The surge in industrial parks across Africa explained

The surge in industrial parks across Africa explained

Bernice Swanepoel & Simon Ardonceau

There has been a proliferation of industrial parks in Africa over the last decade and the growth seen in this space is poised to continue on the back of a variety of global and local factors.

With Asia’s industrial model in effect being replicated in Africa, the continent could be heading in the same direction and seems well positioned to establish itself as one of the world's leading manufacturing hubs within the next ten years.

The driving forces

The first reason for the gradual increase in industrial activity in Africa emanates from the fact that during the course of the last two decades, wages in China –which is at present the world’s leading manufacturing hub - have gone up dramatically. As a result, China is now manufacturing higher value-added items in-country and outsourcing a great deal of its low-wage manufacturing to Africa - a continent characterized by high unemployment rates and the availability of inexpensive labour as well as cheap land.

The second reason has to do with trade agreements.

A large portion of the increased industrial activity in Africa currently revolves around garment and textile manufacturing. Mauritius was at one point a hub for garment and textile manufacturing, however, over the last decade in particular the island’s industry has declined, with much of it having shifted to Ethiopia, Kenya and Tanzania. Chinese firms behind the majority of the manufacturing in Mauritius, started moving out of the country and taking their business to other countries which offered potentially more preferential trade agreements.

The third reason has to do with a change in direction for economies such as the Mauritian one which has already gone through the industrialisation phase and is now moving towards a knowledge-based economy, with a focus on IT. But in general, most African countries are at present still working to move away from primary sector activities – such as mining and agriculture – and pursue industrialization. And we are seeing a spike in the growth of industrial parks in these countries, as a direct result of the political will and economic incentives being offered by these governments. According to the UN, there were 237 SEZs (Special Economic Zones) in Africa in 2019, spread over 33 countries. The objectives of these SEZs are to stimulate industrial development and to diversify with a focus on resource-based operations aimed at attracting primarily processing industries.

Implications and challenges

In countries like Ethiopia which has a massive population under the age of 25 we have seen a significant uptick in job creation. At the end of 2018, the Xinhua news agency reported that the plans of building 15 industrial parks in Ethiopia could, over the coming years, create more than 150,000 direct jobs. With many of these industrial parks being built outside of the major capital cities, economic opportunities would be presented to those who need them most, in the more decentralised areas of these countries.

There are, however, challenges that need to be addressed in terms of the labour force. What we do not see a lot of in this space is the upskilling of labour. Local workers are doing the very basic work, but they are more often than not side-lined when it comes to more advanced senior positions to which foreigners are still being appointed.

There are also lessons to be learnt from countries like Mauritius, where a rapid decrease in manufacturing has resulted in high levels of vacancies in industrial stock. The challenge for these nations now is to try to repurpose these assets. In Mauritius, for example, a parastatal company known as Landscope, which handles some of the government’s physical building assets and land assets, is currently trying to address this.

Finally, the most imminent and recent of these challenges are the short term, and lasting, impacts the Covid-19 pandemic had on the global economy. Global economic growth came to a grinding halt in Q1 of 2020 signalling the first global contraction since 2011. Most countries have since resumed some level of activity but it could take years for demand and production to reach previous levels, negatively impacting on the development and expansion of industrial parks throughout Africa.

Looking ahead

It is important to note that China is not the only major investor playing in this space at the moment. We have seen a significant investment from Indian companies and South Korean companies too and we expect more nations to climb aboard in the coming years. With investors from China taking the lead in terms of construction and infrastructure, it is considerably easier for their foreign peers to come in, buy or rent a shell factory and hit the ground running.

Covid-19 has already had some impact on the demand for industrial and warehousing space in Africa, with the South African Property Owners Association (SAPOA) stating that tenants are moving to smaller box sizes in an effort to consolidate benefits and operational efficiency gains on the back of challenging economic conditions. This phenomenon could have an impact on how industrial parks are designed and developed in the future, with a renewed emphasis on flexible space and increased efficiencies and cost saving.