Value-added manufacturing: A cure for many African economic maladies

Analysis in brief: Instead of African countries shipping out raw commodities, a host of benefits derive from locally transforming these natural resources into consumer and industrial products, which are now being manufactured overseas. Governmental policies are finally favouring this common-sense economic reality.

End of the “resource curse”

Africa’s “resource curse” has inflicted the continent for centuries. Diamonds, gold and other valuable minerals have attracted colonisers, marauders, war-lords and neo-colonial exploiters. Endless conflict has resulted, with the great historical irony that Africans that should have been enriched by these resources were made more impoverished as their countries were destabilised by these exploiters. From its independence in 1960, the Democratic Republic of Congo (DRC) has not known a day’s peace as militant groups, greedy dictators and foreign mercenaries compete to loot the country of what would make it one of the world’s most prosperous countries: its natural resources.

Using these resources as raw commodities to locally manufacture the same items made overseas is a way to shift the fundamental uses of natural resources and end the resource curse. Raw commodities earn far less foreign revenue than finished products and are subject to fluctuating commodity prices that can be manipulated against the supplier. Asian and European manufacturers do not welcome this paradigm shift for two reasons: They will have their supply chain possibly disrupted if Africa utilises its natural resources locally; and they will lose their monopoly in African markets for their finished products. To keep the status quo, foreigners have bribed unscrupulous African leaders and bureaucrats by enriching them fabulously with illegal payments. The strengthening of Africa’s democratic systems, whereby citizens are demanding accountability from their governments, coincides with a value-added economic thrust that is evident in governmental policymaking.

Despite Africa’s status as the originator of much of what the world uses to make goods and industrial inputs, in terms of value-added manufacturing, no African country is on the list of top 10 countries that turn raw commodities into products, according to the World Bank. No African country is amongst the top 20 countries in this regard nor even the top 30. Nigeria leads Africa in value-added manufacturing – producing US$64.41 billion of such goods in 2021 – but ranks 32nd in the world, followed by Egypt at position 33rd, which is Africa’s second largest value-added manufacturer. South Africa is the only other African country to break the top 40 in 37th place.

Electric vehicles are responsible for Africa’s new assertiveness toward value-added industrialisation 

A radical shift in world technology seems to have dramatically altered Africa’s attitude towards cheaply shipping out its natural resources. Up until now, about two-thirds of value-added manufacturing in Africa has taken place in just five nations: Algeria, Egypt, Morocco, Nigeria and South Africa. Thanks to the electric vehicle (EV), that is about to change. For years, the world media has reported negatively about the global dependency on countries like DRC and Zimbabwe to provide rare earth minerals (such as cobalt and lithium) that are so critical for the manufacturing of batteries that power EVs. Commentators have lamented that the future of the electric transport revolution can be derailed by what they consider to be ‘unstable countries’ – without ever mentioning that it was the wanton greed of foreigners that destabilised these countries. However, DRC and other nations see the situation from a different perspective, that of having an extremely valuable resource that puts them at an advantage and could be a catalyst for real national change. 

Lithium mining in the Democratic Republic of Congo
Image courtesy: African Development Bank

In January 2023, Zimbabwe stunned the world by placing a ban on the exportation of its lithium resources. Harare told the rest of the world that, if they wanted to have EV batteries, they had better make them in Zimbabwe. The announcement led to much scoffing by critics who noted Zimbabwe’s moribund economy, and the political crises gave little confidence that the country was up for the task of mass-scale manufacturing. However, in April 2023, two neighbouring countries – where rare earth minerals exist in abundance – took a tangible step toward EV battery production. DRC and Zambia signed an accord to make these devices at a shared economic development zone that would be financed by the Africa Development Bank (AfDB). AfDB has been confident on value-added manufacturing since the successes of these types of projects it has financed became apparent, such as the Egyptian Refining Company. One of the largest industrial units of its kind in Africa, the project used US$222 million in bank funding to convert low-value fuel into 4.7 million tons of refined products and high-quality oil derivatives per year, meeting domestic consumption needs, cutting emissions from dirty fuels, reducing Egypt’s balance of payment deficit and creating 15,000 construction jobs and 1,000 permanent local jobs. This list of accomplishments is what the AfDB seeks to replicate throughout the continent as value-added manufacturing is established.

A medley of value-added enterprises involves more than mining and minerals

A variety of industrial activity has taken off, converting local natural resources into value-added products. Special Agro-Industrial Processing Zones are being promoted by the AfDB as a way to develop rural areas where agricultural production originates. South Africa has 22 of these. Value-added manufacturing in South Africa accounted for 12% of GDP in 2021. Other countries are seeing private investment drawn to their Zones, where infrastructure has been upgraded to the benefit of local communities. In Ghana, the textile industry that has long been significant to the economy but which has experienced a decline in recent years, is seeing a comeback by exploiting local kente cloth –perhaps Africa’s most iconic fabric – and using modern marketing techniques to make sure that kente is to Ghana what champagne is to France: an exclusive product. World consumers are told that if “Made in Ghana” labels are not affixed, the dress, handbag, shirt or even patterned shoe is not authentic kente.

Value-added manufacturing can be based on local intellectual property like Ghana’s iconic kente cloth.
Image courtesy: Government of Ghana

Precious gemstones have been looted or shipped from African deposits for hundreds of years. Africa’s largest diamond producer, Botswana, started to put an end to that by localising the grading, cutting and polishing of gems. Before government decided to support diamond processing in Gaborone a decade ago, all such work was done in London. In 1967, when a purple-blue gem was discovered to exist only in Tanzania. This was turned into jewellery and marketed by Tiffany & Co. in New York, which named the gem Tanzanite. Today, more processing of Tanzanite is done in Tanzania itself. Similarly, a South African semi-precious stone called Tiger’s Eye has become a way to boost employment and expertise in the remote rural area where the stone is located. Local workers have been grading, cutting and polishing Tiger’s Eye for a decade and also produce an array of fashionable jewellery from the stone.

Value-adding can prompt an industrial revival

During the 21st century, Africa backtracked on industrial development. Even before the Covid-19 pandemic curtailed economic activity, Africa’s share of the global GDP was an insignificant 3%, and its contribution to global manufacturing was only 2%. Within Africa itself, the share of manufacturing value added in the continent’s GDP declined from 16% in 1980 to less than 10% in 2016. For value-added manufacturing during that same period, Africa’s global share was cut by more than half, from 1.6% to 0.7%.

The critical points:

  • African countries with rare earth minerals required for high-tech products are leading the charge for local value-added manufacturing
  • Nationally making products out of local natural resources is a way to ensure these resources truly benefit Africans themselves, putting an end to the resource curse
  • By financing value-added manufacturing, the AfDB has placed this activity on the top of African nations’ economic agendas