As it has many, many times before, Samsung, the world’s largest electronics company, announced in April that it is expanding.

No, that’s not exactly news, until you look at where it intends to grow: Africa.

And it’s going all in.

By the end of this year, Samsung plans to have set up shop in Ethiopia and Kenya, establishing manufacturing sites and directly or indirectly employing thousands of workers.

These are not just distribution centers, by the way. Samsung will assemble TVs and white goods in Kenya, and laptops and printers in Ethiopia. The new sites will build on the electronics giant’s existing operations in South Africa, Sudan and Senegal.

Samsung is moving fast for multiple reasons. Africa is home to one billion people, and the opportunity to capture market share is enticing. Ethiopia and Kenya are neighbors in East-Central Africa, where some 142 million people reside and the economies are flourishing. In Ethiopia alone, the economy has been growing an average 8% per year over the past five years. And East-Central Africa’s electronics market is forecast to grow 11% per year on average over the next decade.

It’s easy to see why that’s attractive to Samsung, whose sales to that region are relatively miniscule – a reported $250 million in 2011 – but expected to reach $2 billion by 2015.

Another reason is the tax incentives. Much like Brazil, it’s far cheaper to build locally than to import finished goods. Foreign entities pay import taxes of up to 60% of the value of goods. The new plant could halve that sum, Samsung says.
It’s about time, some may say. After all, Africa is the second-largest continent in terms of both area and population. Of course, those aren’t necessarily mutually attractive features. It’s logistically far cheaper and faster to serve end-markets where population density is high and infrastructure is intact, for example Shanghai or Munich or New York. The broad swath of land, coupled with its dubious infrastructure and questionable security, adds unwanted complexity to establishing and maintaining supply chains. Ethiopia and Kenya also neighbor Somalia, whose lack of a functioning government and 17th Century approach to wealth redistribution are notorious the world over.

It’s not that Africa hasn’t been penetrated to a degree by outside interests. Northern Africa is host to mid-tier EMS companies like Eolane (Morocco) and AsteelFlash (Tunisia), which are attracted to the low labor rates and proximity to Western Europe.

But while noting such attributes, Eolane general manager Marc Pasquier told us in a recent interview, “There is no business in Morocco. There is no oil. There are no customers. There is no (end) market.” The same could be said of Tunisia, where the lack of a robust domestic supply chain and local civic unrest are also drawbacks.
Low wage rates are always enticing. In the Sub-Saharan population centers, minimum weekly pay ranges from $12.50 (Tanzania) to $20 to $25 (Ethiopia, Kenya).

Moving to the West Coast doesn’t move the needle much; the pay ranges from $14 (Cameroon) to the relatively princely sum of $29 (Angola). Those pay scales will no doubt draw some attention.

But while much has been made of China’s low labor rates (although they aren’t so low anymore) as the underpinning of its rise to become the World’s Workshop, it says here the ability to slash through red tape, coupled with the relatively safe environs, is what gave it staying power.

Companies trickled somewhat quietly into China for the better part of two decades before the major wave in the late 1990s ushered in a new era in electronics globalization and fundamentally changed the market dynamics. Yet, while it trumpeted its huge population and low costs, China’s advantage was (and is) the relative agility of its government. When one party makes all the rules, and the means for contesting those rules is highly limited, decisions can for better or worse be made quickly. In that respect Africa is not China. It is home to 65 countries, territories or entities, and at least as many governments, in some cases iron-fisted tyrants. The Northern half is Islamic; the southern is predominantly Christian. Tension is everywhere. Africa is a long way from being a single, pliable and functioning entity.

So while Taiwanese ODMs ramping in Western China can bemoan a scarcity of workers, the difference is the Chinese can almost seamlessly port hundreds of thousands of its citizens westward to fill those openings. The decision is made and action is taken. That won’t happen in Africa, at least not in the near term. The basic mechanics are different.

Most of the attention Africa has drawn in recent history has been for negative reasons: mass starvation, brutal “civil” wars, forced child labor, murderous despots, big game poaching. Led by Samsung, this latest ray of sunshine is not only long overdue, but looks like it will linger.

Western companies should be looking at Africa, but doing so with a healthy dose of caution.

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