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Manufacturing Africa’s future: Jobs, growth, and sustainability

Oct 9, 2023 | Public | 0 comments

The manufacturing sector and associated operations have the power to drive an economy forward. In this episode of McKinsey Talks Operations, host Daphne Luchtenberg talks to Dr. Amy Jadesimi, managing director of LADOL, along with McKinsey partner David Meredith and McKinsey alumnus Kannan Lakmeeharan. Together, they discuss the Manufacturing Africa initiative—a project funded with UK International Development from the UK government—which serves as a blueprint for advancing the manufacturing sector. During their discussion, they explore the transformative capacity of manufacturing, as well as the initiative’s objectives and its current impact. Additionally, they highlight the crucial role of production in Africa’s growth and development and the paramount importance of sustainable job creation.

This conversation has been edited for clarity.

Daphne Luchtenberg: Your company’s future success demands agile, flexible, and resilient operations. I’m your host, Daphne Luchtenberg, and you’re listening to McKinsey Talks Operations, a podcast where the world’s C-suite leaders and McKinsey experts cut through the noise and uncover how to create a new operational reality.

Africa’s population is set to double by 2050. Its urban population will triple, and 40 percent of the total population will be younger than 15. The economy will need to add jobs and lots of them. The manufacturing sector provides an answer. If developed in a strategic and resilient way, a competitive manufacturing sector could play a pivotal role in helping Africa reach its full potential in the global economy.

I’m here today with Dr. Amy Jadesimi, managing director of LADOL, and David Meredith and Kannan Lakmeeharan from McKinsey & Company. Each is playing an important role in shaping the Manufacturing Africa initiative, and we will be talking about the opportunities the manufacturing sector can offer, what Manufacturing Africa entails, and how some of the trends in manufacturing are impacting this emerging market. Dr. Jadesimi, welcome. Great to have you here today.

Amy Jadesimi: Hi, thank you so much for having me.

Daphne Luchtenberg: David, thanks so much for joining us today.

David Meredith: Thank you, Daphne. Thank you for inviting me.

Daphne Luchtenberg: Kannan, great to have you here in this group as well.

Kannan Lakmeeharan: Thank you for having me and looking forward to the session.

Daphne Luchtenberg: Let’s get started. David, I’d like to bring you in first. Can you say more about the manufacturing sector and how it’s supporting sustainable, inclusive growth?

David Meredith: Manufacturing, when you look at the history of economic development, has typically been the cornerstone of the economic transformation of countries. It’s a bedrock of a growing economy. It boosts productivity, unlocks economic growth, and creates jobs. And 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.

At the same time, business models allow access to financing; they allow expertise to come in and be leveraged in existing businesses, etcetera. It’s an important part of any economy’s transition, particularly in Africa.

Daphne Luchtenberg: Building on that, can you talk a little bit about what the Manufacturing Africa initiative is hoping to achieve?

David Meredith: Manufacturing Africa is a program funded by the Foreign, Commonwealth & Development Office 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. Manufacturing, by definition, is both sustainable and inclusive.

What the initiative aims to do is 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.

McKinsey’s work primarily involves financial analysis, including modeling, marketing, business planning, and technical assistance—all necessary to make these opportunities investable.

Daphne Luchtenberg: Dr. Jadesimi, I’d love to bring you in here. Could you say a little more about your role as the managing director of LADOL and the role that you’ve played within Manufacturing Africa?

Amy Jadesimi: LADOL is short for LADOL Free Zone. That’s a special economic zone in Lagos, the commercial capital of Nigeria. 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 all the usual terminal infrastructure like quaysides and warehouses. We undertake very specialized services that effectively enable industrialization, 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. So during COVID-19, we didn’t have a single day of downtime, and we were able to support really massive projects.

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 looks at the whole gamut of what LADOL is from our role as the developer and an operator to our 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 Organization for Standardization] 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 I’ll say about that 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’re not about sustainability because it’s a gimmick or because it looks good or even because it’s a good way of fundraising. We’re about sustainability because it is the smartest, most effective, most profitable business strategy.

Daphne Luchtenberg: Really interested to see where it can go from here. Dr. Jadesimi, I imagine that there are also some things you’d like to change, particularly when it comes to attracting investment. What are some of the observations you would make there?

Amy Jadesimi: The key thing we need to ensure for sustainable industrialization to happen is that we recognize that what we need to fund is not net zero today but a transition strategy toward net zero tomorrow. What that means practically is that organizations 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’s hard to borrow money in Africa, unless it’s clear and guaranteed that you’re 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’re 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 industrialization across the continent.

Daphne Luchtenberg: Kannan, I wanted to bring you in here to talk about what you see as the future of manufacturing in Africa. Specifically, I’d love to hear your point of view on how the introduction of digital manufacturing will have an impact. And what kind of momentum do you see there?

Kannan Lakmeeharan: In general, manufacturing is critical, as David said, to the prosperity of the region. So the ability to look at what you can already leverage in the country is important. If you focus on primary goods, what can you do with them? How can you process them? We have lots of agriculture, natural resources, minerals, and so on. 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.

