The Collaboration between McKinsey and the UK International Development has attracted over $800m FDI within four years, enabling African manufacturers to create sustainable jobs for Africa’s surging population, writes Dike Onwuamaeze
Could the manufacturing sector create enough jobs for the anticipated surge in Africa’s population by 2050? For the panelists that participated recently in the McKinsey’s Talk Operations on Manufacturing Africa initiative, the answer is yes. The panelists were made up of the Managing Director of LADOL Free Zone, Lagos, Dr. Amy Jadesimi; McKinsey Partner, Mr. David Meredith and McKinsey Alumnus, Kannan Lakmeeharan. According to them, the manufacturing sector could provide the needed jobs if it is developed in a strategic and resilient way. The believed that a competitive manufacturing sector in the continent could play a pivotal role in helping Africa reach its full potential in the global economy.
These panelists explored the transformative capacity of manufacturing, as well as the initiative’s objectives and its current impact. Additionally, they highlighted the crucial role of production in Africa’s growth and development and the paramount importance of sustainable job creation.
In addition, there discussion centered on the opportunities the manufacturing sector could offer, what Manufacturing Africa entails, and how some of the trends in manufacturing are impacting this emerging market.
Manufacturing Africa is a program that is funded by the Foreign, Commonwealth & Development Office of United Kingdom and supported by McKinsey. Its primary goal is to increase foreign-direct-investment (FDI) flows into the manufacturing sector in Africa, with a particular focus on green manufacturing.
Lakmeeharan revealed that the initiative, which started in late 2019, have supported over 126 real transactions across six countries, and over 25 have already closed. That means they’ve actually attracted investment and in some cases even completed building whatever they needed to build—the investments into equipment.
‘This has resulted in over $800 million of foreign direct investment in the sector and in those transactions already over 14,000 jobs (direct and indirect jobs without counting the value chain jobs).
“And when you look at all the transactions that we think are likely to close, we’ll hopefully hit over 100,000 jobs created without looking at the supply chain effect. So this is already the impact,” he said.
investment opportunities
According to Meredith, the initiative aim is to identify a pipeline of potential investment opportunities, where FDI could play a role. It provides transaction facilitation to make those opportunities more investable and then creates opportunities for those investments. So far, we’ve seen quite significant FDI flows into manufacturing off the back of that and a really significant increase in the jobs available.”
He added that McKinsey’s work primarily involves financial analysis, including modeling, marketing, business planning, and technical assistance—all necessary to make these opportunities investable.
Meredith pointed out that manufacturing has typically been the cornerstone of the economic transformation of countries and bedrock of a growing economy. It boosts productivity, unlocks economic growth, and creates jobs. “When you look at the demographics in Africa, you see that the growing labor force will need something like 18 million new jobs a year to absorb that growth up until 2035. And so, manufacturing will have to be a core part of ensuring that we have sustainable economies in Africa, and that will be a core part of ensuring that we have prosperity in Africa.”
Jadesimi said that LADOL is contributing to sustainable job creation by putting in place critical infrastructure that would have multiplier effect on job creation and the promotion of sustainable industrialisation.
She said: “We are a sustainable industrial special economic zone that plans to be net zero by 2035, and we started developing the zone out of an unused swamp, which was in the harbor and set aside for future development. Within the zone, we built the entire usual terminal infrastructure like quaysides and warehouses. We undertake much specialised services that effectively enable industrialisation, by carrying out aspects of the value chain that have never previously been done in other countries. For example, being able to do very heavy lifts and enabling work to happen 24/7 in a secure ecosystem where activities are uninterrupted.
“And the thing is: if you can support the most complex, challenging aspects of an industrial process in-country, then everything downstream of that happens automatically because it is advantageous to carry out all the activities downstream of that in-country. And this is not a new concept. Wealthy countries worldwide developed by having critical infrastructure like that built, which has a multiplier effect on job creation. So for every one job, five to 15 jobs are created as a result of that new role.
“In some ways, LADOL is an operator. We operate the zone, and we operate the logistics and storage and heavy-lift activities in the zone. We’re also a platform to enable other people to operate inside this sustainable ecosystem that we’ve developed.”
Manufacturing Africa
Jadesimi said that the Manufacturing Africa is interested at the whole gamut of what LADOL is doing as a developer and an operator to its role as developer and supporter of a whole range of companies in a wide range of industries.
