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LWOL: A discussion with Michael John Hastings on global manufacturing and its impact on Africa’s economy

“The challenges of the past five years (largely characterised by global uncertainty, economic volatility, geo-political instability, shifting markets and natural disasters) have resulted in massive changes to the manufacturing landscape and there is every indication that these macroeconomic winds of change will continue to blow,” says Jeff Dobbs, Global Sector Chair, Industrial Manufacturing, KPMG International. So the question is: is the African continent ready for this wind of change?

Qualified to weigh in on this issue is Lord Michael John Hastings, Baron Hastings of Scarisbrick, CBE, and KPMG International’s Global Head of Corporate Citizenship. Michael was previously the BBC’s Head of Public Affairs and then the first Head of Corporate Social Responsibility (2003-2006). He is a Trustee of the Vodafone Group Foundation and was previously also a non-executive Director of British Telecom (BT) on the Board for Responsible and Sustainable Business.

Michael was our most recent guest on Lunch with Our Leaders and we asked him to discuss the above-mentioned issue under the heading ‘Global Manufacturing and its impact on Africa’s Economy’. Here are some of the questions followers put to Michael and his responses to them. We hope you find the dialogue insightful and useful.

Industrial FDI versus industrial SMEs

Q. There have been calls and debate for African governments to either focus on encouraging industrial FDIs or focus on building local industrial SMEs. I think for the sake of skills transfer, African government should simply work on the two options simultaneously. Can we afford to wait for industrial FDIs while we have budding and yearning SMEs?

A. I agree with your comment. No, Africa (any country for that matter) cannot wait for FDI alone. This is not the silver bullet. This is the icing on the cake. SMEs are the lifeblood of any economy and Africa needs a strong foundation of SMEs to support industrial FDI. SMEs need to be part of the industrial GLOBAL value chain.

Q. Can Africa at least develop its SME sector first. Let’s have a fertile foundation for the Samsungs, GMs, Boeings, etc. to build on and buy into when they come in to invest. How far are we ready with our infrastructure? Will they get their money’s worth when they come?

A. I agree! For Africa to attract FDIs it needs healthy employment. For FDIs to really impact the region, it need SMEs to be its supply base. Africa needs strategies for both.

The issue of power generation

Q. With most of Africa lacking stable electricity, are we sure we are ready to partake in global industrialisation? Firms operating in Africa at the moment spend a fortune on private power generation.

A. I sat in a major policy discussion yesterday with investors Barclays Bank and the UK guardian newspaper. The no. 1 defined opportunity need for Africa is power. Obama has made it a USA investment priority. The AU and the African Development Bank should get focused on his top priority.

Q. In Nigeria, the dearth in the power sector has been a bane to the growth of the industrial sector. What advice would you give to manufacturers to work around these challenges and remain relevant in the economy? Are there any countries one can leverage on to lend credence to the possibility of a growth despite challenges in the environment?

A. Many businesses, across the world, are investing in their power generation. Our own sustainability practice has knowledge of technology that is cutting edge in the waste to energy market – helping reduce carbon and allowing business to control its own destiny (at least when it comes to powering their own facilities). Africa is resourceful. Business in Africa, either home grown or FDI, needs to invest in finding solutions to these challenges. That’s what business does best – find solutions to some of the world’s most pressing challenges.

The necessity for local production

Q. Africa has a number of pockets of excellence with regards to manufacturing and competing with the likes of China and other established manufacturing environments. How can the continent become a real competitor in the global manufacturing environment?

A. In our KPMG Africa document published at the WEF in Abuja we highlighted the manufacturing gap … the bulk of raw material added value happens outside of Africa. Investors need to build factories of production and completion and finish goods in country for export.

Q. From a global perspective, what exactly should be in place, I mean what are the basic infrastructures/amenities that should be on ground that will entice the big industries to come set up in a place like Cameroon?

A. Education, energy and routes to market. Governance needs to be improved and governments need to ensure they are easy to navigate.

Coping with the winds of change

Q. In times of significant change to global macroeconomic structures, it would be the larger, more stable, established and mature economies that better weather the storm – the West. These changes actually widen the gap with the smaller, more volatile economies such as in Africa. Your thoughts how Africa will cope?

A. Therein lies the old form of the problem … I want to see African nations pressing up with resilience and determination that, in the light of the buffeting winds of change, people can build powerful relevant new nations. The proof – Rwanda.

David Okwara

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