The Promise of Microfactories in Africa

Distributed manufacturing represents a new model of industrialization uniquely suited to the continent’s strengths

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Source: Wayout Water

The Machine that Makes the Machine

By the time Tesla completes construction on its “Gigafactory” outside Sparks, Nevada, it will be the largest building in the world. The finished sections, which are already operational, measure 5.3 million square feet. And the factory is only 30% complete.

The Gigafactory is emblematic of a long-standing movement in the manufacturing world towards massive, centralized, and specialized factories. Producers have taken these characteristics as an axiom for realizing scale and efficiencies, ultimately reducing cost for consumers.

Tesla is quite explicit about these expected benefits from the Gigafactory, speculating that the “cost of battery cells will significantly decline through economies of scale….and the simple optimization of locating most manufacturing processes under one roof.”

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Rendering of completed Gigafactory. Source: Tesla

This assertion reflects the greatest hopes for centralized manufacturing — bigger factories yield cost savings at volume, creating enormous value for both companies and consumers. In countries where that hope has materialized, centralized manufacturing has transformed entire economies in a single generation — cutting poverty rates and creating jobs.

But what if that model only works under certain circumstances? Or worse, what if it’s a good blueprint for some countries, but not others?

As I’ve written about previously, the economic efficiencies of centralization are often in direct conflict with resilience. The more centralized the production, the more likely that a disruption or shock could significantly undermine a company’s core business and ability to reach consumers, a dynamic that has played out in front of our eyes in 2020.

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Nowhere has this been more apparent than the African continent, which has struggled to attract the manufacturing sector to its shores for decades, depending on imports from suppliers thousands of miles away and dampening prospects for economic growth and diversification.

This gap has been particularly pronounced during the COVID-19 pandemic, as tenuous supply chains linking Asia to Africa are stretched to a breaking point, resulting in delays and shortages for essential products.

These ruptures in the availability of goods on the continent have led policymakers such as South Africa’s finance minister, Tito Mboweni, to call for African countries to “set up manufacturing to make what we need and stop relying on imports from China.”

We shouldn’t assume, however, that the centralized manufacturing model that’s worked so well in China over the past few decades will naturally translate to the African context. If anything, the evidence points to a much-needed new model for manufacturing on the continent that allows countries to blaze their own path towards industrialization.

Manufacturing in Africa: Chasing the Asian Mirage

As recently as 1990, China and sub-Saharan Africa’s gross domestic product was relatively even. By the year 2000, a small gap had opened. Over the next 20 years, as China’s manufacturing sector exploded, that gap became an $8 trillion chasm, leaving the continent far behind.

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Visual developed via Our World in Data

As economists have watched with awe as China and other Asian countries lift millions out of poverty through manufacturing, one question has lurked just below the surface: When will it be Africa’s turn?

While industrialization has transformed the Chinese economy, the cost of labor has also risen significantly, prompting assertions that the business case for centralizing manufacturing there has started to erode.

For some, countries across sub-Saharan Africa may seem like logical heirs to the manufacturing throne with relatively young populations, and an abundance of raw materials. However, manufacturing on the continent outside of Ethiopia has arrived in fits and starts.

  • One of the reasons for this is that labor costs in many sub-Saharan countries are surprisingly high, which means that low-paid, labor-intensive industries that were attracted to Asia are less likely to migrate to Africa as wages continue to rise.
  • A second is the perception, real or imagined, of “political risks, high costs for power and materials, onerous regulations and corruption.” Of the bottom 30 spots in the World Bank’s annual Ease of Doing Business survey, 19 are held by counties in sub-Saharan Africa.
  • Lastly, infrastructure in many African countries countries, such as transportation networks, electricity reliability, and internet penetration, lags far behind many would-be manufacturing competitors, making large-scale, high-volume manufacturing extremely challenging.

For all of these reasons, the path to industrialization in Africa will be quite different than China’s.

(Micro) Industries Without Smokestacks

Rather than scale up, what if we were to scale out manufacturing by building smaller, more agile, and eco-friendly factories?” — Navi Radjou

While China found success with high-volume, centralized manufacturing, there are compelling reasons to believe that distributed models could be more effective in sub-Saharan African countries, at least in the short to medium term. Luckily, we won’t need to wait long to watch this dynamic unfold — microfactories have already landed on the continent.

As the name suggests, microfactories are self-contained manufacturing units, which are often highly automated and much smaller than traditional production installations. The touted benefits of manufacturing on a micro scale include reduced costs, a lower risk profile, and significant gains in flexibility compared to traditional methods.

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Companies experimenting with micromanufacturing run the gamut. From ChopValue, a Canadian company that franchises microfactories that produce homeware, décor, and furniture all made with recycled chopsticks, to General Electric, whose foray into micromanufacturing includes a site in Louisville, KY intended to reduce the time “from mind to market” for kitchen appliance innovations.

In its early days, micromanufacturing in Africa has tended towards unsophisticated products, primarily food and drink. This is hardly surprising. Companies have sought to align production offerings with Africa’s leading sectors, sometimes referred to as “industries without smokestacks”, reflecting a divergence from typical manufacturing profiles.

