Since my article in the Harvard Business Review where I postulated that African leaders should forget following China’s playbook, on industrialization, I have received an unusual level of feedback. My point remains that AI (artificial intelligence) will disintermediate the low level manufacturing jobs which made China attractive to North America and Europe, and Africa cannot count on those jobs as wages rise in China, because AI and robots will do those jobs in North America and Europe, removing any need for them to be outsourced.
Interestingly, whenever factories open in the continent, people send links, asking for my comments. Today, I received one from a business school dean in Kenya who wants my perspectives as Mara Group sets up a smartphone factory in Rwanda.
First, congratulations to Mara. The challenge though is that manufacturing electronics in Africa would be severely challenging since the supporting industries do not exist. And in a sector that rides on volume for better unit economics, Mara has to swim huge waters. Typically, people assemble to win tax benefits but here Mara is going into real “manufacturing” as it noted in the announcement. They are brave because as an electronics man, there is a drumbeat they are hearing which many of us are unable to pick the decibels.
Rwanda’s Mara Group launched two smartphones on Monday, describing them as the first “Made in Africa” models and giving a boost to the country’s ambitions to become a regional technology hub.
The Mara X and Mara Z will use Google’s Android operating system and cost 175,750 Rwandan francs ($190) and 120,250 Rwandan francs ($130) respectively.
They will compete with Samsung, whose cheapest smartphone costs 50,000 Rwandan francs ($54), and non-branded phones at 35,000 Rwandan francs ($37). Mara Group CEO Ashish Thakkar said it was targeting customers willing to pay more for quality.
“This is the first smartphone manufacturer in Africa,” Thakkar told Reuters after touring the company alongside Rwanda’s President Paul Kagame.
To execute this playbook, Mara will become a chemical company, a mechanical company, an electronics company, and so on. In other words, it has to do many things by itself since Rwanda does not have the feeder companies that can provide those services yet, unlike say in China, where some of those auxiliary could be outsourced. Of course, the presence of Mara could stimulate the arrival of those companies in the economy, creating a virtuous circle.
But it has to be super-lucky as no company in Africa (excluding South Africa) has ever executed that playbook yet, from Zinox to Omatek, using Nigerian companies as case studies. To import chemicals, parts and packaging materials separately will always cost more than importing finished products or semi-finished products.
Then, there are other players like TECNO, Oppo and Samsung which remain as competitors in Africa. To win, Mara needs to have huge volume because a firm that produces 5,000,000 units will have a natural advantage over another that could make say 500,000 due to economies of scale which work in electronics. As volume increases, costs of parts and production drop.
The Mara strategy is confusing, to me, because its products are already more expensive than some TECNO brands; the most affordable brand of TECNO goes for about $70 in some African markets but Mara is priced at $130 for the cheapest. Had Mara used the low cost strategy, I would have concluded it was moving with a double play strategy: give affordable phones to unlock a service business in future, and through the services make money. But that is not the playbook here.
To the dean’s question, AI and robots have not taken over making phones. So, nothing has changed therein. On Mara, we congratulate it and will be watching this playbook.