WEB EXCLUSIVE: International Molding Report: Africa: A market with 700 million people. Why is it ignored?

This International Molding Report is prepared for IMM by Agostino von Hassell of The Repton Group, who provides IMM's monthly Molders Economic Index. Ask the average U.S. business about Africa and you get blank stares. The U.S. Department of State is not much better, essentially ignoring this region. 

Africa is the world's second largest continent after Asia. It has 54 independent countries—48 mainland and six island states—with an estimated total population of 700 million. 

True, many people there live in crushing poverty. Civil wars, disease, rampant corruption, and uncertain legal systems make Africa a somewhat unappealing place in which to invest or attempt to sell injection molded products. At least, this appears to be the common view in the U.S. 

Not so among the major former colonial powers. Injection molders from Belgium, France, Britain, and Portugal are aggressive in Africa, seeking out ground-floor opportunities. Many investments there are profitable, as are sales of all types of molded goods. French government data for 1999, for instance, show that more than $9 billion in plastics parts, or products containing a significant amount of injection molded components, were exported to Africa. Overall, the European Union in 1999 sold more than $23 billion of such goods to Africa. 

Can U.S. molders ignore these opportunities? Only at great peril as these markets evolve and grow and become more significant. Sure, it appears that the day of true economic growth in Africa may never come. But Africa experts in the British, French, and Portuguese government agencies believe that within 10 years Africa may rival lesser developed countries such as Indonesia, Vietnam, and India as a market opportunity. 

Understanding Africa 
Africa can be carved into four distinct regions. Southern Africa is a red-hot market opportunity led by the economically strong South Africa. Other countries in that region with solid growth potential—much of which is already evident—include Mozambique, Zimbabwe, Namibia, and even Angola. 

North Africa is the second most important market for U.S. molders. Here countries with comparatively high living standards such as Egypt, Tunisia, and Morocco dominate. There is also Libya (essentially off limits for U.S. firms) and Algeria, still the almost exclusive preserve of France and a country full of risk due to terrorism, much of which is aimed at foreigners. 

A third region is made up of the economically vibrant countries of eastern Africa (such as Kenya, Tanzania, and Uganda) as well as the mostly Francophone West Africa (Senegal, Ghana, Nigeria, and Togo). 

The fourth region includes the basket cases of Africa, which are decades behind the others. These are ultrapoor countries in the grip of civil war: Liberia, Sierra Leone, the Congo, and Sudan, just to name some of the key locations. 

What to Sell? 
A review of European Union export data shows that molders there sell solid quantities of relatively low-tech products to Africa: caps and closures; consumer goods such as soap dishes, plastics cutlery, and small appliances; medical products such as drug containers and syringes; automotive parts for the aftermarket; toys and sporting goods; and a relatively small amount of electrical items for housing and construction. 

But there are pockets with eager buyers of advanced electronics and high-value-added products. These are markets with the vibrancy and the buying power equal to or greater than Mexico's, and include Egypt, Morocco, and South Africa. While current U.S. exports to these countries are minimal at best, we believe U.S. molders have the best opportunities there now to gain new markets. 

In addition to selling finished or semifinished molded products, Africa as a whole could be an interesting target for offshore investments by U.S. molders. Low labor costs make numerous locations in Africa attractive sites to locate molding plants that require manual assembly operations. The drawbacks include uncertain raw materials supply, poor technical service for molding and downstream equipment, and somewhat haphazard shipping options for the finished product. 

African countries are major recipients of international foreign aid, most of which comes from France, Germany, and England, meaning molders from those countries tend to be favored. Agencies of the United Nations and loans from the World Bank and the IMF also provide support. This creates ground-floor opportunities for aggressive molders who want to locate a small operation in markets with growth potential. 

What this means for U.S. molders—and following the example set by European molders—is this: You can get a foothold in one of the major growth countries by setting up one very small molding operation with an eye toward expanding over time. Most African countries welcome such investment as it creates jobs and transfers badly needed manufacturing know-how. 