Digital and analytics, I would say broadly, are important in several ways. One is how to make 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? And how do you use digital and analytics to help get the product out there but also understand how the product is being used and improve it?

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.

Daphne Luchtenberg: Fascinating. And, of course, skills building will be a really important part of that. Can you speak a little bit to that, Kannan?

Kannan Lakmeeharan: 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’s 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. And we’ve seen that. We’ve seen some interesting case examples of looking at certain communities, where you want to deploy the facility, who’s around there, and looking at those people and building their capacity to work in that environment, rather than looking at their qualifications. And that’s what we have to do. Otherwise, we’ll keep bringing in labor and resources rather than being a bit more patient and then having a more sustainable and inclusive solution.

Daphne Luchtenberg: Dr. Jadesimi, you must have hands-on experience of this, where you’re keen to get started, mobilize fast, and give people the opportunity to learn on the job, as it were.

Amy Jadesimi: Yes. Nigeria is a place where we do have a young population; therefore, we are inundated with people who are functionally numerate but may not have had the best educational opportunities and don’t have the best work experience. On top of that, what we’re doing is quite specialized. The main thing we have to do is put a structure in place for when we bring people in. We use technology, and by technology, I do mean work instructions, policies, and procedures.

People talk a lot about technology as if it’s this magic bullet, but you have to get a bit geeky with this kind of thing. You really have to put a lot of time and effort into putting together very detailed policies and procedures 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. And because we have a community at LADOL—we’re like a small industrial village—you also have a strong sense of people taking responsibility not just for their job but for keeping the community safe and efficient.

Daphne Luchtenberg: Fantastic. It’s great to see that exchange of learning from each other and sharing the knowledge. I understand an important driver for Manufacturing Africa is the gender and social inclusion element. Dr. Jadesimi, I’m aware that you may be one of the few female leaders in this field today. Can you talk a little bit more about your vision and your passion for changing that?

Amy Jadesimi: Thank you. One thing I’ll say is the context of women in business hasn’t changed that much over the past 20 years. And that’s despite the fact that there is now irrefutable evidence, which most people accept, that having women in leadership positions—not just a leadership team but a diverse working team from top to bottom—actually makes you more money, makes your workplace safer, makes your workplace more sustainable. There are all these statistics: you can increase your return on investment by 30 percent. Your chances of survival at the five-year mark, if you’re a start-up, are 75 percent if you have a female as one of the founders. So all this data is out there, but people are not taking it up.

What that means is that the onus is on women. So a lot of our focus is around educating women about the fact that, particularly in low-income, high-growth countries like Nigeria, women are critical to our succeeding in minimizing or eliminating poverty, achieving social justice, and having successful, sustainable industrialization. Empowering women with the knowledge of how important they are—whether they are in the public sector or private sector or they stay at home—gives them the strength and the encouragement they need to go for those jobs that they otherwise wouldn’t, to insist on staying in school, and to speak up if they’re not being treated fairly, if they need more training, or if they want to go on maternity leave but then come back.

But that does not mean that you leave men out of the equation, because men are being educated by these women. And men are seeing the benefits in real time in terms of the deliverables from their teams, even when they’re being led by a woman. Because statistics on a piece of paper or an announcement don’t have quite the same impact as working side by side with somebody and seeing the benefits they bring.

Daphne Luchtenberg: Yes, very interesting. Dr. Jadesimi, what are some of the challenges you’re setting yourself for the next year or two that are achievable in your mind but are still big mountains to climb?

Amy 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.

Daphne Luchtenberg: Kannan, can you say a little bit about the impact that we’re already seeing from Manufacturing Africa today?

Kannan Lakmeeharan: Since the program started in late 2019, we’ve 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—just 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.

What’s also important is it starts to demonstrate that certain sectors are attractive, and then you find other transactions closed in sectors we haven’t supported. So we see that as well. And some of the broader market work that we’ve done has resulted in DFIs [development finance institutions], in particular, making investments that we haven’t supported. A good example is in the electric-vehicle sector, such as electric two-wheelers, where some DFIs have made investments on the back of market assessment work done by Manufacturing Africa. Similarly, in pharmaceuticals, there have also been examples. But we haven’t even counted them as an impact.

Daphne Luchtenberg: Wonderful. So a lot more to do but a great blueprint for progress. Kannan, thank you so much for your time today.

Kannan Lakmeeharan: You’re welcome. It was a pleasure to do this.

Daphne Luchtenberg: And, David, thank you for being part of this story.

David Meredith: Thank you. I really enjoyed it.

Daphne Luchtenberg: And, Dr. Jadesimi, thank you so much. I know you’re very busy, but we really appreciate your adding color to the impact that is being created.

Amy Jadesimi: Thank you. It is an excellent and important podcast and a pleasure to participate.

Daphne Luchtenberg: Fantastic.

Daphne Luchtenberg: You’ve been listening to McKinsey Talks Operations with me, Daphne Luchtenberg. If you like what you’ve heard, make sure to subscribe and stay tuned. Another great episode starts now.

The post "Manufacturing Africa’s future: Jobs, growth, and sustainability" appeared first on McKinsey Insights

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