Is Africa poised to become world’s low-cost manufacturing hub?

January 13, 2014 • Opinion, Top Stories

The amount of investment flowing into African countries and the number of global brands investing in Africa has risen sharply in recent years, according to the latest analysis from IDC Manufacturing Insights. For many low-cost manufacturers, the future lies in undeveloped regions such as Africa. These manufacturers will encounter various issues and risks along the way, but many proven, profitable examples exist of successful manufacturing investments in African countries.

For many low-cost manufacturers, the future lies in undeveloped regions such as Africa. (image credit: Mercedes Benz South Africa)

For many low-cost manufacturers, the future lies in undeveloped regions such as Africa. (image credit: Mercedes Benz South Africa)

The inherent proposition of the low-cost manufacturing model is forcing many global manufacturers to re-align their strategies and constantly seek new, low-cost manufacturing opportunities in emerging economies. Some traditional hubs for low-cost labor (e.g., China, Taiwan, India, and Malaysia) have seen a gradual increase in their labor costs as they successfully move up the value chain in their quest to meet higher quality standards.

“Some major manufacturing brands like H&M, Coca-Cola, GE, Pepsi, Nestle, and Renault have managed to leverage oppurtunities in Africa,” says Martin Kuban, IDC Manufacturing Insights’ lead research analyst for Central and Eastern Europe, the Middle East, and Africa (CEMA). “Africa has also seen a massive increase in foreign direct investment (FDI) from China in recent years, which means even Chinese manufacturing companies are keen on tapping into low-cost options.”

There are several factors driving this growing manufacturing trend in Africa, including the cheap labor force and the abundance of raw materials and low cost agricultural products. However, there are numerous challenges that must also be addressed. Corruption,excessive bureaucracy and undeveloped financial systems are among the biggest issues.

“It is extremely difficult, and in some cases impossible, to succeed in certain areas without a local partner or the favor of the authorities,” continues Kuban. “Limited education levels and poor infrastructure compound the matter for many manufacturers. And in some regions, political instability and unrest must be considered above all other factors and inevitably impacts the attractiveness of the proposition for foreign businesses.”

Despite these perceived negatives, it is impossible to ignore the role that IT can play as an enabler of faster development for manufacturers operating in Africa. IT deployment is much simpler in emerging African factories as vendors are often able to design IT environments from scratch due to the lack of existing infrastructure. And with major declines in the prices of handheld devices, mobility can now be adopted without much difficulty by companies and individuals. Such capabilities can be leveraged easily by manufacturers, both on the factory floor and for enhancing workforce management. This will give an immediate boost to process efficiency and operational quality, potentially paving the way for Africa to take its place as the undisputed low-cost manufacturing hub of the world.

Staff writer

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