China pursues active foreign direct investment (FDI) across Africa and has prevalent bilateral agreements in place based on South-South cooperation and the “Belt and Road Initiative.” The top recipients of China FDI in Africa are estimated to be Kenya, South Africa, Nigeria, Senegal, and Tanzania.
In manufacturing industries, Chinese companies have built factories in several sectors, including automotive, cement, and appliances However, at the time of this report, the only three projects in the renewables space are facilities in South Africa operated separately by Jinko, Seraphim and Talesun—all for solar module assembly.
In solar PV, Chinese companies lead PV module supplies in Africa (55%) and are active in engineering, procurement, and construction (EPC) in solar products (19%) but only represent 5% of owners/operators.
We looked at 15 Chinese solar PV manufacturers and 15 battery manufacturers based on multiple criteria, including footprint in Africa, overseas capacity, exposure to the US and Europe, and recommendations from Chinese industry. We conducted interviews with these manufacturers to (1) identify opportunities for solar module assembly and battery material refining and (2) determine the main “pull” factors and perceived drawbacks of such investments Their assessment of the opportunities is shown in Exhibit below:
Catalysts for investing in Africa’s solar PV manufacturing
Chinese solar PV manufacturers suggested several factors should provide a catalyst for investment in PV manufacturing in Africa.
- Increased local market potential: A large, growing, and profitable solar market is a prerequisite for Chinese manufacturers to build factories in Africa, as it is the safest way to ensure revenue, given the export uncertainties. Chinese players would like to see Africa’s solar demand boosted by national plans for solar capacity, continuous solar feed-intariff schemes, and regular solar tenders. Investments could also be attracted by secured offtake, either by prioritizing procurement or assigning development rights to solar stations.
- Enhanced production factors: Cost competitiveness of solar PV products can only be achieved if there are strong local production factors, including labor force, utility, and infrastructure. To attract Chinese manufacturers’ investment, Africa should consider incentives for local manufacturing, labor force improvements, infrastructure support, a secured supply of low-cost green electricity, and preferential financing packages.
- Strengthened local supply chains: Local capacity of solar PV assembly materials is largely missing in Africa, including solar PV glass, which is costly to ship. Chinese manufacturers would like to see local supply chains strengthened by reducing import barriers (e.g., low tariffs or tax waivers for material imports) and cultivating adjacent industries (e.g., building local capacity and creating industrial zones to gather value chain partners).
- Improved enabling environment: Also crucial is a stable macro/micro environment with low sovereign risks, few public security issues, and good bilateral relations. Chinese manufacturers would like enhanced security levels for factory sites and societies.
Catalysts for investing in Africa’s battery refining industry
Input provided regarding battery refining revealed many similarities with solar PV manufacturing needs, albeit with a stronger focus on securing raw materials
Secured raw material through access to mines: Close proximity to mines—and the associated reduction in potential shipping costs—is the top motivation for Chinese manufacturers to build refineries overseas. Given that Africa has rich mineral resources, it could be highly attractive to Chinese manufacturers. This advantage, though, could be further enhanced by accelerating the administrative process for mining and refining and by supporting partnerships between refiners and miners.
Enhanced production factors: Similar to solar PV, strong production factors are needed, including a specific emphasis on stable power and water supplies to ensure continuous operation. Chinese manufacturers would appreciate utility support on captive power plant investment and administrative processes for surface-water abstraction certificates. Improved labor force and tax benefits would also be attractive factors.
Strengthened local supply chains: Investments in adjacent industries and lower import barriers are required to strengthen Africa’s supply chain for battery refineries. For example, sulfuric acid is required in most refinery processes, and it is challenging for logistics and warehousing to manage. Further restricting manufacturing interest is the lack of production capacity for sulfuric acid and other key input materials.
Improved enabling environment: It will be crucial to offer Chinese players a stable macro/microenvironment with low sovereign risks, free flow of foreign capital, and good bilateral relations. Chinese manufacturers also voiced support for lower currency control in the host countries used for mining operations.
Excerpt of: Africa Renewable Energy Manufacturing: Opportunity and Advancement (SEforALL 2023)