From Chapter 1 of the African Transformation Report
ACET interviewed top executives of 10 multinational manufacturing companies with operations in sectors aligned to Sub-Saharan Africa’s comparative advantages and with some type of manufacturing presence in emerging markets. The objective was to find out the key factors that the companies consider when deciding where to locate their manufacturing operations, with a specific view to Sub-Saharan Africa.
The most important factors they cite are labor productivity (expressed primarily as the education and skills of the workforce) and policies (consistent policy environment, fiscal incentives, and tariff and nontariff barriers).
The low productivity and high costs arising from the lack of education and skills make it infeasible for them to locate in Sub-Saharan Africa, especially in comparison with India and other low-cost producers. As one executive said: “Until there is an educated and skilled workforce, all other initiatives and incentives are of no use.”
The lack of skills affects not only the companies’ manufacturing but also the presence of a reliable and skilled local supply chain. Several executives interviewed indicated that a strong local supply chain does not yet exist, except for South Africa to a degree. Companies need to be able to source components and parts locally to sustain cost-effective manufacturing. And the more technically sophisticated the product, the more difficult it is for companies to find local components.
Source: ACET interviews of company executives.