With Africa in the throes of an energy crisis due to several different factors, African manufacturers have the potential to play an important role in helping to provide a solution. All this depends on whether the right environment is created to help them expand operations and pursue cross-border investment opportunities. Underinvestment in infrastructure, a lack of access to affordable and reliable sources of electricity, a lack of investment in renewable energy and a lack of coordination between the public and private sectors have all contributed to the state of energy poverty that most nations on the continent find themselves in today.
Compounding the problem is the fact that many African countries face political and economic challenges. This has hindered the development of their energy resources, and has contributed to the brain drain, resulting in many African countries losing crucial skills and expertise for energy generation. African manufacturers have a significant role to play in helping to remedy the continent’s energy crises by developing innovative solutions for energy storage and access. By creating products that are tailored to the needs of the African context, manufacturers can help reduce energy poverty, increase energy efficiency, and spur economic growth.
Economies of scale
However, this can only be accomplished once manufacturers achieve economies of scale. Unfortunately, there is currently very little economic growth across many parts of the continent due to a lack of investment in manufacturing capacity expansion. Thus, Africa must leverage mechanisms such as the African Continental Free Trade Agreement that has given rise to the African Continental Free Trade Area (AfCFTA), which was established in 2018 and encompasses most of the continent.
Under the agreement, AfCFTA members commit to eliminating tariffs on most goods and services over several years, ultimately increasing socioeconomic development, reducing poverty, and making Africa more competitive in the global economy. Long-term objectives include creating a single, liberalised market; reducing barriers to capital and labour to facilitate investment, and developing regional infrastructure.
Along with many other countries on the continent, South Africa could greatly benefit from the African Continental Free Trade Agreement. While being part of the most industrialised economies in Africa, South African manufacturers have not ventured into other African countries on a significant scale, with companies in the retail space making up the lion’s share of cross-border investments and expansion.
Huge scope for infrastructure building
The continent does however present huge scope for the construction of energy infrastructure, and an increase in investment in this space would drive local manufacturers to expand into various regions on the continent. It is expected that the African Continental Free Trade Agreement would accelerate this process and, for example, pave the way for the vertical integration of the mining of minerals such as vanadium and lithium into the manufacturing of energy storage products.
In East Africa, some multinational companies are bringing their resources together to create manufacturing hubs as a way of expanding their operations and establishing a foothold in new markets. These industrial hubs are vehicles for technology transfer, job creation and a way for African companies to access and contribute to the economies in the region. Additionally, such projects will be able to bring the technical expertise and maintenance capabilities closer to their customers enabling the creation of tailor-made solutions for those specific regions.
At the same time, solving Africa’s energy crisis requires the collaboration of the public and private sectors. For instance, the government’s Independent Renewable Energy Power Producers Procurement Programme (REIPPPP) has created a platform for private sector investment by removing licencing requirements for up to 100MW of renewable energy production, which has increased the scope of public-private partnerships. However, the certainty of policy remains the key to encouraging the private sector to work with the public sector to address the energy crisis.
In conclusion, Africa’s energy crisis can be tackled effectively only if the continent’s manufacturers are empowered to exploit the depth of their manufacturing capability. Therefore, the African Continental Free Trade Agreement is a step in the right direction for South African manufacturers who have been reluctant to go beyond borders. Investment in manufacturing would not only solve the energy crisis but also create employment, especially as Africa has the youngest population in the world.
Mervyn Naidoo, Group Chief Executive Officer at ACTOM and Chairman of the Manufacturing Circle