AFRICA OUTLOOK

by Royce Lowe

Manufacturing in Africa

When we think of manufacturing, Africa is not the first region that comes to mind. With just over 1.4 billion of population, it represents just under 2% of global manufacturing. Countries in Africa are rated by an industrialization index based on, among other parameters, manufacturing performance, capital, labor, business environment, infrastructure, and macroeconomic stability. As measured by this index, the top ten countries on the continent are South Africa, Morocco, Egypt, Tunisia, Mauritius, Eswatini, Senegal, Nigeria, Kenya, and Namibia.

The number one country, South Africa, saw its manufacturing production fall by 1.1% from a year earlier in November of 2022, following a 1% rise in the prior month and compared with market forecasts of a 2.3% decline. It was the first monthly decline in the country’s factory activity after four consecutive months of increases as sustained and intense power cuts continued to weigh on the sector. Output fell in almost all sub-activities, notably electrical machinery (-6.9%); textiles, clothing, leather and footwear (-6%); wood and wood products, paper, publishing and printing (-4.5%); food and beverages (-2.5%) and petroleum, chemical products, rubber and plastic products (-2.5%). Conversely, production rose solidly for motor vehicles, parts and accessories and other transport equipment (13.4%). On a seasonally adjusted monthly basis, manufacturing output rose by 2% in November, rebounding from a downwardly revised 6.2% slump in the prior month and against market estimates of a 1.1% decrease.

Food and beverages, petroleum and chemical products, and basic iron and steel products represent almost 70% of the country’s total manufacturing industry. The country’s manufacturing output is on the order of $50 billion, and this represents some 12% of its GDP. The latest news from South Africa suggests that its manufacturing industry is not in the greatest shape. Power cuts plague the national grid, and the mining company Seriti Resources, a top thermal coal supplier to the struggling state power utility Eskom, is investing in wind power in the latest move by industry to wean itself off the national grid. Foreign Direct Investment (FDI) seems to be currently propped up by Britain and France.

As mentioned, the biggest piece of manufacturing in South Africa comes from the Food and Beverages industry. Six of the top ten companies are in this field, with Coca Cola being the fourth. ArcelorMittal is in there with building materials, and another company produces industrial machinery and equipment.

South Africa doesn’t produce very much steel for a country with a population of some 60 million, around 6.5 million tons at last count. In 2021, the country imported some 1.7 million tons, or about a third of what it consumes. All this is to say that the country is somewhat lacking in producing heavy equipment. Besides imports of steel, reduced infrastructure spending, which has decreased demand for steel, is identified as a key challenge facing the domestic steel value chain.

The infrastructure and buildings sector accounts for over 60% of domestic steel consumption.

South Africa needs Foreign Direct Investment (FDI). It needs to fix up its steel production-import mix. The country is not really “well.”

China has been actively investing in Africa over the last 20 years and put together funding packages that had some devastating claw-back hooks in them. When the local government could not pay back the Chinese, the entire development and land reverted to Chinese ownership and control. Several African nations were quick to jump at these opportunities for infrastructure, including roads, railroads, dams, airports, and sea ports, believing some kind of magical economic transformation would take place as a result which would allow them to cover the long-term bet.

Almost all of the “deals” failed to produce the gains to cover the bet, and some significant infrastructure ownership reverted to China, giving them a foothold in countries for mining, transportation, airports, and sea ports. However, significant resistance kicked up, and China has since worked out other arrangements, although it still maintains key ports that give it a presence on Africa’s east coast and the Atlantic ocean. We will follow the continent’s progress, or lack thereof, and various countries within it with great interest in future issues.

Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n