The Major Countries 
This review of key countries in Africa excludes numerous nations because their market size does not provide meaningful opportunities at this time. 

• Algeria. With a population of about 32 million, Algeria is a market dominated by the old colonial power, France. The hydrocarbons sector is the backbone of the economy, accounting for roughly 52 percent of budget revenues, 25 percent of GDP, and more than 95 percent of export earnings. Algeria has the fifth largest reserves of natural gas in the world and is the second largest gas exporter; it ranks 14th for oil reserves. Algeria's efforts to reform one of the most centrally planned economies in the Arab world stalled in 1992 as the country became embroiled in political turmoil. Turmoil continues today. 

• Angola. With about 10 million people, Angola is attractive in the long term as oil exploration will boost the local economy. For now the economy is in disarray because of a quarter century of nearly continuous warfare. Despite abundant natural resources, output per capita is among the world's lowest. Subsistence agriculture provides the main livelihood for 85 percent of the population. Oil production is vital to the economy, accounting for 45 percent of GDP and 90 percent of exports. 

• Benin. With a population of 6.4 million, Benin has an underdeveloped economy and remains dependent on subsistence agriculture, cotton production, and regional trade. Growth in real output has averaged a sound 4 percent from 1990 to 1995, and 5 percent from 1996 to 1999. Rapid population growth has offset much of this growth. However, several sources in the European molding industry consider Benin an attractive location to establish molding plants to serve regional needs. 

• Cameroon. Because of its oil resources and favorable agricultural conditions, Cameroon, which has a population 15.4 million, has one of the best-endowed primary commodity economies in sub-Saharan Africa. Still, it faces many of the problems facing other underdeveloped countries, such as a top-heavy civil service and a generally unfavorable climate for business enterprise. Since 1990, the government has embarked on various IMF and World Bank programs designed to spur business investment, increase efficiency in agriculture, improve trade, and recapitalize the nation's banks. 

• The Congo. Provided that the country can avoid total fragmentation in its current regional war, the Congo is a major long-term opportunity for U.S. molders. The population is 51.9 million. The country—a former Belgian colony—is endowed with vast potential wealth. But the once-vibrant economy has declined drastically since the mid-1980s. In the long term, this country may very well be the best bet for investment. 

• Cote d'Ivoire. With 15.5 million people, the Cote d'Ivoire is one of the world's largest producers and exporters of coffee, cocoa beans, and palm oil. Consequently, the economy is highly sensitive to weather conditions and fluctuations in international prices for these products. Despite attempts by the government to diversify the economy, it is still largely dependent on agriculture and related activities, which engage roughly 68 percent of the population. However, several French molding firms have set up shop there and plan to expand. 

• Egypt. A major export opportunity for U.S. firms as well as an attractive target location for small molding shops, Egypt's 68.3 million people have a relatively high level of per capita income and the economy is starting to mend. Egypt's recent steps toward a more market-oriented economy have prompted increased foreign investment. 

• Ethiopia. The economy of Ethiopia's 64 million people is based on agriculture, which accounts for half of GDP, 90 percent of exports, and 80 percent of total employment. The agricultural sector suffers from frequent periods of drought and poor cultivation practices, and as many as 4.6 million people need food assistance annually. It is hard to ignore such a large market, but immediate prospects for sales and foreign investment are poor at best. 

• Gabon. It is a small country with just 1.2 million people, but Gabon may be a superb location to set up manufacturing operations to serve regional markets. Gabon enjoys a per capita income four times that of most nations of sub-Saharan Africa. This has produced a sharp decline in extreme poverty; yet, because of high income inequality, a large proportion of the population remains poor. Gabon depended on timber and manganese until offshore oil was discovered in the early 1970s. The oil sector now accounts for 50 percent of GDP. Gabon faces fluctuating prices for its oil, timber, manganese, and uranium exports. 

