As we head into another year, having seen an enormous amount of disruptions in Geopolitics and economics in the past 12-months, perhaps it is time for Africa to stop and reflect and perhaps set off on a new path to economic growth.
With average GDP per capita in Africa having only grown by a measly 3% since 2014, and with manufacturing in Africa having declined from 18% of GDP in 1970 to 12% currently, it is past due time for consideration that Africa is going about economic development the wrong way.
The African economic growth remains stubbornly resource-based. When prices are up and demand is up, Africa’s GDP goes up and when resource prices decline, the continent’s GDP goes down, creating no point of stability at all.
Unemployment and particularly youth unemployment remains at high levels while the number of manufacturing industries in Africa declines despite all the resources and human resources available on the continent.
AI Not the Panacea for Africa
An example of being on the wrong path, is where much is being talked about AI leapfrogging Africa ahead globally, but the lived reality is that AI is more likely to reduce the labour required and create further headaches for developing nations than it is going to build their economies.
Investments in Africa are lagging behind with major investments happening across the world into sustainable energy and Data Centre development as well as AI development, but an insignificant amount is heading Africa’s way.
Around 60% of Africans are still unconnected so the dream of AI being the panacea for Africa is highly optimistic and without much substance, and while there are areas such as healthcare powered by AI that could well be great solutions for the continent, it is not the economic solution Africa needs right now.
In addition, much of the AI revolution will be cornered by the global giants who have existing clear advantages in building economies of scale with their AI offerings, that will exclude others from competing.
But, What If?
So instead of trying to emulate developing nations, is it not time for Africa to take a leaf out of the history books of economic development in developing nations, and to corner a segment of the market where it can bring significant value and investments to our doorstep, without giving away our natural resources?
In the energy transition industry alone, there is currently about $325 billion invested in mining critical minerals for the industry. This is projected to reach 800 million by 2040 in order for the climate change goals to be reached.
Africa’s position in this major developing economy is just extraordinary: Africa holds 30% of global mineral reserves, all metals and minerals required for the green transition, with 40% of global mineral reserves and over 80% of platinum root metals, according to figures provided at the recent Critical Minerals Summit in Johannesburg this week.
What if Africa were to pool its combined resources and develop Africa into the global hub for energy transition related products and parts? What if we looked 10-years down the line and saw a massive linked production chain from extraction to refining to product creation?
What Would Success Look Like?
Claude de Baissic, from Eunomix, at the recent Critical Minerals Summit, provided an example of what this could look like:
“Let me give you an example of what China did. China took the problem the other way around. China today has a very, very effective strategic minerals, critical mineral strategy” says Claude. “But it didn’t start with that 40, 50 years ago. It had none”. “China today, as you know, controls most of the supply of the critical metals and materials, not mineral extraction”.
De Baissic outlines that contrary to popular belief, China does not control the mining industry, but owns a very small percentage of the global mining industry, the actual digging and the concentrating, the processing – about 8% is all.
However China controls 80, 90% of the cobalt supply chain, and the value chain, “They couldn’t care less about it” says de Baissic. “They let that to other people because it’s very high risk. It’s not where the value is” he concludes.
Focus Where the Value Lies
The manufacturing industry directly associated with critical minerals is worth $5 trillion, in comparison to the mining industry globally is worth less than $1 trillion.
More value is contained in the control of the downstream process, not the upstream process. China, owns 100% of natural graphite processing, 70% of cobalt processing, 60% of lithium processing, 60% of manganese processing globally.
How did China consolidate this position? China industrialised with labour intensive industries such as textiles, toys, white goods, cars.
“It made economic sense to process the upstream of those products in China for two reasons, cheap labour, cheap electricity” comments Claude. “So they started at the bottom of the value chain, at the very bottom”.
Today China dominates the world Automobile manufacturing, appliance, electronic goods and textile manufacturing as well as other sectors such as heavy industrial machinery.
What Does Africa Require to Make it a Reality?
Africa needs to acquire the foundations of industrial strength, and progressively learn and train and upskill people for specific industries.
Manufacturing developments will also not be possible without infrastructure development, electricity, without advanced skills, without engineers, without a clear market penetration strategy and clear inter regional cooperation.
With China as a competitor, Africa cannot possibly hope to ever wrestle industries away from China they already control, and that they have gained while Africa fell asleep.
Africa needs to find a niche where it can own the entire supply chain, the critical mineral supply chain, and monetise this via downstream production for sustainable economic growth to become a reality.