As Yaw Ansu, Advisor to Ghana’s Ministry of Finance explains, “The scope for labor-intensive, export-oriented industrialization is narrower now, but countries like us can compensate by basing our model on adding value to agriculture and natural resources.

Based on how microfactories are already being deployed in sub-Saharan Africa, it’s becoming evident that a distributed model is better equipped than centralized manufacturing to tackle the region’s high labor costs, ease of doing business, and infrastructure gaps.

1. Adding Value Without the Labor

Among the reasons why industry has not shifted from Asia to Africa is the continent’s high cost of labor. To become cost-competitive, industry in sub-Saharan Africa must play to countries’ strengths in agriculture and natural resources, without relying on the same labor intensive model that proved so successful in China.

Significantly, microfactories are largely automated, meaning that unlike centralized manufacturing, large pools of labor aren’t necessary. So while the arrival of microfactories won’t result in an abundance of new jobs, it will make many of Africa’s existing jobs, particularly in agriculture, significantly more profitable.

Microfactories enable value addition to sectors that sorely need it. Africa exports unprocessed raw materials in large quantities, instead of capturing value through processing or manufacturing. Processors in other parts of the world earn the lion’s share of profits for crops like cocoa, cotton, and cashews, which are grown in Africa.

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Source: Global Trade Review

Companies like AFRI.CAN — whose slogan “Let’s industrialize Africa because we can” cuts right to the chase — are offering new solutions. AFRI.CAN is focused on building micro agro-processing facilities for African farmers that can process and package fruit juice, to biodeisel, honey, olive oil, and even wine.

Solutions like AFRI.CAN’s will create wealth for those who need it in the continent’s agriculture sector while circumventing the issue of labor costs, one of the most significant factors inhibiting manufacturing.

2. Reducing Risk by Testing the Waters

Many countries in sub-Saharan Africa are seen as the worst places to do business in the world, impeding investment in industry and creating vicious cycles.

Microfactories, typically a fraction of the cost of traditional production equipment, enable companies to dip a toe into an unfamiliar market without making large and potentially risky capital investments. Acting as a pathfinder, microfactories could open the door to more industry as companies become more comfortable with new business environments.

Even if a company has already ramped up production in a country in sub-Saharan Africa, micro factories can reduce exposure when introducing a new product where demand is uncertain.

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The Cube in Accra, Ghana. Source: ABM

Diageo, a multinational company with brands like Guinness, Smirnoff, and Johnny Walker under it’s belt, has launched a microfactory solution named the “Cube” across West Africa.

Preba Greenstreet of Diageo explains how the installation helps to reduce risk and uncertainty, “What the Cube enables us to do is a large scale test. We can produce reasonable numbers…to give you a sense as to what the market can take.

At present, the “Cube” has launched in Ghana, Nigeria, and Cameroon and can produce 300,000 cases of spirits a year. The facility, which is comprised of five shipping containers, employs a staff of 25 and produces everything from alcohol itself to the bottles it comes in.

By enabling demand tests and operating with a relatively low-cost footprint, microfactories can mitigate risk while allowing companies to explore new markets.

3. Building Resilience Amid Infrastructure Gaps

As the COVID-19 pandemic has highlighted, many sub-Saharan African countries are highly reliant on centralized manufacturing facilities in Asia for essential goods. At the same time, infrastructure gaps pose challenges to building out large-scale industry to solve this problem.

Over the last 8 months, many African countries have struggled to maintain adequate stocks of medical supplies such as personal protective equipment, which, historically, has been sourced from outside the continent. Many PPE products are relatively unsophisticated, and could easily be manufactured by microfactories — reducing reliance on China for essential products.

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Source: OECD — Africa’s Response to COVID-19

Even for products that are not imported, microfactories can boost resilience. Cities across the continent, from Cape Town to Bouaké, have struggled with water scarcity. Here too there are opportunities, such as a microfactory by Wayout Water capable of desalinating and producing up to 70,000 liters of clean water a month (the unit can also produce craft beers)

And while infrastructure remains a key challenge to producing and transporting goods in sub-Saharan Africa, microfactories can be positioned close to consumers or source material and do not require the same levels of energy as traditional factories.

In fact, the Wayout factory, which has already been installed in parts of East Africa, is capable of production utilizing solar power alone, avoiding power grid constraints altogether.

Microfactories are not a panacea for sub-Saharan Africa’s economic growth and supply chain challenges. Pharmaceuticals, a key production gap on the continent, won’t likely be produced by a microfactory in the near future given high regulatory requirements. Infrastructure problems are still an enduring challenge - bad roads are a barrier no matter how close the source material or consumer to the production site.

And early-stage supply chain issues may be ever-present. Microfactories themselves are a perfect example, many of which are produced in Europe such as Diageo’s “Cube”, meaning that Africa may still find itself dependent on other countries, this time for the very means of production.

Still, distributed manufacturing through microfactories represents a compelling alternative to the reigning “Gigafactory” model, which is clearly ill-suited to the continent’s industrialization prospects.

In the enduring effort to realize economic development and supply security across the region, microfactories offer something new: the chance for African countries to embrace industrialization and it’s attendant benefits on their own terms.

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