[author: J.J. Enoch]
From the COVID-19 pandemic to Russia’s invasion of Ukraine, and US-China tensions, exogenous shocks in recent years have put global supply chains under pressure. Hamas’s terrorist attack on Israel last month, and the conflict that has ensued, is the latest such incident, already disrupting the sourcing and transportation of goods in the Middle East and further afield. As a result of this increased global turmoil – and in expectation of further disruption to come – governments and businesses have increasingly made supply chain resilience a top priority, and looked to diversify their suppliers, products, and customers.
African countries have also borne costs from disrupted global supply chains – particularly on the demand side in commodities such as grain. Yet disruption elsewhere also presents opportunity. Africa’s primary role in global supply chains is as a source of raw materials. African countries increasingly have the opportunity to capitalise on these strengths, presenting themselves as alternative sources amid geopolitical uncertainty. Key examples are prolific gas resources, minerals critical for the energy transition, and much of the world’s arable land. African countries also have the opportunity to step beyond this. Governments can leverage raw material strengths to draw greater integration into global supply chains – such as through local beneficiation, secondary economies, and infrastructure improvements.
Global supply chains under pressure
The world economy is organised around global supply chains, rather than localised sourcing, production, and consumption. The vast majority of trade by value flows through global supply chains, and the majority of multinational firms now participate in them. Global supply chains have supercharged economic growth and helped reduce poverty globally – including in Africa.
But interconnectedness brings greater vulnerability to shocks. COVID-19 – and the associated border closures, lockdowns, and labour shortages – resulted in manufacturing inefficiencies, constrained shipping routes and elevated costs. For example, the cost of shipping a 40-foot container from Shanghai to New York rose over fivefold between September 2019 and September 2021, according to UN estimates. War in Ukraine brought a shock to the availability and price of oil, gas, metals, and agricultural commodities, as well as secondary products such as fertiliser. The full effects of the Israel-Hamas war are yet to play out, but escalation could draw in key oil-producing states, and lead Iran to close the Strait of Hormuz, a body of water through which 20 percent of the world’s oil passes.
Governments and businesses are coming to terms with these realities. In a 2023 PwC CEO survey, 43 percent of respondents flagged “supply chain disruption” as a threat to their organisation’s growth, while a 2022 KPMG survey found that 68 percent of manufacturing CEOs considered supply chain resilience a top priority. As such, global businesses are increasingly looking to diversify their supply chains, including their suppliers, products and customers, with new, previously overlooked markets, being considered.
Geopolitical rivalries and climate change as additional drivers
Adding to recent shocks, geopolitical rivalries are also prompting governments and businesses to diversify their supply chains, notably away from China. The US in 2018, for example, increased tariffs on several imports coming from China, notably those considered strategic to US national interests, such as steel and aluminium. China has since retaliated: in July this year, Beijing set export restrictions on two minerals – germanium and gallium – that the US considers critical for the production of semiconductors, missile systems and solar cells. The bilateral tussle has prompted many US firms to relocate their factories from China to countries perceived to be friendlier.
This geopolitical rivalry is also playing out over the scramble for access to the critical minerals that will power the clean energy transition. Demand for these minerals – including cobalt, copper, lithium, and other minerals used in electric vehicle batteries and other green technologies – is expected to
quadruple by 2040. However, China currently controls 60 percent of global production and 85 percent of processing capacity, prompting Western businesses to increasingly look for new partners.
Opportunity from disruption: a new role for Africa?
Recent shocks have been felt across Africa. COVID-19 and the war in Ukraine, for example, saw GDP growth slow in Africa from 4.5 percent in 2021 to 3.7 percent in 2022. African food markets received a double hit from the war in Ukraine, first to the prices of grain imports – Russia and Ukraine together account for over 30 percent of the global wheat market – and second to prices of fertiliser for domestic farming.
But African countries had already missed many of the benefits of globalisation, their role in supply chains being dominated by providing raw materials. Value-addition and beneficiation have been widely lacking. Guinea, for example, holds over a quarter of the world’s high-grade bauxite, and large volumes of iron ore. But it exports are dominated by raw ore.
Large raw material opportunities also go unexploited, both for local consumption and export. For example, Africa is home to 60 percent of the world's uncultivated arable land, but the continent continues to import most of its food supplies. While logistical and purchasing-power barriers mean African populations play a less significant role as consumers and producers of manufactured goods.
Moving up value chains
Against a backdrop of global disruption, many African governments are manoeuvring to play a larger role in increasingly diversified supply chains and move from being predominantly suppliers of raw materials to participating in processing and value-addition.
This is notably the case for critical minerals meant to power the energy transition. Nigeria last year reportedly rejected Tesla’s proposal to purchase raw lithium from the country and is instead pushing for the development of lithium-processing plants, in partnership with Chinese firms. Similarly, the Democratic Republic of Congo (DRC) and Zambia are cooperating to develop precursors for electric vehicle batteries – capitalising on the DRC producing over 70 percent of the world’s cobalt and Zambia’s place as the sixth-largest copper producer globally.
Smaller projects are also being strongly promoted, whether to produce marketable copper wire (rather than raw copper cathodes) or cobalt sulphate (rather than simpler cobalt hydroxide). A growing number of countries – from Namibia to Zimbabwe – are also implementing bans or limits on the export of ores, concentrates, and other low value raw materials.
In a similar vein many countries are also keen to develop value addition to locally-produced agricultural goods. Prominent here are efforts in Cote d’Ivoire and Ghana towards the local transformation of cocoa into higher value products – including consumer-ready chocolate. Kenya has also seen successes in local processing of fruit for the European convenience market.
This desire of African governments to move further up global value chains is not new. For decades, boosting value-addition has been a central tenant of national development plans. But as multinationals and western governments look to adapt to risk, these aspirations have a more receptive audience, and governments on the continent have a stronger bargaining hand. Investors in Africa, increasingly see alignment with this approach not as a concession, but instead as a long-term strategic play. By working with governments on the continent and supporting value addition, multinational companies can diversify against country risk, lower processing costs, strengthen their political and social licence to operate, build a base in fast-growing consumer markets, and access preferential commercial terms, such as tax incentives or increased royalties.
The importance of infrastructure
African governments are also increasingly looking to leverage their natural resources to open up their economies and smooth access to global supply chains. New and rehabilitated sea ports, railways, roads, storage terminals, and dry ports are blossoming across the continent, often tied to natural resource projects.
The Lobito corridor consists largely of the Benguela railway, but also the sea port at Lobito. The railway was constructed over a century ago to link central Africa’s mining regions to the Atlantic coast and has long been mooted for rehabilitation. The US government is now promising large volumes of funding to support its overhaul, to the elation of the governments of Zambia, the DRC, and Angola. This is as part of a consortium that includes the African Development Bank, European Union, and Africa Finance Corporation, as well as large private partners such as Trafigura.
Similar work is being conducted at smaller scale around Rio Tinto’s Simandou iron ore project in Guinea. The government has leveraged the project to develop a railway connecting the country’s remote interior, as well as a range of secondary economies.
Countries can also look to natural resources to fill other critical infrastructure gaps. Mining companies in the DRC contribute significantly to rehabilitating or developing hydropower projects. The Nigerian government is increasingly looking to its flared gas to drive the development of local power generation and low cost transport – all targeted at facilitating the non-oil economy.
Such developments promise major benefits to local economies, opening opportunities for exports, increasingly the viability of manufacturing, and increasing access to market for remote agriculture. Governments are therefore looking to replicate such initiatives across the continent, connecting their resource potential to fill the infrastructure funding gap.
