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Speech by Daryl Swanepoel, Convenor of the ANC Progressive Business Forum, 2018 China-Africa Manufacturing Capacity Cooperation Forum: Session on New Opportunities of Manufacturing Capacity Cooperation Under "One Belt & Road" Initiative: Wuhan City, Hubei Province, China

19 October 2018

In-Africa manufacturing imperative cannot be ignored

Historical context first

Africa is still dealing with the consequences of its colonial past. The past was about extracting raw materials from Africa to sustain European manufacturing. The result of this was that economic infrastructure was designed to link its hinterland to the ports on the coast. Huge deficiencies exist. To promote manufacturing on the continent and inter-Africa trade, so that Africa can effectively participate in ‘Belt & Road’ trade, requires a huge coordinated effort between governments, development institutions and the private sector.

What the world has to understand about Africa are two simple truths: the future is about sustainable development in Africa, it is about developing domestic manufacturing and intra-Africa trading of products manufactured on the African continent. It is also about Africa forming trade relationships with countries that accept as their departure point, the creation  of mutually beneficial, win-win economic partnerships.

The prerequisite for intercontinental linkages

I refer to a recent Deloitte report - Addressing Africa’s Infrastructure Challenges. This report underlines the importance for Africa to develop adequate infrastructure in order to achieve long-term growth. The top developmental challenges continues to be the shortage of physical infrastructure. Greater economic activity, enhanced efficiency and increased competitiveness are hampered by inadequate transport, communication, water and power infrastructure.

The world, the report concludes, is eager to do business with Africa, but finds it difficult to access African markets, especially in the interior, due to the poor infrastructure. We know that physical infrastructure covering transportation, power and communication through its backward and forward linkages, facilitates growth, while social infrastructure including water supply, sanitation, sewage disposal, education and health, which are in the nature of primary services, has a direct impact on the quality of life. Without this infrastructure, Africa will not achieve the growth levels expected or required. Infrastructure planning and investment are therefore critical if Africa’s huge economic and developmental potential are to be realised.

Africa’s economic growth and development are therefore intrinsically linked to infrastructure development.  Governments and public authorities are increasingly turning to Public Private Partnerships to deliver efficient and cost-effective infrastructure and services. This, I submit, creates enormous opportunities for the business and investing communities.

Africa Continental Free Trade Area

The second theme I would like to broach, in this short intervention that I have been afforded, is the advent of the new Africa Continental Free Trade Area. 49/55 countries have signed the agreement establishing the ACFTA. It is home to 1,2 billion people, including a growing middle class. It has a combined GDP of USD 3.4 trillion. It brings into being a single continental market, a single market for goods and services, free movement of business persons and investments and it paves the way for the establishment of the customs union for the continent.

Drive towards local manufacturing

As alluded to before, currently, African trade with China and the other ‘Belt & Road countries, consist in the main of raw materials leaving the continent, and manufactured goods entering Africa. This position has to change. It has for African leaders become an economic imperative to bring manufacturing to the African continent. I know, from the resolutions of the recent Forum for China Africa Cooperation, which I myself also attended and participated in, that this is also the position and desire of the Chinese government.

Coming from South Africa, to underscore and illustrate this, I can point to the recent ‘Economic stimulus and recovery plan’, announced by President Cyril Ramaphosa on 21 September 2018. This plan includes a huge allocation by the Industrial Development Corporation of some R20billion in approvals over the next twelve months. He said that the "funding will target the productive sectors of the economy, including manufacturing, mining [and] industrial infrastructure".

Then again at the ‘Jobs Summit’ held in Johannesburg on 4-5 October 2018 President Ramaphosa was even firmer. He said that if we do not "buy goods that have been made by South African hands, there will be no factories". This is a message, he said, "that must reverberate across the country and that must find expression in concrete action".

The South African government has undertaken to speed up the processes to ensure the procurement of local products. At the same time, the President Ramaphosa said, while we promote local demand, we need to do more to promote South African made products. South Africa’s message is clear: It will follow a dual strategy of pushing for local procurement, whilst embarking on an aggressive export drive that prioritises manufacturing.

New thinking

The points that I have raised in these remarks, export manufacturers need to take heed of should they wish to retain their market share in Africa. This requires new thinking from Chinese, and may I add, other ‘Belt & Road manufacturers. The typical approach, currently, is that investors first want to test the market through trade, with the intention to move manufacturing to Africa, should the market prove itself. The problem is that more often than not, comfort kicks in, and the trade patterns continue. As trade and investment promoters, we need to become more innovative in our thinking. We need to give birth to new practical thinking - starting with this question as to how we can fast-track the shift of manufacturing from China to Africa, in a win-win partnership, that serves both sides.

One model that I believe can work - of course for which scientific research is still required to support the hypothesis - is the concluding of public private partnerships in which the vast procurement spends of African countries can be geared towards securing take-off agreements from manufacturers that agree to set up plants on the African continent. Such import-substitution policies will create jobs in Africa, positively influence the balance of trade, and add to the tax revenue base of governments; whilst at the same time allowing for investor-expansion, with dividend flow back to their countries of origin. Win, win. This is a fast-track manufacturing investment idea that I consider warrants urgent and serious study. I would like to engage CCPIT and others for partnering in the endeavour.

Thank you programme director. May I conclude with a simple observation for manufacturers considering a move to Africa - it comes  from the EY’s Attractiveness Survey 2015 Making Choices Report, sentiments confirmed in their subsequent 2016 and 2017 reports:

"Investors looking in from afar see Africa as the world’s second-worst investment destination. Only 30% of them reckon it has become more appealing over the past year[s], though half believe its attractiveness will improve in the coming...years."

However, and this is the important point: "Investors who already have operations in Africa believe it is the most attractive investment destination in the world, has become more attractive in the last year[s], and that its appeal will strengthen further in the years [to come]".

I thank you.

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