U N I T E D N AT I O N S C O N F E R E N C E O N T R A D E A N D D E V E L O P M E N T

The Potential of Africa to

Capture Technology-Intensive
Global Supply Chains
OVERVIEW

EMBARGO
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Economic Development
Africa Report
in
2023
EDAR 2023
 U N I T E D N AT I O N S C O N F E R E N C E O N T R A D E A N D D E V E L O P M E N T

Economic Development
in Africa Report 2023

The Potential of Africa

to Capture Technology-intensive
Global Supply Chains

OVERVIEW

Geneva, 2023
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UNCTAD/ALDC/AFRICA/2023 (Overview)
 The Potential of Africa to Capture Technology-Intensive Global Supply Chains

Global supply chains:

Turning disruption into opportunity
The Economic Development in Africa Report 2023: The Potential of Africa to
Capture Technology-intensive Global Supply Chains provides a unique insight into
the potential for increased integration into the supply chains in Africa by bringing
together knowledge on how Africa can strengthen supply chain diversification in
high-knowledge- and technology-intensive sectors.

In recent years, global supply chains have come under immense pressure as a result
of unprecedented trade turbulence, economic uncertainty, geopolitical events and
natural disasters. Consequently, these supply chains were severely disrupted. This
has led key players, such as the series of manufacturers, distributors, consigners
and so on involved in producing goods of a particular kind and bringing them to
market, to re-examine ways to strengthen supply chain resilience. Although the
integration of African economies into supply chains is relatively low compared with
other regions, disruptions to supply chain operations have a more than proportionate
adverse impact on their economies.

Key players and stakeholders are looking to strengthen the resilience of existing
supply chains by diversifying their sources. This may create an opportunity for
African economies to heighten their involvement in global supply chains. For
instance, the semiconductor supply chain, which involves hundreds of suppliers and
an intricate process of manufacturing microchips and other critical components in
the electronics and automotive industries, was negatively affected during the 2008–
2009 global financial and economic crisis, as well as the recent coronavirus disease
(COVID-19) pandemic. Other industries that came under supply chain pressure
during previous global shocks and environmental disasters, with associated
difficulties in trade and investment, will be the focus of this report. These include
the automotive, electronics, renewable energy and pharmaceutical product and
medical device industries, which are strategic, emerging industries that require the
use of critical minerals and high-technology metals for manufacturing and services.

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Economic Development in Africa Report 2023

Africa, which boasts an abundant supply of raw materials with utility in the energy,
automotive and electronics sectors, could provide an opportunity for the diversification
and resilience of global supply chains by offering a new regional market for businesses
and industries in their quest to further expand their supply chain relationships. The box
below provides a definition of supply chain diversification and what it entails for African
countries.

As multinational companies seek to extend their supply chains into diverse regions,
African countries could become potential sources of high-technology mineral resources
along shorter and simpler supply chains, with the added effect of contributing to the
stable development of emerging industries on the continent. More equal investor–State
agreements, or host government agreements, especially for the critical minerals and
metals that are used in high-technology products and supply chains, will be necessary
to develop domestic industries successfully and improve the capability of local firms to
design, procure or manufacture necessary parts and components in high-technology-
intensive supply chains.

The unequal terms of mining contracts and exploration licences has led many
Governments in Africa to review their mining laws and regulations to harness business
opportunities for domestic enterprises and better reap the benefits of capital-intensive
large-scale mining for inclusive and sustained development in their countries. To date,
17 African countries have local content regulations in place, namely Angola, Botswana,
Burkina Faso, Cameroon, Côte d’Ivoire, the Democratic Republic of the Congo, Ghana,
Guinea, Mali, Mozambique, Namibia, the Niger, Sierra Leone, South Africa, the United
Republic of Tanzania, Zambia and Zimbabwe. In Zambia, for example, foreign suppliers
account for about 96 per cent of goods and services supplied to mines, whereas
domestic suppliers contribute about 4 per cent, mainly in services (catering, security and
office maintenance). This is a case that illustrates the importance of sound local content
policies in developing local supply chains and facilitating the creation of backward
linkages in the mining sector, for example, generating value addition in domestic supply
sectors, creating local employment opportunities or transferring technology.

