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China finds manufacturing opportunities in low-wage Africa

Discussion in 'Middle East & Africa' started by Nan Yang, Jun 2, 2020.

  1. Nan Yang

    Nan Yang SENIOR MEMBER

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    China finds manufacturing opportunities in low-wage Africa
    • Belt and Road Initiative leads to ready access from the continent to Europe and the United States
    • Industrial estates are springing up funded by Chinese investors attracted by cheap labour and an abundance of raw materials
    Jevans Nyabiage
    Published: 4:05pm, 1 Jun, 2020
    [​IMG]
    A Chinese-owned factory in Uganda is making face masks to plug shortages caused by the new coronavirus pandemic. Photo: Xinhua

    China’s manufacturing footprint is growing across Africa
    , as companies set up factories to tap into the continent’s cheap labour and abundance of raw materials.
    Chinese investors are funding the construction of industrial estates and free trade zones for the production of goods that otherwise would be imported from China. They include shoes, clothes, fibreglass, construction materials, electronics, steel products and foodstuffs, which also find their way from Africa into European and American shops.

    Industrial estates – which have been extremely successful in mainland China – are springing up from Uganda to Ethiopia, Egypt to South Africa, Algeria to Zambia.

    Charles Robertson, chief economist with Moscow-based investment bank Renaissance Capital, said the minimum wage in China was now “up to three times higher than many African countries, which is encouraging manufacturers to move to Africa”.

    Across the continent, there are more than 10,000 Chinese-owned companies, with one-third involved in manufacturing, according to a 2017 McKinsey report which excluded small companies, mostly not tracked by Chinese authorities. “In manufacturing, we estimate that 12 per cent of Africa’s industrial production – valued at some US$500 billion a year in total – is already handled by Chinese firms,” the report said.


    In landlocked Uganda, President Yoweri Museveni last week commissioned two production lines at Lida Packaging Products, a Chinese-owned firm making face masks and personal protective equipment, to plug shortages as the country battles to contain the spread of coronavirus.

    The factory, in the central Ugandan town of Mbalala, can produce up to 560,000 masks per day and employs 315 Ugandans. It is one of several factories to have set up shop in the dozens of industrial estates that have sprung up in the country, many of them funded by Chinese investors.

    Museveni said Uganda had enough raw materials to feed industries for the production of commodities rather than continuing to rely heavily on imports.

    When Covid-19, the disease caused by the new coronavirus, arrived in Africa, many countries faced difficulties in accessing import markets. The problem was compounded by lockdowns in China – often regarded as the world’s factory – in January and February which meant many factories were unable to produce anything.

    More Chinese manufacturing plants moving to Africa may help to solve the supply chain troubles experienced earlier in the year.

    Also in Uganda, a Chinese-owned mobile phone manufacturer recently made its first shipment of phones to Morocco. Simi Technologies, owned by the Chinese firm Engo Holdings Uganda, was set up late last year with a US$5 million investment to produce low-cost phones and laptops.

    “This is a step towards reducing Uganda’s import bill on ICT products and boosting export earnings,” Evelyn Anite, Uganda’s state minister of finance for investment and privatisation, said, referring to information and communications technology.

    The company, which employs more than 400 Ugandans, has now started making protective eyewear and affordable digital temperature guns to help fight Covid-19.

    Simi is the second Chinese mobile phone maker in Africa. Shenzhen-based Transsion has a manufacturing plant in Ethiopia and its Itel, Tecno and Infinix brands dominate the sector on the continent, with more than half the market share.

    Chinese investors have funded the building of dozens of industrial estates near the capital Kampala and neighbouring towns, which now house several Chinese companies. Uganda has promised a 10-year tax holiday for foreign investors that set up industries in traditional towns and other areas outside the greater Kampala metropolitan area.

    In Ethiopia, Chinese investors have pumped billions into the Horn of Africa’s light industries that have made the country a key apparel manufacturer and leather processor, exporting to the US and Europe. Ethiopia is now emerging as one of the preferred destinations for labour-intensive businesses, especially those in the garment, textile and leather industry.

    [​IMG]
    The Ethiopia-Djibouti railway, built by Chinese firms, was Africa's first modern electrified railway. Photo: Xinhua

    A modern railway line linking the light industries in Ethiopia to the port in Djibouti has contributed to boosting landlocked Ethiopia’s export ambitions. The country aims to become a light manufacturing hub in Africa by 2025.

    Industrial estates and free trade zones form part of Beijing’s Belt and Road Initiative
    , which seeks to open up trading routes by sea and land with Southeast and Central Asia, the Middle East and Africa.
    In North Africa at the Egyptian special Suez Canal industrial zone, Tianjin Economic-Technological Development Area (Teda) has built a massive industrial estate known as the China-Egypt Teda Suez Economic and Trade Cooperation Zone or Teda City, where hundreds of Chinese companies are setting up industries, to tap into the opportunities that come with the belt and road project.
    The Suez economic zone is strategic for China since it is located at the border of Asia, Africa, and Europe, meaning it can access those markets easily, unlike having to ship goods from mainland China. The zone hosts several enterprises and manufacturing companies, including Jushi, a fibreglass giant from China, which has turned the North African country into the world’s third-largest producer of fibreglass, next to the United States and China.

    However, Africa still suffers from a lack of reliable and affordable sources of power. “Electricity supply remains too low in most of Africa for it to replace China as the world’s manufacturing powerhouse,” Robertson said.
     
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