A continent with huge challenges, but even bigger opportunities
Sustainable businesses are unlocking value and creating new industries in Africa, thereby helping to establish the continent’s manufacturing industry. Yet Africa remains a small actor in the global economy, accounting for just 3% of global trade in intermediate goods.
The region continues to have huge challenges, many of which are caused by international exploitation and inaction on climate change by wealthy nations. The pace of rich countries doling out financing for Africa on international climate policy has been sluggish for years. In 2009, the global community promised to provide $100 billion a year in financing to help low-income countries implement their climate plans. But funding has fallen short and OECD calculations show that the highest single-year total was in 2019, when less than $80 billion was delivered; in other years, it’s been closer to $50 billion. Studies show that inflows to African countries have been even less at around only $30 billion per year — just a tenth of the $277 billion per year they need to address climate change. And a large chunk of that funding is being given in the form of loans, which add to large preexisting debt burdens.
Further, according to the IPCC, Africa is one of the most vulnerable continents in the world to climate change. In 2022, every part of the continent was affected by extreme weather events, ranging from wildfires in Algeria to catastrophic flooding in South Africa. Africa’s CO2 emissions are also fast growing due to increased natural resource extraction and consumption linked to increasing material use on the continent and abroad in recent decades. Africa outsources 25% of its raw material footprints from consumption, while over 60% of its footprints from production arise from its exports. There is a strong and positive correlation between national debt and raw material footprints embodied in African exports.
Despite its ample resources and advancement potential, the large continent maintains high rates of poverty and hunger where an estimated 140 million people face acute food insecurity. Exacerbating these humanitarian problems are hard-hitting economic and environmental concerns including continued sluggish growth, high inflation, uncertainty in the global economy, under-performance of Africa’s largest economies, impacts of climate change, and sharp deceleration of investment growth.
The World Bank’s 2023 economic update on Africa’s Pulse, presents some business context for these challenges:
- Economic growth in Sub-Saharan Africa is set to slow from 3.6% in 2022 to 3.1% in 2023, and inflation is expected to remain high at 7.5% for 2023.
- Economic activity in South Africa is set to weaken further in 2023 (0.5% annual growth) as the energy crisis deepens, while the growth recovery in Nigeria for 2023 (2.8%) is still fragile as oil production remains subdued.
- The GDP growth of the Western and Central Africa subregion is estimated to decline to 3.4% in 2023 from 3.7% in 2022, while that of Eastern and Southern Africa declines to 3.0% in 2023 from 3.5% in 2022.
- Investment growth in Sub-Saharan Africa fell from 6.8% in 2010 to 1.6% in 2021, with a sharper slowdown in Eastern and Southern Africa than in Western and Central Africa.
These numbers show that Africa will need to boost economic output and restructure business operations in the coming years. It is therefore imperative that the continent uplifts its industrialization with renewed economic structures and advanced technologies in sustainable ways. There is already hope in the manufacturing sector, as production, employment, trade and FDI in the region have actually increased over the past decades faster than the global average due to strong growth in parts of Africa, to domestic policy and institutional improvements, and to rising wages in China.
Africa’s challenges become its opportunities
However, even with these seeming setbacks, there is no region in the world with greater opportunities. Africa looks toward a future shaped by rapid urbanization, climate change, growing digital capacity, regional cooperation, and entrepreneurial innovation. Business efforts in Africa to harness the full potential of trade, industrialization and manufacturing to advance sustainable, inclusive growth could lift up to 50 million people out of extreme poverty and generate income gains of up to 9% by 2035. We see that the continent has an unprecedented opportunity to turn its huge challenges into lucrative business opportunities.
Let’s take Africa’s mining market size as an example, which was valued at close to $500 billion in 2022 and is projected to reach nearly $800 billion by 2030. The global exploitation of Africa’s critical raw materials such as chrome, cobalt, and lithium has been necessary for wealthy nations’ digital and climate tech dominance. African countries have realized that continuing to export materials raw is an unsustainable path of dependency. These minerals constitute the basis for the electric vehicle, smartphone, lithium-ion battery, semiconductor, and other electronic manufacturing to supply the newly created African Continental Free Trade Area (AfCFTA), an internal market of 1.3 billion people. Headquartered in Ghana, the free trade area seeks to increase intra-African trade by 52% and generate $450 billion in income by 2035.
Despite these AfCFTA ambitions, intra-African trade currently accounts for only 15% of the continent’s total trade, compared to 58% in Asia and 67% in Europe. However, harnessing the potential of natural resources provides an opportunity to improve trade as well as the fiscal and debt sustainability in Africa, while also offering a huge economic opportunity for African economies during the imperative low carbon transition. By curbing the export of raw materials and seizing economic value of industrialization within the continent, Africa could start to restructure the world order in which it is no longer exporting its materials raw, but becomes the center of global manufacturing and thus adds value to its own economy. As Africa looks toward the future capacity for tech, urbanization, and entrepreneurial innovation in the manufacturing sector, it will drive socio-economic growth and development in the region.