Under such a scenario, the potential upgrading of industrialization, combined with the
rapid wealth creation of the rising middle class in Africa, will start to offer opportunities
to develop local supplier bases, broaden local production and increase the African
workforce and consumer market. As the interest of potential investors and global
suppliers to deepen their footprint across the African continent is carved out, incentives
to invest in and build partnership with local suppliers and customers will be key.

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 The Potential of Africa to Capture Technology-Intensive Global Supply Chains

Nonetheless, venturing into Africa as a supply chain destination will require enormous
investment in adequate infrastructure, as well as the availability of human capital
and technology. In many African countries, the state of infrastructure development –
transport, warehouse and other facilities – which is not yet at a standard and quality
comparable to other developing and emerging countries, is one of the main barriers to
logistics and supply chains on the continent. However, national and regional initiatives
to scale up financing for infrastructure development and improve logistics performance
in Africa, such as the African Union Programme for Infrastructure Development in Africa,
are promising and can strategically enhance the integration of African economies into
regional and global supply chains.

In spite of the current low levels of technology and human capital in many parts of Africa,
which can be a hindrance when gains in productivity and value added are considered
decisive in furthering supply chains across the continent, opportunities are emerging
that can overcome these lingering risk factors. The young and growing population of
Africa, projected to reach 2.5 billion by 2050 – a quarter of the world’s population – is
embracing technology and has many advantages that can entice firms seeking to expand
their supplier and consumer relationships in Africa. The advancement of technology and
innovation on the continent is being increasingly driven by young entrepreneurs. The
Global System for Mobile Association reported 618 active technology hubs in Africa in
2019, compared with 442 such hubs between 2016 and 2018. This growing technology
ecosystem will leverage the innovation and entrepreneurial mindset and skills that will
eventually attract investors and technology-based supply chain participating companies.
By relocating some of their supply chains to Africa or by entering into a partnership with
local suppliers, these companies will then contribute to employment creation, especially
in digital- and high-technology-intensive industries and, hence, to income growth. As
technology-intensive industries tend to offer higher wages and can have a positive job-
multiplier effect, the potential of generating more employment in those sectors will have
undeniable benefits for the workforce and foster sustainable development in Africa.
In the United States of America, for example, workers in high-technology industries
earn on average 101.8 per cent more than workers in non-high-technology industries.
Facilitating a conducive environment for firms in those industries to establish or build
new supplier relationships in African countries can help raise wages in Africa, which
are set at a minimum of $220 per month, compared with an average of $668 in the
Americas.

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Understanding supply chain diversification

In analysing supply chains and the potential for economies in Africa to integrate
into supply chains, the report makes a clear distinction between supply chains
and value chains. For the purpose of the report, the use of the term supply
chains is defined as follows: the system and resources required to move a good
or service from a supplier to a customer. In comparison, the value chain concept
builds on this to consider the way value is added along the chain, both to the
good or service and the actors involved. The report further outlines the following
fundamental steps of a supply chain, which are product development, sourcing
procurement, manufacturing, logistics, distribution and customer service.

Thus, supply chain diversification takes into account two principal factors,
that is, diversification of the direct supplier base and diversification of the
customer base. Supply chain diversification is imperative to reinforce supply
chain resilience. There are, therefore, plentiful opportunities for Africa to benefit
from supply chain diversification through integration into both the supplier and
customer bases. The potential benefits of the African Continental Free Trade
Area through increased trading facilitated by the removal of tariff and non-tariff
barriers, is poised to offer an advantage for supply chain diversification in Africa.

Nonetheless, for African economies to benefit from supply chain diversification,

it is important to manage existing supply chain vulnerabilities effectively. For
instance, it would be urgent to implement policies to mitigate poor infrastructure
(transport, warehouse and other facilities), informality, weak institutions and
regulations, fragmented markets, limited sources of capital, low levels of
technology and political risks.

Source: UNCTAD.

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 The Potential of Africa to Capture Technology-Intensive Global Supply Chains

New opportunities for global supply chain diversity and

sustainability: The comparative advantage of Africa
The recent crises have revealed that undiversified economies in Africa remain vulnerable.
For instance, the lingering effects of the COVID-19 crisis, compounded by inflationary
effects owing in part to the war in Ukraine, saw economic growth in Africa decline by
0.8 per centage points, from 4.5 per cent in 2021 to 3.7 per cent in 2022. Integration
into supply chains, and hence the diversification of African economies, would create
an economy with better resilience to shocks. The comparative advantage of Africa for
integration into global supply chains could be analysed through factors inherent to the
supply chain, that is, procurement, production and distribution, with the third factor
including consumer demand.

