of the global total.

The report also highlights the potential in pharmaceutical and medical product supply chains. 

Africa provides 12% of global exports of vital minerals used by the medical industry. But intra-African trade in the sector remains weak. For instance, South Africa, the world’s leading exporter of titanium and platinum – essential for medical devices – accounts for just 5% of African imports of these metals. 

The African Continental Free Trade Area could play a pivotal role in facilitating intra-African trade and strengthening regional supply chains in high-tech sectors by cutting tariffs, boosting infrastructure investments and building links between companies and local suppliers.
 

UNCTAD calls for

  • 1
    African governments to develop manufacturing strategies for mobile telephones, renewable energy technologies and medical devices, like those that exist for the automotive and pharmaceutical industries.
  • 2
    International organizations to support African countries to identify their unique potential and niche areas in technology-intensive supply chains.
  • 3
    African countries to strengthen intellectual property rights, legal frameworks and political stability to attract more foreign investment.

Optimizing opportunities:

Going digital and improving access to finance

To optimize supply chain opportunities, Africa needs to go digital and improve access to supply chain finance. Countries such as Kenya have made notable progress in this realm, with rising rates of digital skills.

For high-tech and complex products like medical devices and electrical equipment, technologies such as automation, machine learning, artificial intelligence and blockchain are necessary for production, distribution, logistics and procurement.

The use of new technologies and digital solutions also enhances supply chain visibility, responsiveness and compliance with regulations.

In Africa, many small and medium-sized enterprises (SMEs) are not part of the global supply chain network due to their limited use of digital technologies. They face challenges such as a lack of skills and funding gaps.

African firms can play a larger role in supply chain diversification by integrating vertically or horizontally. Collaboration between large firms and SMEs through mergers and acquisitions can allow companies to streamline operations by acquiring their own suppliers, manufacturers and distributors.

Digital technologies could also help address financing needs. Technology-enabled solutions such as blockchain can improve supply chain financing, especially for SMEs, by enabling real-time and verifiable transactions, reducing the need for physical audits.

The report shows that the value of the African supply chain finance market rose by 40% between 2021 and 2022, reaching $41 billion. But this is not enough.

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

UNCTAD calls for

  • 1
    African governments to create sound policies, foster an enabling regulatory environment and scale up programmes to promote the widespread adoption of digital technologies.
  • 2
    Better financing solutions to offer African countries and businesses affordable capital and liquidity to invest in strengthening their supply chains.
  • 3
    Financial institutions and governments to provide innovative credit assessment and financing tools to help change the risk perception of African firms, including guaranteed schemes and sustainable supply chain finance.
  • 4
    Debt relief to offer African countries fiscal space to invest in strengthening their supply chains, as on average, they pay four times more for borrowing than the United States and eight times more than European economies.

Policy actions:

Positioning Africa as a new supply chain destination

African economies can become major participants in global supply chains by harnessing their vast resources of materials needed by high-technology sectors and their own growing consumer markets.

To help them capitalize on their comparative advantages, the report recommends policy actions to ensure an attractive business and investment environment and new market opportunities.

Automobile industry

  • 1
    Provide new vehicle-financing mechanisms with lower interest rates to capitalize on Africa’s growing demand for automobiles.
  • 2
    Coordinate regional automotive strategies and development plans to avoid duplicating efforts and to better integrate low-income countries through, for instance, preferential treatment under rules of origin requirements.
  • 3
    Set up multi-brand mega-factories in countries with small assembly plants like Ghana, Kenya and Nigeria to attract the production of parts and components.
  • 4
    Improve collaboration between African countries and the private sector to fund technical institutes and adapt curriculums to reflect new industry developments, such as electric vehicles.

Health care industry

  • 1
    Harmonize pharmaceutical product regulation and registration to improve market access, achieve regional certification and scale-up production. Bolster efforts like the African Medicines Regulatory Harmonization programme.
  • 2
    Increase demand and access to medicine by promoting pooled procurement and financing programs like the Africa Medical Equipment Facility and the Africa Medical Supplies Platform.
  • 3
    Support cluster formation, such as Medicine City in Egypt, to ensure access to essential infrastructure for pharmaceutical operations and attract investment.
  • 4
    Encourage collaboration between companies like partnerships and joint ventures to increase access to knowledge and industrial design and facilitate technology transfer and intellectual property exchange.

Renewable energy technologies

  • 1
    Stimulate demand for solar panels in Africa through structured renewable energy procurement programs.
  • 2
    Prioritize advisory, installation and repair services in countries unable to manufacture solar panels. Local entrepreneurs can better cater to local needs, and such a strategy would create jobs.
  • 3
    Ensure local companies are included and local content requirements are considered by development finance institutions in tender procedures, to avoid excluding them from large-scale projects.

Mobile telephones

  • 1
    Promote local assembly and manufacturing in resource-rich countries by creating special economic zones and fostering favorable investment environments.
  • 2
    Address environmental, social and governance issues, such as raw materials transparency, to ensure the sustainable development of the sector.
  • 3
    Adopt circular supply chains that focus on recycling and remanufacturing products and components to enhance supply chain sustainability and attract sustainable investments.

Mining industry

  • 1
    Improve access to electricity and finance for local mining firms and provide targeted support to promote domestic participation in extracting critical minerals.
  • 2
    Provide support to African countries during contract negotiations to ensure they receive fair value for their minerals from the extractive industries.
  • 3
    Establish a regionally coordinated mining policy to enable disadvantaged countries to supply inputs through a common fund for transporting them from countries with weak infrastructure.
  • 4
    Bolster the implementation of the Africa Mining Vision.
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