Africa as the next frontier for sustainable manufacturing
There is massive opportunity to positively transform Africa and business has a huge role to play in this shift. There are already several visionary, fast growing companies doing just that. I recently visited Togo to attend a global management meeting for Arise IIP. Lead by their award-winning CEO Gagan Gupta, the company’s mission and spirit to transform Africa for the better is captivating and commendable. Committed to generating local, high value-add sustainable growth, Arise is helping turn Africa into a global business powerhouse in a sustainable way. Arise simultaneously generates economic as well as ESG value for the regions in which it operates. In Togo, for instance, Arise’s industrial zone is vertically integrated and focused on creating thriving value chains for storage, processing, manufacturing, and export along the Lomé – Burkina industrial corridor. It has generated over $154.5 million revenue in the economy, attracted $77.7 million FDI since 2022, and created over 4,800 direct jobs with an estimated 15,000 additional jobs through upstream and downstream activities.
Many African economies are rapidly developing, and investors are gaining confidence in African manufacturing.There is also the recent Africa Renewable Energy Manufacturing Initiative. The collaboration among Sustainable Energy for All, the African Climate Foundation, Bloomberg Philanthropies, ClimateWorks Foundation, and the Chinese Renewable Energy Industries Association aims to unlock up to $850 million in catalytic investments to advance clean energy manufacturing capacity across Africa. With an impressive 1.2 terawatts of energy potential, 14 million new jobs, and 6.4% growth in GDP in Africa available under a green transition scenario, this new international initiative will help drive the financial, technical, and socioeconomic investments required to advance clean energy development and transition in Africa.
Africa emerging as a renewable energy manufacturer
Africa, more than other regions of the world, bears a significant burden of global warming as the continent can expect a temperature increase that will occur 1.5 times faster than the global average increase. Despite contributing less than 4% to global GHG emissions, 35 of the 50 countries most at risk from climate change effects are located in Africa. Already in 2022, 600 million people in Africa, or 43% of the continent, lacked access to electricity. However, such solutions as tapping into energy resources and developing diverse energy sources would improve Africa’s energy access and resource base as well as address temperature increases. Africa’s energy transition alone presents $100 billion per year investment opportunity and climate-resilient infrastructure offers investment potential between $130 billion and $170 billion.
Significant reserves of critical minerals like copper, graphite, lithium, molybdenum, nickel, zinc, bauxite, cobalt, manganese, and platinum – when handled responsibly – make Africa essential for manufacturing electric vehicles, solar PV cells, and wind turbines. These local resources are a big part of the reason why solar manufacturing sites are being set up across Africa, helping to create favorable conditions for growth and acceptance of the technology. A further incentive is that more than 85% of the continent’s landscape gets global solar horizontal irradiation of over 2,000 kWh/ (m2 year), which greatly boosts the potential to fuel both its own energy-intensive goals and the demands laid out by global regulations.
In 2023 alone, several new solar manufacturing plants have been commissioned in countries including Nigeria and South Africa. Nigeria’s solar cell factory will be the first such facility in West Africa and South Africa’s facility is being built by Ener-G-Africa, a Malawi-based clean energy products manufacturer. The $1.5 million, 800m2 Ener-G-Africa plant is manufacturing solar panels for use with advanced biomass stoves, as well as for the regional African market and overseas exports. With a maximum capacity of 15 MW per annum, the plant has already created 53 jobs, operates 24 hours a day, and the manager and employees are all women. The plant is unique for several reasons, including its focus on small and affordable solar panels. These 20W panels will sell for just $18 each. In addition to domestic South African sales, they will also be distributed to Malawi, Angola, Mozambique, Zimbabwe, Ghana, Zambia, Kenya, Tanzania, Uganda, and Rwanda.
Africa transforms manufacturing into Business for Good
Despite a complicated investment environment, manufacturing in sub-Saharan Africa is growing. Manufacturing on the continent has increased in value fourfold since the turn of the century. As a potential manufacturing powerhouse of the future, Africa can catalyze its depth of business opportunities to focus on addressing the UN’s Global Goals that are set to open up an economic prize of at least $1.1 trillion by 2030 for the continent’s private sector. African business leaders are already using innovative technology and new business models to enter Global Goals-related manufacturing markets. With sustainability at the heart of innovation, over 85 million new jobs could be created in Africa by 2030. Africa will be transformed for Good. And Business in the manufacturing sector will be a driving force.