Advantages and challenges of Manufacturing in North Africa

North Africa has been steadily growing as a manufacturing region and offers great opportunities. Engineering quality is high, labor costs are lower than in North America or Europe, and companies can benefit from the geographical proximity of the region with the EU and Middle East markets. Several large businesses in the automotive, aerospace, electronics, and textile sectors have opened factories, or are seeking new suppliers in North Africa.

We’re focusing on Algeria, Egypt, Morocco, and Tunisia as manufacturing countries in the North African region, and here we look at the industries, opportunities, challenges, and how companies can ensure quality control and supplier compliance there.

A rising manufacturing hub

Despite its excellent geographic and logistics-based positioning, with proximity to the European and Middle Eastern markets, North Africa has not yet been fully recognized as a production hub. However, as Asian countries move up the value chain, offering more sophisticated manufacturing services, the need for new labor-intensive and less expensive production units is increasing, opening up the opportunity for North Africa. The region is believed to be the next manufacturing center of the world, with the potential to absorb some of the million-or-so labor-intensive manufacturing jobs that will leave China by the end of the decade.

Moreover, supply chain concerns raised by the Covid-19 pandemic have caused several countries to shift their focus toward expanding manufacturing bases and decreasing reliance on a single region. In addition, China, Russia, Turkey, several of the Arab Gulf States, and a number of countries within the European Union (EU) region, are among those growing their economic involvement in North Africa.

The EU has already moved a lot of its production within Asia and some to Eastern Europe, with North Africa as the next step in this production expansion plan. The automotive industry is just one sector that is seriously considering moving some production from Romania, Bulgaria, and the Balkans to North Africa, not only for cost reasons but also for the stability of the workforce.

Investment into North Africa from the aerospace, automotive, electronics, and textile industries, has also been picking up pace in recent years.

North Africa’s main industries

While part of the same region, Algeria, Egypt, Morocco, and Tunisia have remarkably diverse economic profiles. Algeria has typically been known as an oil-producing country, while Egypt, Morocco, and Tunisia have typically had more diverse economies with textiles, automotive, and food-production manufacturing among their longer-term industries.

Rising commodity prices have propelled Algeria to a position in which it has been able to begin diversification of its economy into heavy manufacturing, attracting aerospace, automotive, and, to a lesser extent, pharma industries.

Egypt is a more established manufacturing hub, with manufacturing accounting for at least a quarter of its GDP. Main exports include mineral fuels, gems and precious metals, plastics, electrical equipment, and food products.

Morocco and Tunisia are both reliant on certain sectors: clothing, textiles, chemical goods, automotive spare parts – all of which depend on imported inputs.

Major manufacturing sectors which look set to grow across North Africa include textiles (which benefits from a free-trade agreement between Egypt and Morocco, and the United States), automotive (benefits from several special economic zones and bilateral intra-regional agreements), and aerospace (benefits from the industrial assembly platforms, especially in Morocco and Tunisia). All of these industries also carry a heavy-weighted advantage from the region’s natural resource-rich landscape, which makes it possible for many of these industries to develop their activities.

Advantages of manufacturing in North Africa

North Africa offers several advantages as a manufacturing region, including a lower-cost workforce as well as the availability of skilled engineers, and ongoing improvements in the tax infrastructure for exporters. Other factors helping to contribute to a lower cost of doing business there are:

• Highly-skilled engineers in the workforce
• Availability of lower-cost labor than in Europe
• Large quantity of resources and raw materials
• Free trade agreements with Europe and several countries in Africa and the Middle East
• Ongoing improvements in bureaucratic and tax regulations
• Increasing public (and private) investment in infrastructure
• Technological advancements (which have been sweeping across the African continent)

The relatively low cost of labor and the geographical proximity of Morocco and Tunisia to Europe have favored the relocation of certain industries from developed countries, especially as manufacturers in European countries have seen decreasing profits on competition from Asia.

Challenges of manufacturing in North Africa

There are several challenges to manufacturing in North Africa – mostly due to the ongoing transformation in the region’s production capabilities. Much of this has been due to the focus on the export of oil and its derivatives, as well as factors such as weak regional integration, and a slower pace of innovation and technology. Further challenges include:

• Slower capacity for innovation than Asia
• Low diversification of manufactured goods
• Regional geopolitical issues hindering trade integration
• Infrastructure
• Social compliance

Already highly dependent on the EU, North Africa does need to further develop its technological innovation capabilities, and invest more into manufacturing, education, and transport infrastructure, to bring costs down further. In addition, governmental measures to further facilitate intra-regional trade and improve the general business and security climates are key.

Intra-regional trade faces several constraints as well; trade barriers are high, especially non-tariff trade (technical, sanitary and phytosanitary standards, import licensing procedures, and so forth). In addition to this, North African countries tend to be less efficient with their infrastructural setups – customs clearance procedures can be a challenge, while trans-shipment costs, transit issues, and a lack of regulatory coordination also be prohibitive for those looking to manufacture in the region.

Supplier qualification and quality control in North Africa

The development of high-value-added industries such as aerospace, automotive, machinery, electrical equipment, and electronics, has pushed North Africa to improve the quality of its talent at a management level. However, it is important to note that not all factories are on-par with quality culture and state-of-the-art manufacturing equipment and technology. Social, health, and safety requirement and regulations also remain non-compliance issues.

How to audit suppliers and manage quality control in North Africa?

For any business looking to manufacture products in the North African region, consideration of the quality of local suppliers is important. However, it is also important to note that due to constantly changing travel restrictions as a result of the Covid-19 pandemic, on-ground support may be a larger consideration. A third-party quality control company in North Africa with on-ground experience, which can ensure suppliers deliver quality products while remaining in compliance with both domestic and international standards, can enable businesses to take advantage of the benefits of manufacturing in the North African region.

A local quality partner should be able to fulfill the following functions:

1. Determine if suppliers are qualified and reliable through a Supplier Quality Audit and Supplier Verification Process;
2. Control product quality from the beginning to the end of the production with Third-Party Control Inspections;
3. Assess and Improve vendor quality performance through Supplier Management Solutions
4. Evaluate suppliers meet Quality Management System standards with ISO 9001, ISO 13485, or IATF 16949 audits;
5. Ensure factories respect Social Compliance, Health & Safety, and Environmental standards and regulations with SA8000, SMETA, WRAP, BSCI, ISO 14001, and ISO 45001 audits;

Get in touch at info@proqc.com or visit our website to learn more about our quality control services in North Africa.