The recent trade war has a lot negative implications for China, Canada, Europe and the US. As the tariffs begin to make their impact, it will be more expensive for US citizens to buy electronic goods from China, more expensive for US manufacturers to make cars and jobs will be lost in the Canadian and Chinese steel industries.
The good news is, the trade war also comes with many opportunities. As the pattern of how goods are exchanged across the world changes, those who see the big picture will be able to make a big profit.
Because Africa is virtually untouched by the tariffs in the US-China trade war, it is the ideal spot for companies looking to move their manufacturing facilities. If a company like Honda were to open a manufacturing facility in Africa, they would really win big.
1. African manufacturing industries are virtually unscathed by the trade war.
As tariffs are being imposed by the US, China, Europe and Canada none have directly targeted African countries. So as the cost of manufacturing, importing and exporting increases in many of these countries, Africa countries are becoming the ideal place to relocate a manufacturing facility.
There are a few exceptions, South Africa’s steel industry and Rwandan textiles are both impacted by recent US tariffs. But the majority of manufacturing is untouched by US tariffs.
2. Some African countries have lower labour costs than China.
According to a working paper, Can Africa Be a Manufacturing Destination? Labor Costs in Comparative Perspectivewritten by the Centre for Global Development predicted labour costs in many African countries are similar and some even lower than Bangladesh.
Figure 8. Median predicted labor cost per worker using random effects coefficients. Adapted from “Can Africa Be a Manufacturing Destination? Labor Costs in Comparative Perspective,” by Alan Gelb, Christian J. Meyer, Vijaya Ramachandran, and Divyanshi Wadhwa. 2017. CGD Working Paper 466. Washington, DC: Center for Global Development, pg 26. https://www.cgdev.org/publication/can-africa-be-manufacturing-destination-labor-costs-comparativeperspective
Mali, Uganda, Malawi all have similar costs of labour to Bangladesh predicted by this report. The Democratic Republic of Congo’s predicts costs are even lower than that of Bangladesh.
And this working paper also stated current labour costs in Ethiopia are similar to the labour costs in China in the 1980s. And some companies have already picked up on this. According to an article by the African Growth and Opportunity Act, Huajian Group, which produces shoes for Guess, Tommy Hilfiger, Naturalizer has been making shoes in Ethiopia since 2012 and plans to greatly increase production.
So if a car company was to open a manufacturing facility there, not only would they not be hit by the tariffs other countries are dealing with, they’d also be able to get extraordinary low labour costs.
3. Resources are available nearby and for low cost.
South Africa and Egypt already produce steel that could be used or alternatively, China is looking for new markets for their steel production given the new US tariffs.
And raw materials to create steel are available nearby and at a low cost from many African countries. All of this together will lead to lower costs overall at the car manufacturing facility.
4. Taxes make importing cars to some African countries expensive and sometimes impossible for consumers.
In South Africa, to import a car from Japan the import taxes is 30% so it adds a lot to the price.
In Senegal, taxes are even higher. An article on how to import a car to Senegal estimates a 48% tax added to the price of the car.
A report discussed in an article by the EastAfrican and produced by the East African Community Secretariat and the Japan International Co-operation Agency (JICA), estimates that every year East Africa loses about $2 billion in foreign exchange importing cars.
Ethiopia may be the worst. Extraordinarily high taxes on importing cars and very little car manufacturing within the country, Ethiopian consumers have a very hard time buying affordable cars. According to a BBC article, Why are Ethiopian cars so expensive?, with all the taxes add cars can cost almost three times the regular retail price. Cars are classed as luxury goods so taxes are up to 200%. At this point, there’s still very little car manufacturing in the country so options are very limited.
Because cars are so expensive, Ethiopia has the lowest car per inhabitant ratio in the world, 2 cars per 1000 people.
If a manufacturing facility was to open in Africa, there’d be a huge African market ready to buy.
5. The US market will be looking for less costly cars.
If the US goes through with the threat to tariff European cars, European cars are going to become very expensive for the US consumer.
If car companies open manufacturing in Africa, they could not only access the African market but other many other markets, including the US.
The trade war will have many negative impacts but for those who see the big picture, it is also opening up some very lucrative opportunities. Car manufacturing is just one example. Africa is where companies should look to for both manufacturing and new markets of consumers.
These advantages combined mean that companies who move now will win big. The US-China trade war will lead to Africa emerging as a leader in manufacturing.
As companies begin to understand the great benefits of moving their facilities to the continent, this will lead to Africa rising.