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Africa: Climbing the Value Chain

Allafrica.com, July 5, 2012

 

Processing natural resources will help African countries maximise the economic impact of rich endowments.

Speaking in May 2012, South Africa's president Jacob Zuma argued that Africa must move beyond producing raw materials and build dynamic and competitive manufacturing sectors capable of processing the continent's abundant minerals and agricultural products. "For the African continent, this opportunity of driving green and inclusive growth requires that we leapfrog from being just a producer of raw materials," he said. As African development quickens, government and industry are examining opportunities to get more out of the natural resources value chain by ramping up the raw materials processing sector. The approach makes sense given the growth of Africa's 300m-strong middle class and the consequent rise in consumerism. "This is causing an increase in intra-African consumption of resources," says Dr Frank-Jürgen Richter, founder and chairman of business strategy specialist Horasis. "The continent will need to introduce industrial-level efficiencies in order to process sufficient goods for local consumption."

FDI inflows
Research on greenfield and significant brownfield inflows for 2003-2011 from fDi Intelligence and Ernst & Young reveals this approach is underway, but to a limited degree. Thirty seven percent of new projects in Africa's metals sector were devoted to manufacturing (34.5 percent of capital value). This compares with 54 percent of new projects focusing on extraction (65.2 percent of capital value). In the coal, oil and natural gas sectors, 16.4 percent of new projects were in manufacturing (37 percent of capital value), while 56.6 percent were in extraction (48.1 percent of capital value). In the minerals sector, 64.3 percent of new projects (76.3 percent of capital value) were devoted to extraction, while only 26.1 percent of new projects (21.6 percent of capital value) were in the manufacturing sector.

However, if Africa is to take a larger slice of global manufacturing than its current 1 percent share, it needs to build a foundation of skills and infrastructure. "African countries are continually improving their efficiency to build production plants for these raw materials," says Dr Richter. This effort also depends on the kinds of resources as well. Bulk resources such as oil, aluminium and iron can easily be transferred for further processing. Other resources such as gold, diamonds and copper need on-site processing facilities to make handling them commercially viable. For these, there is no option but to improve industrial efficiency and develop world-class processing plants. In this way, the mineral processing industry will gradually achieve international standards."

Up-skilling
Nigeria's 'National Industrial Revolution Plan' is developing the skill-sets required, and helping build small and medium enterprises in industries where the country has a competitive advantage, such as agro-allied businesses, mining-related industries, and oil and gas. Similar initiatives include Botswana's National Food Technology Research Centre, which teaches workers the skills needed by food processing firms. Lucky Mmutle, who attended a fruits and vegetables processing training course by the institution earlier this year, says she is now an all-rounder in the processing business. Her training included better ways of handling vegetables, hygiene and sanitation, food legislation, good manufacturing practice and raw material selection.

Nigeria's Raw Material Research and Development Council, as part of a collaboration with local chambers of commerce, is also running training courses, tooling up 100 entrepreneurs with knowledge about processing local raw materials over the past year. Benin's Songhai Centre is active in the development of sustainable agricultural practices, including research, training and production techniques, with the broader aim of improving living standards. At six locations across the country, young agricultural entrepreneurs are being trained to create viable enterprises.

The development of technologies for the African market is also aiding the expansion of the natural resources processing sector. For example, Nigeria's RMRDC offers research grants to encourage the development of technologies which are then showcased to potential investors. One invention which caught investors' eyes last year was a melon-processing machine which cuts the need to shell by hand and increases productivity. These machines are now in commercial production and being used by a number of cooperatives in Nassarawa and Niger states.

Investment
International investors are keen to take a stake in the continent's resource processing sector. Big names with long histories in Africa, such as Diageo and Nestlé, which runs 21 factories in sub-Saharan Africa, are among them. "Our research and development centre in Abidjan is part of our global R&D network, which allows a transfer of knowhow - as well as of people - for training purposes," says a Nestlé spokesperson. "The training centre at our factory in Agbara helps local students and employees to develop their skills in different areas of manufacturing engineering."

Diageo, which claims to source cereal from more than 100,000 farmers in Africa, says demand for its brands creates economic opportunities for many other businesses in the value chain, which stretches from 'grain to glass'. Through its locally-listed companies - Guinness Ghana, Guinness Nigeria, Guinness Cameroon and East African Breweries - Diageo works with 103,365 farmers over 115,000 hectares producing 162,400 tonnes of cereal every year. It aims to source 65 percent of its raw materials for the African market locally this year, a 30 percent increase on 2007.

Investors from emerging markets are also keen. Dr Richter says: "Leading the way are government-owned Chinese companies. Africa already supplies over 24 percent of its oil requirements. India's investment is closely following China's, but is focused more heavily on building [processing] infrastructure rather than mineral exploitation. India is also focusing on local development, collaborating with many African governments and institutions to develop skills and improve higher education and training." Just recently the Indian Diamond Institute of Surat announced it was setting up an India-Africa Diamond Institute in Botswana. Earlier this year, India's Ministry of Food Processing Industries announced plans to set up a food processing cluster in Africa, including building industrial parks which feature cold storage, food testing labs, incubation centres and pre-cooling chambers. Although the location of the cluster has not yet been decided, the most likely host countries include Ethiopia, Kenya, Uganda and Tanzania in the east, and Angola, Botswana and Namibia in the south.

Speaking at the symposium on China-Africa Investment Cooperation in Fujian province at last year's China International Fair for Investment and Trade, China's minister of commerce Chen Deming pointed to agriculture demonstration zones which his country has established in Africa using modern seeds and technology. "The primary processing of Africa's raw materials and agricultural products should remain in Africa to increase local employment and add value," he said. The zones enable the raw agricultural produce to be processed locally before it is exported. Mr Deming added that Africa's raw materials processing industry will underpin its long-term development and help to secure its future. His comments have been welcomed by Matayo Kaluba, chief planner at Zambia's Ministry of Trade and Industry. He says: "Zambia is rich in natural resources. But at present, we need China's investment to process the raw materials."

 


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