Procurement
As the global economy adapts to climate change, dynamic production processes
will require alternative inputs, and low-carbon technologies are expected to flourish.
Consequently, there will be a rise in the demand for specific metals with utility in the low-
carbon transition and green mobility, for instance, aluminium, cobalt, copper, lithium and
manganese. Given the abundance of these minerals, in particular key metals required
for the low-carbon transition, the continent can reposition itself as a supplier of raw
materials for global supply chains. In fact, 48.1 per cent of global cobalt reserves and
47.6 per cent of global manganese reserves are located in Africa. Other metals and
minerals that are important for the low-carbon transition are also produced in Africa:
chromium, lithium, natural graphite, nickel, niobium, rare earth metals, silver, tellurium
and titanium.

In addition, African countries need not only supply raw materials for the low-carbon
transition. They can also strengthen value chains by ensuring that raw materials are
converted into intermediate products within the continent. For instance, in 2022, the
Democratic Republic of the Congo had the largest production of copper in Africa, 1.8
million tons. But beyond exploration and extraction, the country is a potential destination
for refining metal products, which would lower the costs of transporting bulky, low-value
initial extracts.

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Economic Development in Africa Report 2023

Production
The cost of production is an important factor in the discussion of the integration of Africa
into supply chains, and of the possibility for firms to move entire production processes
to the region. For example, since distance plays an important role in costs through
transportation and other distribution infrastructure, the cost of production essentially
must compensate for distance, and vice versa. Thus, a survey of current factor inputs
into the production process provides a clear picture of where African countries stand,
what gaps exist and what needs to be done to bridge those gaps.

The report analyses factors of production (capital, labour, human capital and total
factor productivity) and finds that capital has been a key driver of output growth since
2003. Next comes labour, followed by human capital, whose contribution has remained
largely unchanged. By contrast, the contribution of total factor productivity to output
growth during that time has been dismal, and in some cases has declined, signalling
a gap in productivity and use of technology. Consequently, while labour is abundant,
African countries should implement policies that ensure increased skills and the ability
to innovate and use technology in the production process, as well as in the overall
supply chain system, which can also have a positive effect on wages and income. In
addition, a productivity analysis carried out in the report shows that a reallocation of
resources between and within sectors has not always been efficient for the African
countries in the sample. Thus, policies that encourage efficient allocation of factor
inputs should be implemented.

Distribution
Within the supply chain, distribution is perhaps the most prolific and, therefore, dynamic
feature. The logistics aspect of distribution is also an important part of procurement and
production. In 2018, for example, performance of African countries was considerably
lower (2.46) than the global average (2.87), as measured by the World Bank logistics
performance index on a scale of one to five, with one being the lowest, and five, the
highest. Nonetheless, when compared with past performance, improvement has been
marginal. In addition, the best performing categories were timeliness, and tracking
and tracing, both an indication of increased investment in soft infrastructure, such as
the Internet and mobile telephones. While it is important to invest in information and
communications technology infrastructure, it is imperative that African countries maintain
investments in hard infrastructure that reduce the cost of logistics in the supply chain.

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 The Potential of Africa to Capture Technology-Intensive Global Supply Chains

Hard infrastructure, such as ports, roads and rail, have tended to lag behind. For
instance, investment in African ports is often made on an as-needs-basis, which leads
to operational inefficiency at the ports. There are less than 70 operational ports, many of
which are poorly equipped and uneconomical, with delays two or three times above the
global average. It is therefore advisable that African countries encourage investments in
hard infrastructure, including from the private sector, to improve efficiency and capacity
that would ensure that more value is gained by trading and participating in supply chains
in Africa.

