Has Africa's Manufacturing Revolution Started? While Most Developing Regions Were Laying the Foundations of a Manufacturing-Driven Economy, Africa Continued to Rely on the Export of Low-Value Raw Materials. but It Now Seems That the Trend Is Changing and Local Value Addition Is Increasing-From Cutting and Polishing Diamonds to Exporting Finished Manufactured Products. Sarah Rundell Reports
Rundell, Sarah, African Business
Eurostar, an Indian-owned diamond trading and cutting company, is one of the latest businesses to open a factory in Botswana; it cuts and polishes diamonds in the capital Gabarone. Botswana accounts for an estimated 27% of global diamond production, but until recently the delicate art of polishing and cutting happened overseas. Although Africa is home to five of the top seven global diamond producers, the bulk of exports remain rough or uncut stones.
But this is changing as a new trend begins to take root. Over the span of a few years, 16 factories, like Eurostar, have set up in Botswana while six have sprung up in Namibia. It is the beginning of a new industry, adding value to gems back home. Botswana now competes with manufacturing centres such as India, which employs one million people in the polishing business, and can now add around 40% to the value of its sparkling export. "They are taking the rough diamond and turning it into a finished product. This way Botswana is able to compete with other polishing centres and it has created a whole new industry," says Mervin Lifshitz at the Botswana Diamond Manufacturers Association.
Botswana's burgeoning diamond-polishing industry is indicative of a wider effort across the continent to add value back home and boost Africa's own manufacturing sector. Economists have said for years that without a strong manufacturing industry--South Africa has the most vibrant--countries will struggle to reduce the cost of manufactured imports, create jobs and accelerate industrialisation.
How healthy is Africa's manufacturing sector?
Companies say power supply is the biggest challenge. The World Bank's December 2009 Kenya Economic Update estimates domestic manufacturing loses almost 10% in potential sales due to power outages and transport bottlenecks. It is making Kenyan goods uncompetitive, warns Betty Maina at the Kenya Association of Manufacturers (KAM). "With energy cost constituting over 40% of total manufacturing costs, Kenya's products are increasingly finding it difficult to compete with those from other countries, especially Asia," she says.
It is a similar story in Nigeria, where companies rely on their own generators. This helps ensure power supply but the cost is unbearable for many, causing factories to close or temporarily shut and lay off staff, says Alhaji Bashir Borodo, the president of Nigeria's Manufacturers Association.
"Manufacturing is dying in Nigeria because of the power supply," bemoans Lagosian entrepreneur Seyi Boroffice. "The government still believes it can fix the problem but it has to be driven by the private sector."
It is a call being answered. Nigerian energy firm Oando has invested N16bn ($104.6m) through its subsidiary Gaslink in 100km of distribution pipeline to service over 90 customers in Lagos's industrial centres. It is part of an overall massive investment to provide Nigeria's industrial and commercial centres with a reliable and cheap fuel option, the company says.
In South Africa, where state-owned power utility Eskom produces 90% of its electricity supply from coal-fired power stations and struggles to meet demand, companies say they are exploring other power sources. A near-collapse of the grid in January 2009 shut the country's gold and platinum mines for five days and sent metals prices soaring.
The recession has not helped manufacturers. Inflation and consumer belt-tightening has led to increased competition from cheaper imports. Mohit Manglani, president of the Carpet Manufacturers Association of Nigeria urges the importance of buying local: "It is the only way to encourage manufacturers to continue to produce high quality and affordable carpets in this country. Patronising locally made carpets wilt save the country foreign exchange as well as create job opportunities. We believe in the Nigerian manufacturing sector and we encourage more consumption of locally made carpets," he says. …