Renewable Energy Supply Chains and Manufacturing in Africa

In debates over the future of the global cleantech manufacturing ecosystem, much of the focus in recent years has been placed on China, on the EU, and on the US. A question that is much less discussed is: What role could Africa play? Investing in manufacturing is tough, and location decisions rank among the most important decisions that manufacturers make. With a few exceptions such as Morocco and South Africa, countries across Africa have seen relatively little investment in manufacturing. There are a few fundamental reasons for this. First, a high cost of capital and a short repayment period skew the financing landscape toward higher-margin ventures. In many cases (particularly in the early years, as order books remain patchy) manufacturing is not a high margin activity.

As a result, most manufacturing remains small-scale and artisanal, serving highly local pockets of demand. From a financial perspective, the manufacturing sector in Africa is tough to lend to: lenders face a host of information asymmetries regarding project profitability. If future cash flows cannot be reliably predicted, the profitability of the business cannot be modeled, nor can the company’s ability to repay its loans. These factors, along with a host of others we cover in greater depth in the report, make it hard for manufacturing in Africa to thrive. So where do countries across Africa go from here?

Much can be done to improve the investment environment, reduce risks, and foster local demand. For more steps that governments across the continent could take, have a look at the full report.