Trade policies and incentives

African countries are engaged in various trade agreements aimed at strengthening trade
and enhancing productivity and diversification. The African Continental Free Trade Area
has the potential to meet these goals and to foster continental and regional integration,
stimulate intra-African trade and harmonize the heterogeneity of trade rules across
regional economic communities and under regional trade agreements. In addition to
the Agreement Establishing the African Continental Free Trade Area, African countries
have joined preferential trade agreements with other regions or countries. The African
Growth and Opportunity Act, established by the United States, is such an agreement,
and it can generate a complex dynamic gain by facilitating opportunities for new factors
of production, including capital. Other preferential schemes and economic cooperation
partnerships in the context of South–South cooperation, which are contributing to the
growth of local industry and improving intra-African trade, can also boost global supply
chains. One such cooperation initiative is the Silk Road Economic Belt and 21st Century
Maritime Silk Road, also known as the Belt and Road Initiative, which facilitates access
to financing for public and regional infrastructure development projects in Africa and
contributes to improving skills, innovation and technology through its various training
and transfer of technology programmes.

Opportunities for greening supply chains

Within production and distribution processes, Africa offers several opportunities for
greening supply chains and shrinking the carbon footprint of companies. For instance,
the green hydrogen potential of Africa opens up opportunities for decarbonizing supply
chains, which is becoming a requirement for companies to curb their greenhouse gas
emissions. A company’s emissions can be significantly improved by choosing suppliers

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Economic Development in Africa Report 2023

of lower-carbon materials or relocating its energy-intensive industries, such as steel and

chemical industries, to low-cost countries for renewable and green hydrogen power.
Other advantages of supply chain expansion into Africa include opportunities to tap into
its renewable energy potential, which can lower production costs and lessen reliance on
fuel-based energy. As one of the world’s largest untapped sources of solar energy, Africa
can, for example, lend advantages in the solar power supply chain, which can promote
the development of renewable energy technologies on the continent and facilitate the
integration of African economies into global supply chains.

High-technology-intensive supply chains and

industries: Resetting African markets and businesses
for mobility and scale
While supply chains have come under considerable strain owing to the aforementioned
crises, some industries are more exposed to global shocks than others and are
thus increasingly relevant for geographic diversification. This section focuses on the
integration of Africa into medium- and high-technology-intensive supply chains by taking
advantage of its natural endowments, with such global supply chain integration likely
to pave way for the region’s industrialization and sustainable development. Emphasis
is placed on the automotive, electronics, renewable energy technology and medical
device industries and supply chains, as these are sectors that can be vulnerable to
global shocks (for example, the COVID-19 pandemic, trade disputes and geophysical
events) and which require more diversified geographic footprints to ensure undisrupted
access to suppliers and buyers. Africa can provide such alternative access to inputs
and components for these technology-intensive supply chains.

Automotive Industry
The automotive industry is particularly vulnerable to supply chain disruptions, as
witnessed during the COVID-19 crisis. While the registration of new vehicles remains
low, with over 80 per cent of vehicle registrations pertaining to used vehicles, Africa
has the potential to raise its vehicle demand nearly tenfold by 2030. Nonetheless,
new vehicle production remains low, at about 1.2 per cent of the global total. Vehicle
production is dominated by South Africa, Morocco, Algeria and Egypt in that order, while
other African countries have relatively small assembly plants with minimal value addition

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 The Potential of Africa to Capture Technology-Intensive Global Supply Chains

(Angola, Ethiopia, Ghana, Kenya, Lesotho, Mozambique and Namibia). In Morocco,

increased vehicle production has been underpinned by investment in infrastructure,
proximity to the European market and policies geared towards strengthening the vehicle
manufacturing sector.

A supply chain mapping approach shows that while African countries remain largely
dependent on the import of automotive parts and components from outside the
continent, there is room for greater regional supply chain integration. In particular,
the manufacture of non-specific parts and components (so-called tier 2) provides the
most viable production options for most African countries. They are less technology
and knowledge intensive than tier 1 suppliers (manufacture and supply modules and
systems ready for vehicle assembly), and often represent the next processing stage that
requires abundant metals as inputs demanded by a range of manufacturing sectors.
Hence these are essential components for achieving supply chain diversification. The
identification of feasible export diversification opportunities that could fill recent gaps in
the regional supply chain suggests that countries with already existing capabilities can
take on the production of larger, more complex automotive parts and components. In
addition, clustered production in special economic zones could strengthen economies
of scale and benefit from joint infrastructure and financing.

