Keynote Speech delivered by Development Reimagined CEO Hannah Ryder during the 2024 Chinese Investment in Africa report launch with China-Africa Business Council
August 23, 2024
FULL SPEECH BELOW
Excellencies, distinguished guests, ladies and gentlemen,
Firstly, I would like to extend our heartfelt gratitude to the China Africa Business Council for extending this gracious invitation to us. Congratulations on the launch of the 2024 report. It is an honor for us at Development Reimagined to have contributed a chapter to this important document, and we appreciate the opportunity to share our perspectives today.
As we gather here, it is crucial to acknowledge a significant global economic shift that directly impacts Africa’s future: the ongoing transition in the Chinese economy. This shift presents a historic window of opportunity for African countries to receive the transfer of industrial production capacities and upgrade their productive structures—a process that has already begun in parts of China’s immediate geographic neighborhood with emerging industrial hubs in countries like Indonesia, Malaysia, Vietnam, and Thailand.
However, the case for the transfer of industrial production capabilities from China to Africa is not obvious. It hinges on dispelling mis-founded perceptions about Africa as a risky investment destination. So, let us ask: Why should Africa be seen as the next global manufacturing hub? And how can and have Chinese investment play a role in this transformation?
Our goal is to make Africa the next manufacturing hub of the world, a vision that aligns with the African Union’s Agenda 2063, which has long prioritized manufacturing industrialization as a key to transforming African economies.
As the President of the African Development Bank has rightly stated, “The secret of the wealth of nations is clear: developed countries add value to everything they produce, while poor nations export raw materials. Africa must quit being at the bottom of the global value chains and move to rapidly industrialize, with value addition to everything that it produces.”
Africa’s potential as a key player in global manufacturing is underpinned by several compelling factors.
Energy costs on the continent are becoming increasingly competitive. The average price of electricity in Africa is $0.141 per kWh, 15% lower than the global average, with 13 African countries offering cheaper electricity than China, where the average is $0.084 per kWh. Further investments in energy infrastructure are likely to reduce costs even more, making Africa an attractive destination for production.
Labor costs provide another strong incentive. With an average minimum wage of $119.2 in Africa, compared to $286.5 in China, Africa offers a significant cost advantage. Furthermore, African workers are productive, with an average output of $22.71 per hour worked, compared to $15.39 in China. This suggests that Africa can provide both cost-effectiveness and efficiency in manufacturing. Beyond wage costs, the capacity utilization rate in Africa, which stands at 71.3%, is close to China’s 75.6%, further highlighting the continent’s efficiency.
Moreover, in terms of Total Factor Productivity (TFP), Africa’s average of 0.98 surpasses China’s 0.96, demonstrating that African industries can indeed operate at high levels of efficiency given the right investment and support.
Transport costs are also a crucial consideration. While inbound shipping to Africa costs $0.181 per kg, exporting from Africa to global markets costs only $0.052 per kg—a fraction of the $0.395 per kg for exports from China. Africa’s strategic geographic location, with proximity to Europe, Asia, and North America, enhances its potential as a manufacturing and export base.
These factors, combined with Africa’s higher average return on investment compared to developed countries, present a strong economic case for industrial investment on the continent. Africa’s industrial potential is further supported by its resource endowments, with sectors such as green manufacturing, pharmaceuticals, and mineral processing showing significant promise, and the African Continental Free Trade Area (AfCFTA) that will consolidate the internal African market by connecting over 1.3 billion African through trade.
Africa’s industrial landscape is evolving rapidly, particularly in “sunrise sectors” that exhibit substantial growth potential and catalytic effects on the broader economy.
Green manufacturing, for instance, offers immense opportunities. Africa’s solar capacity alone is estimated at 10 terawatts, with vast potential for wind and hydroelectric power. Jinko Solar, the first Chinese investor to establish a PV manufacturing plant in Africa (in Cape Town), investment is a prime example of how Africa can harness its renewable energy potential with Chinese investment. This $7.5 million investment has created a facility with an annual production capacity of 120 MW, employing 250 local workers and contributing directly to South Africa’s energy diversification goals.
Similarly, the pharmaceutical sector is ripe for growth. Africa accounts for just 3% of global drug production and imports over 80% of its pharmaceuticals, yet there is substantial potential for local manufacturing. Humanwell Pharmaceuticals’ investments in Mali and Ethiopia have not only created jobs but have also reduced the price of essential medicines by up to 30% in West Africa and producing 30 million bottles of syrup and 40 million bags of IV fluid. These developments are crucial for strengthening Africa’s healthcare resilience and reducing dependency on imports.
In the automotive industry, Africa’s market value is projected to grow to $42.06 billion by 2027, with South Africa and Morocco already being key players in this sector. Beijing Automotive Industry Corp (BAIC), the sixth largest automobile manufacturer in China, established a complete manufacturing facility in South Africa in 2018 and aims to serve as a global production and export hub for Africa, Europe, the Middle East, and Latin America. It involves over 150 local SMEs and creates over 3000 jobs along the supply chain.
These sectors not only represent significant opportunities for investment but also align with the African Union’s Agenda 2063 and the African Continental Free Trade Area (AfCFTA) vision of a transformed and prosperous Africa. Chinese support in these areas is crucial, as it contributes directly to pan-African agendas, helping to build the necessary infrastructure, boost intra-African trade, and enhance the continent’s global competitiveness.
The data clearly shows that Africa has the potential to become a global leader in industrial production. The ongoing economic transition in China, combined with Africa’s competitive advantages in energy, labor, and transport, creates a unique window of opportunity.
To fully realize this potential, it is essential to take concrete steps today. Firstly, Chinese stakeholders should harness existing complementary capacities to build localized supply chains in Africa. By transferring technologies and partnering with African companies, Chinese investors can significantly enhance production capacities across the continent.
Secondly, anticipating and capitalizing on future demand and market dynamics within Africa is crucial. The AfCFTA facilitates the efficient movement of goods, and Chinese investors should focus on regional hubs with strong linkages to both upstream and downstream segments of value chains.
Thirdly, strategic and early entry into emerging markets and sectors within Africa, such as green manufacturing and pharmaceuticals, where there is high growth potential, will confer significant economic advantages.
Lastly, enhancing regional infrastructure and connectivity remains vital. Chinese support in financing and building cross-border projects will reduce costs, facilitate trade, and create integrated markets that support industrialization across the continent.
This is not just about envisioning a better future; it is about taking concrete steps today to make Africa the next manufacturing powerhouse of the world.
I thank you for your attention.
