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Manufacturing in Africa: Supply Networks. February 2021 Newsletter

Manufacturing in AfricaA key factor affecting growth in manufacturing relates to the quality and availability of inputs in the local market, such as raw materials. In some African countries, there is abundant seasonal produce for the manufacturing sector but the challenge has always been the unpredictability of supply networks after the bounty seasonal harvest.  That means the flip side of surplus seasonal produce are usually volatile and expensive inputs if adequate plans were not put in place by manufacturers. The boom and bust seasonal supply networks still plague many processing plants across Africa prompting the import of intermediate produce for local processing. The solutions rest in the adaptation of proven produce storage technologies and development of a robust logistics supply chain.

For most manufacturers in Africa, the way to ensure the supply of quality raw materials and increase production includes but is not limited to the development of technological capabilities and logistics. The inadequate logistical infrastructures and shortfalls in technological competences lead to the supply of damaged and low-quality raw materials to manufacturers. The enhancement of logistical capabilities in supply networks will definitely curtail endemic post-harvest rot and minimise low-quality inputs. Having said that, these challenges present a wide range of investment opportunities in post-harvest storage chains across Africa.

Still on supply networks, the need to export produce to overseas factories for processing massively distorts the supply networks for local manufacturers. The agelong purchasing power battle between local manufacturers and merchants who procure raw materials for factories overseas still pose an uphill task for economic growth. In some African countries, the Governments pay lip service to raw materials procurement competition faced by local producers because of need to earn foreign exchange from produce export. The unintended consequences include the decline of local processing plants, unstable supply of inputs to struggling local manufacturers and loss of massive employment opportunities. African Governments can gradually turn the tide in favour of local manufactures by introducing export levies on raw materials. Brazil and Indonesia successfully introduced export levies on selected raw materials to further develop their local manufacturing sector.

On the other hand, some manufacturers in Africa strategically established their factories in the exact location of raw materials they need for production.  There are outstanding examples such as Dangote cement factories in Nigeria, Ethiopia, Zambia and Tanzania. These Dangote cement factories are all located at sites with huge deposits of limestones. The proximity of the plants to raw materials guarantees robust supply networks and equally extends employment opportunities to rural dwellers. In all, effective supply networks are the backbone of the manufacturing  sector. Dangote cement factories are super ideal and exemplary models for long term investment.

In the March edition of the newsletter, we will start a new series on Manufacturing Investment Opportunities in African Countries. Watch out.

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