Mobile telephones
The electronics industry, especially the mobile telephone supply chain can catch the
eye of many potential investors and companies that are pursuing the diversification of
their supply chains and exploring Africa as a new or alternative destination. Most of
the minerals and metals that go into the production of smartphones can be sourced
within African countries. For instance, the continent has large reserves of cobalt, copper,
graphite, lithium, manganese and nickel, which are used in the production of telephone
batteries, circuit boards and other components. The abundance of these resources
also provides vast opportunity for strengthening regional supply chains in mobile phone
production from precursor production. The production of cathode precursors (nickel-
manganese-cobalt oxides), a main ingredient in the manufacture of battery components,
can contribute to higher value capture in the battery industry and integration into the
electronics and mobile telephone supply chain. It is estimated that building a 10,000-ton
precursor facility in the Democratic Republic of the Congo, for instance, could cost $39
million, which is three times less than what it would cost for a similar plant in a country
without the required natural resources or proximity to countries where those metals

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Economic Development in Africa Report 2023

can be sourced. In addition to its large reserves of cobalt, representing about 70 per
cent of global supply, the Democratic Republic of the Congo could develop a precursor
plant by procuring nickel from Madagascar and shipping it through Mozambique or
the United Republic of Tanzania or procuring additional manganese from neighbouring
country Gabon.

These regional procurement and production opportunities will be facilitated under

the African Continental Free Trade Area and strengthened by increased infrastructure
investment. Several African companies, such as the Mara Group in Rwanda, Onyx in
South Africa and VMK in the Republic of the Congo, have emerged in the precursor
development market, in addition to Transsion, the leading Chinese mobile manufacturer
in Africa. Developing mobile telephone supply chain capacities in Africa can unlock further
potential in the electronics supply chain and open up market opportunities towards
the production of tablets, laptops and high-performance servers, and data storage
solutions. These are key goods and services that are predicted to be in increasing
demand by the growing consumer market in Africa, including electronic commerce and
other technology-based services.

Solar panels
Solar panel module assembly is a lucrative area for investment, given the high growth
of the renewable energy sector on the continent. Between 2000 and 2020, the level
of renewables investment in Africa rose at an annual average rate of 96 per cent,
owing to the region’s vast solar energy potential. Yet, the continent continues to suffer
from significant investment gaps, receiving about 2 per cent of global investments in
renewable energy. The production of solar photovoltaic panels is limited, with some
opportunities materializing in Egypt, Morocco and South Africa. Despite the rapid growth
of solar home systems, systems in Africa are tiny compared with their counterparts
in developed countries and require batteries and charge controllers to ensure stable
output. Assembly of the solar field, which must be performed at the site, offers significant
local manufacturing potential. As many component inputs, such as ball joints, bearings
and cables, are used by other industries, these parts offer opportunities for already
established companies to achieve lateral diversification of customers. Not all countries
in Africa might be able to produce solar panels for their market but the additional
employment generation through project development and advisory services, installation
and repair services can be substantial and should attract greater attention throughout
Africa. Local entrepreneurs are keenly aware of specific local needs, including language

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 The Potential of Africa to Capture Technology-Intensive Global Supply Chains

and culture, that are essential for the implementation of large-scale investment projects
in renewable energy.

Pharmaceutical products and medical devices

In Africa, the pharmaceutical industry is concentrated in generic medicines
characterized by simple production processes, limited production of intermediates
and active product ingredients, and scant upstream research and development. The
trade deficit in pharmaceutical products increased from -$2.3 billion in 2000 to -$12.5
billion in 2020. In addition to limited local production and dependence on imports of
medicine, poor access to diagnostic equipment in Africa, especially in rural areas, is
also a main constraint to public health. Encouragingly, there have been strong advances
in Africa in providing health care and diagnostics to people in rural areas through the
implementation of technologies and innovative solutions. Nevertheless, despite some
progress, African countries recorded a trade deficit of $2.6 billion in the medical device
sector between 2018 and 2020.

Apart from collaborating with multinationals to access knowledge and technology to

make and supply medical products and devices, it would be important to enhance the
local sourcing and manufacture of raw materials. For example, in Egypt, there are major
local research initiatives under way to produce the most essential active pharmaceutical
ingredients.