• Ghana. Well endowed with natural resources, Ghana's 19 million people have twice the per capita output of the poorer countries in West Africa. Even so, Ghana remains heavily dependent on international financial and technical assistance. Gold, timber, and cocoa production are major sources of foreign exchange. The domestic economy continues to revolve around subsistence agriculture, which accounts for 40 percent of GDP and employs 60 percent of the workforce, mainly small landholders. 

• Kenya. With a relatively well-educated population of 33 million, Kenya is well placed to serve as an engine of growth in East Africa, but its economy is stagnating because of poor management and uneven commitment to reform. Long-term barriers to development include electricity shortages, the government's continued and inefficient dominance of key sectors, endemic corruption, and the country's high population growth rate. 

• Morocco. With 30 million people, Morocco faces the challenges typical of developing countries—restraining government spending, reducing constraints on private activity and foreign trade, and achieving sustainable economic growth. Since the early 1980s the government has pursued an economic program toward these objectives with the support of the IMF, the World Bank, and the Paris Club of creditors. Reforms of the financial sector have been implemented and state enterprises are being privatized. Morocco could easily emerge as an attractive low-labor-cost location for molding operations to serve Europe. 

• Mozambique. Before the peace accord of October 1992, Mozambique's economy (19 million people) was devastated by a protracted civil war and socialist mismanagement. In 1994, it ranked as one of the poorest countries in the world. Since then, almost all aspects of the economy have been liberalized to some extent. More than 900 state enterprises have been privatized. Pending are tax and much needed commercial code reform, as well as greater private sector involvement in the transportation, telecommunications, and energy sectors. Since 1996, inflation has been low and foreign exchange rates are stable. Albeit from a small base, Mozambique's economy grew at an annual 10 percent rate from 1997 to 1999, one of the highest growth rates in the world. The prospects for long-term growth and political stability are excellent. 

• Nigeria. The oil-rich Nigerian economy (123 million people), long hobbled by political instability, corruption, and poor macroeconomic management, is undergoing substantial economic reform. Nigeria's former military rulers failed to diversify the economy away from overdependence on the capital-intensive oil sector, which provides 20 percent of GDP, 95 percent of foreign exchange earnings, and about 65 percent of budgetary revenues. Nigeria is an excellent export destination for U.S. molders as well as a possible location for manufacturing operations. 

• Senegal. In January 1994, Senegal (10 million people) undertook a bold and ambitious economic reform program with the support of the international donor community. This reform began with a 50 percent devaluation of Senegal's currency, the CFA franc, which is linked at a fixed rate to the French franc. Government price controls and subsidies have been steadily dismantled. After seeing its economy contract by 2.1 percent in 1993, Senegal made an important turnaround, thanks to the reform program, with real growth in GDP averaging 5 percent annually from 1995 to 1999. For molders, Senegal is among the top destinations. 

• South Africa. With 43 million people, South Africa is a rapidly developing country with an abundant supply of resources, well-developed financial, legal, communications, energy, and transport sectors, a stock exchange that ranks among the 10 largest in the world, and a modern infrastructure supporting an efficient distribution of goods to major urban centers throughout the region. However, growth has not been strong enough to cut into the 30 percent unemployment, and daunting economic problems remain from the apartheid era, especially poverty and a lack of economic empowerment among disadvantaged groups. South Africa is a superb location for U.S. firms. The country is also a regional power, exporting products all over the southern portion of Africa. 

• Tunisia. With 9.6 million people, Tunisia has a diverse economy, with important agricultural, mining, energy, tourism, and manufacturing sectors. This is an excellent location for molders who look for low labor costs and political stability to service Europe—transportation pipelines to Europe are very good. Government control of economic affairs, while still heavy, has lessened over the past decade with increasing privatization, simplification of the tax structure, and a prudent approach to debt. Real growth averaged 5 percent in the 1990s, and inflation is slowing. Growth in tourism and increased trade have been key elements in this steady growth. Tunisia's association agreement with the European Union, the first such accord between the EU and a Mediterranean country, took effect in March 1998. Under the agreement Tunisia will gradually remove barriers to trade with the EU over the next decade.

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