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African Business 2021

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The 2021 edition of African Business is the second issue of this useful guide to business and investment on the continent. The positive reception accorded the inaugural edition in 2020 was encouraging and we are optimistic that this publication and future issues will continue to meet the need for timely and relevant information in an exciting time for African business. African Business 2021 has articles on recent trends plus overviews of the key economic sectors on the continent and regional and country profiles. There is an in-depth analysis of the implications for trade on the continent of the introduction of the African Continental Free Trade Area agreement (AfCFTA) and an article on the growth and importance of exploration for minerals, gas and oil. Namibia and Botswana feature in an article on how cooperation can drive economic growth and an opinion piece focusses on the role that digital technology can play not only in the financial sector, but in the driving progress in a broader sense. Global African Network is a proudly African company which has been producing region-specific business and investment guides since 2004, including South African Business and Nigerian Business, in addition to its online investment promotion platform: https://www.globalafricanetwork.com

OVERVIEW Manufacturing A

OVERVIEW Manufacturing A focus on manufacturing exports can add value. SECTOR INSIGHT Distell is expanding its African footprint. Credit: Ethiopian Investment Commission Manufacturing makes up about 40% of intra-African trade but only 19% of exports. The Brookings Institution estimates that business-to-business spending in manufacturing in Africa could be 6.3-billion by 2030. This figure represents a 1.2-billion increase over the amount for 2015. To get even greater value for their manufactured goods, Africans must export more. The African Growth and Opportunity Act (AGOA), which gives duty-free access to the US for about 6 500 products from 39 Sub-Saharan countries, will be in place for another five years and there is a chance to ramp up production of goods of higher value to take advantage of the agreement, which has not been exploited to the extent that it might have been. Exactly how to move Africa’s economy away from agriculture into productive manufacturing is a subject of some debate. The “Vietnam Model” is based on growing the sector by offering manufacturing companies a low-wage environment as wages in China rise. Other countries to take this route include Sri Lanka and Bangladesh. Ethiopia is following this trend. A Bangladeshi garment manufacturer has set up a factory in Ethiopia which supplies H&M and a Sri Lankan company, Hela Clothing (pictured), has produced and shipped its one-millionth garment from its factory in Ethiopia. TAL Apparel, a company with Hong Kong roots, had 27 000 employees in the same town in which Hela is operating, Hawassa, until Covid-19 struck. This is part of a drive by Ethiopia to increase its annual export earnings in clothing from 5-million to -billion (CNN). Lesotho and Mauritius are other countries exporting textiles, although the island nation chose to focus on the high-end market and has developed the skills and qualitycontrol protocols needed to supply that niche. As a colony Mauritius was a sugar-based monoculture. Today sugar cane is still in the export basket but there are also textiles, clothing, processed fish and cut flowers. Services exports such as financial services and tourism are rising, and medical tourism and higher education are seen as a high-value sectors worth investing in. Dr Yuwa Hong and Dr Martyn Davies have argued that wage rates are just one of the “pull” factors that attract manufacturers (Sunday Times, 26 January 2020). Of the six countries referenced in their article, Rwanda, Ethiopia, AFRICAN BUSINESS 2021 36

OVERVIEW Ghana, Mauritius and Egypt have lower wage regimes than China but Egypt, Ghana and Mauritius have higher manufacturing wages than Vietnam. Capital stock per capita and the rate of growth of that capital stock are also vital, the academics claim. Capital stock refers to invested assets that improve an economy’s chances of performing well: infrastructure, equipment, technology, warehouses, transportation, logistics and communication. On the basis of the three rankings, the countries they studied rank as follows in terms of “pulling” manufacturers: first, Rwanda, followed by Ethiopia, Ghana and Mauritius (joint third), Egypt and South Africa. Other factors for attracting manufacturers referred to by the doctors (but which fell outside their study) are regulations and tax policy, enabling infrastructure, access to finance, skills of the workforce and the capabilities of local firms. One of the consequences of the Covd-19 epidemic is to make African leaders more conscious of the need to make more things locally. Incentives for the manufacture of pharmaceuticals and other items found to be in short supply during the crisis are likely to follow. Agenda 2063 The African Union’s Agenda 2063 focusses on raising the continent’s industrial and manufacturing capacity. At the Africa Industrialisation Week held in Addis Ababa in 2018, various complementary plans were outlined to support this goal: the Accelerated Industrial Development of Africa (AIDA), the Pharmaceutical Manufacturing Plan for Africa (PMPA), the SME Strategy, Boosting Intra-African Trade and the African Continental Free Trade Area and the UN General Assembly’s Third Industrial Development Decade for Africa (IDDA III). The African Development Bank (AfDB) reports that growth spurts driven by manufacturing have a more lasting and deeper impact on a country’s economy than resource-driven booms. The AfDB concludes that, “The implications of such a strong association between manufacturing-driven growth episodes and jobs is that industrialisation is the key to the employment conundrum in Africa” (African Economic Outlook, 2019). ONLINE RESOURCES Accelerated Industrial Development of Africa: www.au.int/en/ti/aida Agenda 2063: www.au.int/en/agenda2063 Association of Ghana Industries: www.agighana.org Kenya Association of Manufacturers: www.kam.co.ke SME Strategy: www.ifc.org Growing the manufacturing sector across the continent will lead to industrialisation, urbanisation and more value being added. The bank reports that, “African countries with the highest shares of manufacturing in value added also have higher levels of development.” Food processing and beverage production are among the strongest sectors in Africa. The Dangote Group, which has interests in cement, sugar, salt, flour, pasta and beverages, is active in 16 African countries and has a turnover of .1-billion. Anheuser-Busch InBev has built or is building new breweries in Nigeria, Mozambique and Tanzania and intends to increase its local supply, which will help grow local businesses. Mozambique will soon have a new alcoholic beverage facility as Distell expands its African footprint. The wine, cider and spirits producer already has plants in Angola, Kenya, Nigeria, South Africa, Tanzania and Zimbabwe. A favoured strategy to encourage manufacturing is through Special Economic Zones. These come in different forms, including Free Trade Zones (FTZs), Export Processing Zones (EPZs) and industrial parks. Typically, these zones attract tax benefits and tariff exemptions. Zones in Ethiopia, Djibouti, Nigeria and Rwanda were established with the help of state-owned Chinese companies. ■ 37 AFRICAN BUSINESS 2021

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