Localization of mining equipment and supplying industry inputs

Despite the vast mineral wealth in the region and significant foreign investment that the
sector has attracted throughout the years, many resource-rich countries in Africa have
not been able to translate their resource wealth into sustainable economic, social and
environmental development. Supporting African suppliers to the mining industry has
perhaps the most potential among all the benefits countries can derive from mining.
This can range from products, such as pick-up trucks, tyres, drills, conveyor belts
and specific replacement parts, to services, such as catering, surveying and human
resource management. In Zambia, however, foreign suppliers dominate the local
market for the supply of goods and services across mining sites, mainly because of
various constraints, such as a lack of access to long-term capital, restricted access to
production technologies, high costs of production inputs and a lack of full quality control

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of production. Moreover, the absence of legislative provisions does not encourage

domestic production and sourcing. It is important for the mineral-rich countries of
Africa to put in place sound local procurement policies based on clear local sourcing
and local ownership criteria. Further, to tackle structural transformation in resource-
dependent countries and improve the social benefits of mining, there is a need for a new
global governance architecture. An example is the sustainable development licence to
operate, which is a holistic multilevel and multi-stakeholder governance framework
aimed at enhancing the contribution of the mining sector to sustainable development.

Optimizing supply chain opportunities in Africa through

enablers and incentives
The global economic crises have emphasized the need for the diversification of suppliers,
goods and services to build resilience and better mitigate risks, such as input shortages
and soaring product prices. Diversifying and making supply chains more resilient is also
associated with digitalization and the adoption of digital technologies through the supply
chain. In complex, high-value products and supply chains with shorter lead times, such
as medical devices and electrical equipment, the use of digital technologies – advanced
automation, machine learning, artificial intelligence and blockchain technologies, to
name a few – are a necessity for production, distribution, logistics and procurement
efficiency.

For instance, digital platforms and technology-enabled services allow better integration
and smooth coordination between different sectors and processes and across distant
markets, thus facilitating supply chain diversification. Other technology-enabled
services that can enable supply chain resilience and sustainability include supply chain
connectivity and logistics; supply chain digitalization; electronic data interchange, supply
chain traceability software and smart services.

Supply chains are complex, spanning multiple interconnected countries. They serve
numerous electronic commerce platforms and customers with high demand and involve
broad ranges of relationships and collaborations. Such complexity can lead to a race to
the bottom for many firms, especially small and medium-sized enterprises.

In Africa, many small and medium-sized enterprises operate outside the global supply
chain network because of the limited use of digital technologies. Most local small and
medium-sized enterprises rarely use technology due to a lack of skills, informality,

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 The Potential of Africa to Capture Technology-Intensive Global Supply Chains

infrastructure issues and funding gaps. The main technology-enabled services are
almost nonexistent in most African countries. The lack of investment in technology and
the low level of human capital are major obstacles to exploiting these potentials.

However, African firms can play a more significant role in supply chain diversification by
integrating vertically or horizontally into the supply chain. For instance, by engaging into
a business-to-business or business-to-customer collaboration, large firms and small
and medium-sized enterprises integrating through mergers and acquisitions can create
complementary businesses and expand into upstream or downstream activities. This
would enable the integrated companies to streamline their operations and supply chains
by acquiring or establishing their own suppliers, manufacturers, distributors, or retail
locations instead of outsourcing or importing inputs or other supply chain components.
A global supplier can also integrate with an African firm to expand its operations in Africa
at similar value or at the supply chain level and within the same industry, thus enabling
the integrated companies to expand into new markets and diversify their product
offerings. These two types of integration are better facilitated with the use of technology
services at all stages, whether transactional or operational.

Countries in Africa should facilitate the adoption and use of these innovative digital
technologies that can optimize supply chain practices. Some countries have already
embarked on this path. This is the case of Kenya, for example, which has one of the
highest adoption rates of digital skills in Africa. Some of the emerging technologies
that are increasingly being deployed in that country and which can be leveraged to
boost specific industries and supply chains (for example, innovation, product design,
manufacturing, logistics and supply chain management) include artificial intelligence, the
Internet of things and cloud-computing technologies such as blockchain. This growing
technology-oriented ecosystem, also known as the Silicon Savannah, has benefited
from sound policies, an enabling regulatory environment and other government-led
programmes that favour the upgrading of skills and adoption of digital technology.

