Insight, Industrial Policy
The AfCFTA Secretariat wants two or three cross-border industrial anchor projects rather than fifty-four national strategies. Adam Smith explained why in 1776: specialisation is limited by the size of the market, and most African markets are too small to hold every stage of a battery chain.
The AfCFTA Secretariat is pushing for a small number of cross-border industrial mega-projects rather than continent-wide harmonisation, with the long-discussed Democratic Republic of Congo and Zambia battery value chain among them (as reported). Secretary-General Wamkele Mene has argued that two or three anchor projects could demonstrate how continental integration moves beyond tariff reduction into processing, manufacturing and green technology production.
That is a significant shift in emphasis and it rests on an argument that is two hundred and fifty years old and has not been improved on.
Adam Smith devoted a chapter of The Wealth of Nations to a single proposition: that the division of labour is limited by the extent of the market. A craftsman in a village must do everything, because there is not enough demand for any one task to occupy a person full time. In a city, the same tasks divide among specialists, each of whom becomes faster, better and cheaper at their part.
The modern version is minimum efficient scale. Most industrial processes have a plant size below which unit costs are uncompetitive, set by the physics of the equipment and the fixed cost of the engineering around it. A refinery, a precursor plant, a cathode line and a cell factory each have such a threshold, and the thresholds are not small.
Now put that against African market sizes. Very few individual African economies can consume enough of any one intermediate to justify a plant at efficient scale, and a plant built below efficient scale to serve one national market produces expensive material that nobody outside will buy.
Which is why fifty-four national battery strategies produce fifty-four sub-scale plants, and a single regional chain could produce one of each at scale.
The specific version under discussion runs from Congolese minerals through Zambian processing, on regional power, into regional manufacturing, selling into an AfCFTA-wide market. No single country does everything. Each does one stage at a size that works.
That is the correct diagnosis, and it has been the correct diagnosis for a long time, which raises the obvious question of why it has not happened.
The obstacles are not the ones usually listed, and tariffs are among the least of them.
Every link becomes a border risk. A Zambian precursor plant whose feedstock comes from Congo has made its production schedule dependent on a customs post. We have argued that variance rather than level is what forecloses specialisation: a firm does not plan around an average clearance time, it holds inventory against the worst case, and the working capital tied up in that buffer is the real cost of the border.
Somebody has to be first, and asymmetrically exposed. In a chain, the processing plant cannot operate without the upstream supply, and the upstream expansion is not worth financing without the downstream buyer. Each waits for the other, and the wait is rational for both. An anchor project is precisely an attempt to break that, which is why doing two or three rather than fifty-four is the point.
The power has to be regional too. Processing at scale is electricity-intensive and the load will not sit inside one national grid comfortably. Regional interconnection and cross-border power trading are not a supporting condition here. They are part of the plant.
And the value split has to be agreed in advance. Congo holds the mineral, Zambia holds the processing. The distribution of revenue, employment, tax and environmental burden between them is the thing most likely to stall the project, and it is not a technical question. It is a negotiation between two sovereign states with different urgencies, and it should be settled before the engineering rather than discovered during it.
Concentrating on two or three projects is the right response to the coordination problem and it carries a specific danger that should be named.
An anchor project creates an enormous constituency for its success, which means unwelcome evidence becomes politically expensive. If the chosen chain turns out to be built on a chemistry losing market share, or a cost base that cannot compete with established producers, the institutional incentive to continue will be very strong.
We set out that risk about battery precursor investment specifically: lithium iron phosphate has taken a large share of the market and contains no cobalt, and some producers are developing routes that skip the precursor stage entirely. A continental chain designed around nickel manganese cobalt is a bet on a chemistry, and the bet should be stated as one.
The mitigation is not to avoid the bet, because every industrial strategy is a bet. It is to write down at the outset what would indicate the bet is wrong, and who is permitted to say so.
Border crossing time at the ninetieth percentile, on the specific corridor the chain depends on, before anything is built. Not the average. The tail is what determines the inventory buffer and therefore the working capital, and it is the single most informative number for whether cross-border specialisation is viable on that route.
The value split, published. What share of revenue, employment, tax and environmental cost each country carries. If it cannot be published, it has not been agreed.
Whether smaller firms can enter. An anchor project can build an industrial ecosystem or a single integrated complex with a fence around it. Whether local suppliers and smaller processors can access the infrastructure on published terms is the difference, and it is the third party access question that determines who benefits from every instrument of this kind.
Employment and supplier development against the plan, at year five. Not at announcement. The gap between the two is where the argument about African industrialisation will actually be settled.
The intellectual case for regional specialisation is settled and has been for a long time. What has been missing is somebody willing to attempt it at a scale that proves the point, and to be specific about which two or three things to try. That is what makes this worth watching rather than another communiqué.
The Lab works on this in local manufacturing and across the markets where cross-border industrial chains are being attempted.
If you are assessing a regional industrial project whose viability depends on a border working, tell us what you need to know.
This is an independent insight piece by Transitions Lab. For the Lab's applied work, see Local Manufacturing & Supply Chains. See also Behind the Border on why variance rather than distance forecloses specialisation, The Lock-In Runs Both Ways on the qualification barrier and the chemistry risk in battery materials, and The Ban Is Not the Policy on access terms deciding who benefits. To discuss a study, see Contact.