Africa Looks To Muscle In On The Semiconductor Value Chain

In October last year the authorities in Beijing announced that they would be tightening export controls for some types of graphite, a critical mineral for the production of batteries and other electronics. The move, which China said was designed to safeguard national security and interests, raised serious alarm bells in neighbouring South Korea. The countrys major electronics companies, such as LG and Samsung, rely heavily on imports from China and other foreign markets to produce essential goods not least semiconductors, which are central components of countless electronic devices and have become vital for the modern global economy.

In what is perhaps a sign of Africas growing geopolitical and economic importance, South Korea responded to this disruption by turning to the continent, and in particular Mozambique and Tanzania, both of which are home to significant graphite reserves.

Seoul has been investing heavily in developing diplomatic and economic relations in Africa, partly in anticipation of such developments. The continent is home to swathes of natural resources such as graphite, silicon, and quartz which have become increasingly valuable as essential components for semiconductor production.

It is not just South Korea that has recognised how significant a role Africa could play in this industry. The United States, Europe, Russia, Saudi Arabia, India, and China are all committing more financial resources and diplomatic energy to the continent with access to critical minerals a priority for all of them.

This increased interest and engagement is unsurprising because it is difficult to overstate how important the devices have become. Semiconductors, which are the core of everything from smartphones to defence systems and emerging artificial intelligence technology, now represent a $500bn global market. The total market cap for the top twenty customers of the leading producer alone, the Taiwan Semiconductor Manufacturing Co. (TSMC), easily surpasses $7 trillion.

The size of the industry and its critical importance mean there are undoubtedly economic opportunities for Africa. The continents share of the global market has, however, so far been limited. Despite having some of the worlds largest reserves of silicon and rare earth metals, African countries account for less than 1% of the global market.

Even those countries that do have valuable natural resources such as South Africa, Egypt, Algeria, Morocco, and Nigeria tend simply to export the materials to manufacturers abroad, rather than engage in more advanced, technical processes related to semiconductor production.

There are some notable exceptions. Cairo-based Si-Ware Systems, which closed a funding round of almost $9m in 2021, has emerged as a global leader in silicon-based semiconductor innovation and posted annual revenues of over $20m last year. In 2022, South Africa also managed to export a modest $25.9m worth of semiconductor devices. But on the whole, Africa currently lacks the capacity to conduct higher-value activities.

Nii Simmonds, non-resident senior fellow at the Atlantic Council in Washington, tells African Business that Africa has an opportunity to move up the semiconductor value chain.

Electric power deficiencies and a lack of industrial water supplies mean that Africa is not going to be in a position to make the most advanced semiconductors or chips anytime soon, he says.

However, there is definitely potential for African countries to be involved in things like research, design, testing and flash memory manufacturing.

There have been some encouraging albeit small moves in this direction. South Africa, for example, has taken some early steps by establishing the Microelectronics and Nanotechnology Centre at the Council for Scientific and Industrial Research (CSIR) in Pretoria, a research and development (R D) facility focusing on semiconductor and chip production.

Kenya also appears to have ambitions in this field, with the government launching the countrys first semiconductor production unit in 2022 in the hope of developing advanced technological capabilities. However, investing in such initiatives, with the aim of stimulating the development of the industry and improving technical knowhow, needs capital that most African countries simply do not have.

Simmonds suggests that a potential solution to this problem would be for Africa to follow the model which was pursued by Southeast Asian countries in the 1970s and 1980s.

Foreign multinationals, primarily from the United States and Japan, were heavily involved in the development of the regions consumer electronics industry. Global companies such as Sony and Hewlett Packard established manufacturing hubs and R D centres in Southeast Asia and owing to a favourable political and regulatory