Advanced technologies also serve as valuable tools and platforms that can address
the financing needs of firms in Africa and potential suppliers or service providers in
supply chains. For instance, banks and other credit providers can also use blockchain
to improve supply chain financing, as the technology will enable them to make better
lending decisions in a fast and cost-efficient manner by having access to real-time
and verifiable transactions between the supplier and buyer without having to conduct
physical audits or pay for financial reviews. Facilitating supply chain-related investments
and finance is particularly important to unleash the potential of small and medium-sized
enterprises and their participation in technology-intensive supply chains. Financing

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Economic Development in Africa Report 2023

solutions, such as supply chain finance, could be opportunities for the integration of
these enterprises into supply chains.

Supply chain finance focuses on facilitating access to working capital, bridging the
payment time gap between buyers and sellers to efficiently manage cash needs
stemming from daily operations and reduce stress to the balance sheet. There are
no internationally agreed supply chain finance standards for the following areas: the
part of financial supply chain management that is integrated into physical supply chain
activities, financing instruments to manage working capital and liquidity in the supply
chain and payables finance or reverse factoring.

In general, supply chain finance in Africa faces several barriers, such as know-your-
customer or anti-money laundering regulations and buyer performance, which are
related to supply chain finance default risk and profitability. In addition, firms in Africa
must overcome barriers to conventional bank financing and capital. African countries
are often confronted with a disproportionately higher risk perception by major global
financial players, which hinders the expected and necessary financial flows into the
continent and feeds into their currency risk. Some countries in Africa are constrained by
low or nonexistent country risk ratings, weak banking systems, regulatory challenges
and a lack of credit information.

Scaling innovative supply chain finance solutions could significantly improve the access
of small and medium-sized enterprises to financing and competitiveness in a well-
integrated supply chain that could further increase employment, income, quality of
life and economic growth in Africa. However, the level of involvement in supply chain
finance is low. In 2022, Africa contributed to only 1.9 per cent of global supply chain
finance volume ($2.2 trillion) and remains the most underdeveloped supply chain finance
market across major regions. However, its growth is picking up speed, at about 40 per
cent between 2021 and 2022. The availability of supply chain finance continues to be far
less than what is demanded across the continent. African countries should ensure that
small and medium-sized enterprises have access to supply chain finance by removing
certain barriers. These include the lack of technological infrastructure and technology-
enabled services; inadequate legal and regulatory frameworks; high risk perception
by local firms, owing to insufficient knowledge and education; a fragmented market;
and challenging sustainability criteria applied by banks and other lending institutions.
Moreover, women entrepreneurs in Africa face additional hurdles to accessing timely
finance, compared with their male counterparts.

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 The Potential of Africa to Capture Technology-Intensive Global Supply Chains

Policy options for strengthening global supply chain

diversification
The risks of concentrating manufacturing and supply chains in a few markets or
sourcing and supplying sector-specific intermediate goods from a few locations can
increase exposure to shocks and disruptions in production networks and supply chains.
By diversifying or relocating to Africa, supply chain participating companies can source
some of the inputs (raw materials and intermediate goods) from the continent, while
reducing the costs of transportation and logistics and minimizing risks of supplier
delivery delays and other challenges.

African countries offer many advantages that can contribute to or drive the diversification
of global supply chains for high-knowledge- and technology-intensive industries.
Nonetheless, to attract supply chains, African countries will need to adopt certain policies
that strengthen and ensure an attractive environment for businesses to relocate to.

The report provides a list of comprehensive policy options that, if implemented, could
provide incentives for supply chains to relocate to African countries. Below is a selection
of some of the policy options from the report.

Automotive industry
There is a need for a more coordinated automotive strategy and regional automotive
development plan to avoid the duplication of efforts. To facilitate continental vehicle sales
and promote the domestic supply of parts and components and aftersales goods and
services, harmonized and transparent standards are necessary. The African Continental
Free Trade Area can provide a platform to create linkages between automakers (for
example, original equipment manufacturers), auto suppliers and local suppliers to
access the necessary knowledge and technology to meet car-specific requirements.

Electronics: Mobile telephone supply chain

The enforcement of decent labour laws is paramount in an assembly industry that
employs more women than men – women are often more vulnerable to exploitation
and health risks. It is necessary to invest in skills development and technical training to
create a skilled workforce for the mobile telephone industry. Countries that already have

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some mobile telephone assembly should develop research facilities to invest in next-
generation battery technology.

