Time to look again at prospects across the African continent?

by | Aug, 2021

“If we want to export and specialise more, to add value to our raw materials, we’ve got to make the AfCFTA work.” – Ngozi Okonjo-Iweala, the head of the World Trade Organisation1

The recent upheavals in KwaZulu-Natal and Gauteng have fundamentally shaken the confidence of those operating manufacturing businesses in South Africa. Many of these firms have spent the past decade struggling in an anaemic economy with conditions substantially worsened by the Covid19 pandemic. With so many South African manufacturing firms increasingly forming part of complex global value chains, it is no surprise that some might be questioning the country’s long-term prospects as a place to invest. Yet, while South Africa’s policy-makers still have many questions to answer about the country’s business environment, there remain some very encouraging trends across the African continent that many business owners feel justifies a location in what remains the continent’s most sophisticated economy.

Over a decade ago South African manufacturers observed the rush by retailers and financial services companies to grow their African footprints, but most did not take too much notice back then of the markets to the north of the Limpopo in their strategies. Afterall, many African countries’ economies were tiny, they had shown little growth and were serviced by poor infrastructure.  However, it was not long before the growth in demand from a number of economies started to make the Continent’s prospects difficult to ignore. In recent years African markets have become the most significant continental market for South Africa’s manufacturing exports, with more and more of these products consisting of higher value manufactured items.

Truck transporting cooking oil near Dar es Salaam, Tanzania

Truck transporting cooking oil near Dar es Salaam, Tanzania

The combined effects of growing political stability, sustained global demand for minerals and other commodities, and access to capital markets have, in many regions of the continent, intersected with the growth of an increasingly skilled, youthful, population. These dynamics have led many global multi-nationals to look much more closely at the African continent. In recent years, countries around the continent have seen the cropping up of new special economic zones, major port upgrades, renewable energy projects, and road and rail developments. In this context, it is no surprise to see news such as that of Dubai Ports World’s recent purchase of the Imperial Group – one of South Africa’s iconic logistics companies. After all, Imperial has been reporting for several years how its strongest growth performance has emerged from its operations on the Continent, beyond South Africa. The process to implement the African Continental Free Trade Area has further stimulated this modest, yet steady growth in levels of investor confidence.

These changes have, for many South African-based companies, provided a desperately needed positive dimension to their annual reports. Whilst these relationships remain largely still in terms of trading across the continent’s borders, they suggest that firms are increasingly considering the imperative to explore investing in supply chain and production networks beyond South Africa’s borders.  Whilst most of these efforts remain somewhat tentative, they should nonetheless not be ignored. The recent events in South Africa might well be a nudge, however unwelcome, for those with the bulk of their African operations in South Africa, to explore a more geographically diversified strategy that enables them to both gain from the deep capabilities still present in the local economy, whilst also taking a closer look at prospects elsewhere on the continent.

TWIMS’ upcoming African Trade and Industrialisation Executive Short Course, (24-27 August), explores the features of the African continent’s economic dynamics in an ever-changing global context.  Those attending the course will have an opportunity to consider the varied contexts and challenges presented for firms seeking to engage with emerging manufacturing ecosystems, whether it be from a South African base or in relation to increasingly significant economic regions around the African continent.

For further details please click the button below.

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