“And therefore, they support us in terms of defining and refining what we do to manage the zone, what we do to manage our own business, and how we can use our platform to serve a range of manufacturing companies, small and large.
“And the idea is for international companies to be able to come and operate close to one of the largest growing markets in the world: the West African market. And they’re doing so in an ecosystem that has all the financial benefits and all the regulatory benefits of being in any other free zone in the world, as well as the workforce, the know-how, that LADOL brings to the table.
“It’s also really important that the operations in LADOL are sustainable. Sustainability to us is defined as the UN’s 17 Sustainable Development Goals. And so, we have those goals embedded in our policies and procedures and our ISO (International Organisation for Standardisation) standards that we’ve achieved.
“And that is critical, because in low-income, high-growth countries like Nigeria, we have the opportunity to develop sustainable industries. And a big part of doing that is having a strong transition strategy. Leveraging our commodity export businesses to finance the development of infrastructure, facilities, or equipment enables us to support a wide range of industries and manufacture not only locally but also sustainably.
“And the last thing is that this drive for sustainability is driven by the reality that sustainable businesses are more profitable businesses in the medium to long term. So we are not about sustainability because it is a gimmick or because it looks good or even because it is a good way of fundraising. We are about sustainability because it is the smartest, most effective, most profitable business strategy.”
She said that the important way to ensure that sustainable industrialisation is taking place is to recognise tha what is being funded is not net zero today but a transition strategy toward net zero tomorrow.
“What that means practically is that organisations like Manufacturing Africa can help to codify, benchmark, and validate people’s transition strategies to demonstrate how they are using the revenues they’re getting today to fund growth.
“It is hard to borrow money in Africa, unless it is clear and guaranteed that you are going to be able to pay it back. And most of the really big projects around that have to do with commodity exports.
“But there are companies out there that can demonstrate that they are using those revenues to invest into infrastructure and facilities that will transition them completely away from dependence on raw-commodity exports to a net-zero future. That is essential to enabling us to see sustainable industrialisation across the continent.”
Manufacturing and Africa’s Prosperity
Lakmeeharan agreed that manufacturing is critical to the prosperity of the African continent and advised that it is important that Africa should choose what to leverage on. “If you focus on primary goods, what can you do with them? How can you process them? There’s an element of import substitution for some of our critical needs, and we’ve identified potential areas in the countries where we work.”
He emphasized that digital and analytics are important in making manufacturing more efficient, safer, and more effective, learning from other countries but also leveraging digital and analytics to reduce the cost of the product or good and make it more affordable in a market where income levels might be lower—the affordability levels are low. So how do you get a minimum viable product that meets needs?
He also identified the shift toward electric vehicles as an area where digital and analytics technology could help get the product out to the consumers.
“Electric vehicles are one great example, as we’re looking at electric two-wheelers. We’re also looking at the use of digital in health tech products, the use of digital and analytics in agro-processing, and getting goods to market and goods from producers. In all of these types of use cases, we’ve supported over 120 transactions now, and we’ve seen some interest in choices and opportunities for the deployment of digital and analytics.
“What we’re learning is that you can focus on what’s really needed in different parts of the value chain. And in Africa, we really have the individuals or the capabilities to do that with some training. So we can fast-track capability building in a way that’s a leapfrogging opportunity and focus on what is really needed in parts of the value chain. And we’ve seen examples of that already.
We’ve also got to shift from just looking at qualifications to looking at capacity and capabilities to learn and deploy certain skills.”
Jadesimi acknowledged that Nigeria is inundated with people who are functionally numerate but might not have had the best educational opportunities and best work experience. Therefore, the “main thing we have to do is put a structure in place so that when someone gets in, they can effectively hit the ground running. And then what we find is that the learning rate is really quick, the uptake is really quick, and very soon you start to see staff training each other.”
Jadesimi: What I’m looking at in terms of my role as managing director of LADOL is solidifying the base we’ve built in the zone with revenues coming in from our specialized logistics business, working with our local and international partners in the zone, and then leveraging the significant operations we have ongoing in the zone to expand away from our commodities business into agricultural processing and green technology. And on that side of the business, we are leveraging our master plan.
Our master plan has at its core a circular economy. And bringing in agricultural-processing companies, for example, will enable us to use biomass for power, which will bring us closer to net zero by 2035. But the key is to also demonstrate that this is a blueprint that can be used for sustainable development across the continent of Africa and to remind people that sustainability equals profitability by demonstrating that on the ground.