Renewable energy technology: Solar panel supply chain

There is a need for intensified collaboration to enhance knowledge and technology
transfer. This could take the form of mentoring programmes, in which successful, more
established companies can exchange information and experience. Moreover, formal
and informal intra-industry exchanges are essential to continuous learning.

Health-care industry: Pharmaceutical product and medical device

supply chain
To broaden demand and access to medicine, pooled procurement and financing should
be further promoted. This can be achieved, for example, by platforms, such as the
Africa Medical Supplies Platform, an online portal that enables the delivery of medical
supplies to the Governments of Africa. Another important example can be found in
a project launched by the Economic Commission for Africa, the African Continental
Free Trade Area-based Pharmaceutical Initiative, which contains a centralized pooled
procurement mechanism.

Mining industry
Local content requirements or supplier programmes will not sufficiently promote
domestic firms if the initial challenges of these firms – lack of electricity and finance –
are not tackled at the same time. Supply chain finance and targeted support to these
companies can be negotiated ex ante with mining companies before licences are
granted.

Localization of supply chains

The future of supply chain transformation in Africa, especially in technology-intensive
industries in the automotive, electronics, renewable energy and pharmaceutical sectors,
will require viable options for creating domestic supply chains that are reliant and

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 The Potential of Africa to Capture Technology-Intensive Global Supply Chains

resilient. This can be achieved through localized supply chains, supplier development
programmes and the establishment of local procurement requirements.

Regional market opportunities under the African Continental Free

Trade Area
The implementation of the African Continental Free Trade Area provides momentum to
attract greater attention towards more high-technology sectors that generate local value
addition and employment opportunities. As the African Continental Free Trade Area
also aims to strengthen national and regional competitiveness by facilitating regional
economic performance and industrial innovation, it will help enhance regional supply
chain capabilities and contribute to the efforts of supply chain hubs to foster economic
development in Africa.

A push for technology and innovation in supply chain

transformation
The use of new technologies and digital solutions can provide comprehensive supply
chain visibility and transparency and facilitate the ability of supply chain participating
companies to respond more effectively to shifting global market dynamics. Identifying
the potential of individual countries in high-technology supply chains; assessing the
technology and digital readiness of African firms; facilitating technology transfer, reverse
engineering and domestic innovation; and developing and increasing the utilization of
digitalization and technology in supply chain processes and interactions will be vital for
the transformation of supply chains in Africa.

Technology-enabled service providers and supply chain financing

for small and medium-sized enterprises
Small and medium-sized enterprises can be strategic sources and key drivers of
global supply chain diversification and supply chain transformation in Africa. Adopting
digital solutions and models to their business performance, operating in a conducive
technology-based supply chain environment or tapping into novel financial tools to
increase the participation of these enterprises in supply chains will be necessary for

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those seeking to expand their markets and integrate into global supply chains. These
enterprises could also reinforce their collaboration with larger firms or supply chain
participating companies by establishing complementary businesses (vertical integration)
or similar businesses in other localities (horizontal integration). Large companies should
seek to vertically or horizontally integrate start-ups and small and medium-sized
enterprises to diversify and regionalize their supply chain. This is particularly important if
regional integration through the African Continental Free Trade Area is to be enhanced.

To benefit from supply chain opportunities arising from global disruptions and emerging
challenges, the Governments of African countries can count on the research and
policy analysis, technical cooperation and consensus-building support of UNCTAD.
Leveraging its expertise and experience in providing on-the-ground technical assistance
and innovative capacity-building tools, UNCTAD, in cooperation with the Governments
of Africa and other relevant stakeholders, could develop bespoke training programmes
and tools that can assist African industry leaders and small and medium-sized
enterprises to understand the opportunities to integrate global supply chains through
increased access to new technologies, financing solutions and re-skilling programmes.
By providing a forum for open and constructive dialogue for policymakers, financiers and
development partners, UNCTAD could work with the Governments of Africa, domestic
and global industry leaders, and domestic and foreign investors to facilitate, streamline
and heighten visibility, transparency and impact in overall supply chain processes. Such
collaboration could lead to the adoption of policies and standards that would encourage
more local content requirements, as well as to the strengthening of local capabilities that
are essential to innovation and the production and delivery of goods and services across
regional and global supply chains.

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Printed at United Nations, Geneva – 2313088 (E) – July 2023 – 945 – UNCTAD/ALDC/AFRICA/2023 (Overview)