Five manufacturing opportunities with good potential for investors in Africa
Despite the setbacks caused by the global Covid-19 pandemic, the manufacturing sector in East Africa still offers investment opportunities, according to a new report.
The report was released by participants in a recent webinar hosted by the East Africa Private Equity and Venture Capital Association (EAVCA) in partnership with Manufacturing Africa.
“We are always looking for a new dawn and the new dawn we are hoping to see is one of both stability and economic prosperity for the continent,” said Kannan Lakmeeharan, lead for Manufacturing Africa at McKinsey & Company, where he is a partner as well.
“We truly believe that the manufacturing sector is core to achieving that.”
During the webinar, the following opportunities were identified as having good return potential for investors.
Lakmeeharan indicated that investment of around $1 billion is required in Ethiopia alone by 2030 in this high-opportunity industry. Demand for packaging materials is primarily driven by agro-processing players.
The data from the Manufacturing Africa programme shows that around 64% of demand is expected to be in plastic packaging.
One suggestion for success in this area is to set up operations in Ethiopia’s industrial parks which would help to secure clients and provide access to government incentives. Around the capital Addis Ababa, there are six industrial parks with a focus on both the agro-processing and the pharmaceutical sectors.
2. Circular economy
The governments of Kenya, Rwanda, Uganda and Ethiopia have all shown commitment to boost circular economy activities, aimed at eliminating waste and the continual use of resources.
In Kenya, for example, plastic carrier bags were banned in 2017 and the government is working on an extended producer responsibility (EPR) scheme, currently in draft format. The EPR legislation is based on the principle that companies assume responsibility for their products throughout their lifecycle, post-consumption as well. This encourages more sustainable packaging and recycling.
3. Consumer electronics and appliances
Manufacturing Africa’s data shows that the assembly of TVs and fridges are emerging as an untapped opportunity, specifically in Kenya. This is because of the size of the potential market (more than $170 million) and margins of between 10% and 15%. There is also limited local competition with only two local assemblers in the country.
While there are various agro-processing opportunities in all the countries Manufacturing Africa works in, Lakmeeharan highlighted three high-potential prospects in Ethiopia.
Wheat. This is due to the increased consumption of pasta and baked goods.
Fruits. Ethiopia exports raw fruit but pulp and concentrates are imported, which presents opportunities for local processing and vertical integration.
Dairy. The country imports large quantities of milk powder and UHT milk which could potentially be produced locally.
Lakmeeharan also mentioned the manufacturing of pharmaceuticals as an area with potential. Three of the six case studies shown as recent examples of transactions that are being supported are in this sector, as well as one of the deals already concluded.
Two are local pharmaceutical companies – one looking to upgrade and expand its domestic operations while the other wants to backwardly integrate and set up a new manufacturing facility. The third example is a domestic conglomerate seeking to establish an investment platform for pharmaceuticals.