Why North Africa is a natural choice for Brics expansion

From Cairo to Casablanca, the southern Mediterranean is becoming an arena of intense global competition

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In a move of unprecedented geopolitical consequence, the Brics grouping of nations has made the landmark decision to expand beyond its five founding members. Announced on Thursday at the conclusion of the Brics summit in Johannesburg, host South Africa along with Brazil, Russia, India and China invited six nations to join the bloc – Egypt, Ethiopia, Iran, Saudi Arabia, the UAE and Argentina.

If the new invitees from Africa and the Middle East accept, Brics Plus would be the economic formation with the largest membership on the shores of the Arabian Gulf and Red Sea. Although Algeria’s membership bid was not formally accepted in this first expansion round, an effort to enhance the economic representation of the grouping in the Mediterranean basin could soon follow. Egypt’s Brics Plus membership advances China and Russia’s efforts to economically integrate with North Africa.

North Africa’s economic heft makes the region a natural choice for the Brics expansion on the continent. Three of its five largest economies are in North Africa. Egypt is the second-largest economy, with its $475.2 billion gross domestic product only slightly trailing Nigeria’s $477.4 billion and ahead of Brics co-founder South Africa whose 2022 GDP was $405.7 billion. Algeria and Morocco rank as Africa’s fourth and fifth-largest economies, boasting GDP totals of $195.4 billion and $138 billion respectively. Algeria and Egypt are the continent’s two largest natural gas producers. Phosphate-rich Morocco is the world’s fourth largest fertiliser exporter and one of the main suppliers to Brics founding members Brazil and India.

However, North Africa’s foremost economic significance is as the “gateway” between Africa and Europe, with the region’s three leading nations each striving to become manufacturing hubs that export products to Europe’s consumer markets as well as the growing markets of sub-Saharan Africa. Morocco has been the trailblazer in developing trans-Mediterranean manufacturing value chains and is well on its way to becoming the hub of an emerging West Africa-to-Western Europe economic corridor. Cairo is following suit and attempting to transform Egypt into the hub of an East Africa-to-Europe corridor. Algiers similarly aspires to the creation of an Algeria-anchored Central Maghreb corridor.

The Brics’ role in trans-Mediterranean connectivity is being led by China. For close to two decades, Beijing has been a rising player in North Africa’s commercial transportation infrastructure, expanding its role to deep-sea port and high-speed rail construction. Yet, economic corridors only emerge where commercial transportation connectivity is anchored in local manufacturing plants. Accordingly, China has been increasingly focused on expanding its manufacturing role in North Africa. The key to the Brics forging leading economic partnerships with North Africa is investment in regional manufacturing that is anchored in the commercial transportation infrastructure.

The critical importance of establishing manufacturing value chains is illustrated by Morocco’s impressive automotive manufacturing ecosystem. The centrepiece of its Africa-to-Europe economic corridor, Morocco’s automotive sector produces more than 700,000 vehicles every year and is fast on its way to an annual output of more than 1 million vehicles by 2025, with at least a quarter of a million of those cars being electric vehicles.

China and Russia will continue to expand their economic engagement across North Africa

The rise of Morocco’s automotive sector was facilitated by Rabat’s development of high-speed, high-volume capacity transportation. Morocco’s Tanger Med-Port became the Mediterranean’s largest, with China financing 40 per cent of the port’s expansion phase. Morocco also developed Al Boraq rail line, Africa’s first high-speed rail system, with financial assistance from France, the UAE, Saudi Arabia and Kuwait. Morocco’s linked state-of-the-art port and rail encouraged automakers such as Groupe Renault and Groupe PSA (now part of the Stellantis conglomerate) to open manufacturing plants that created the core of an ecosystem that is now supported by about 250 international firms from the US, Europe, Japan and elsewhere that operate their own local manufacturing plants to supply automotive components.

Despite China’s role in financing Tanger-Med’s expansion, no Chinese automaker established its own independent value chain. Instead, Chinese firms have needed to integrate into the value chain established by Morocco with its European partners. Most prominent is China’s CITIC Dicastal, the global leader in aluminum cast parts, which built a $400 million plant that can produce 6 million pieces annually to supply Peugeot. With the rapid expansion of Morocco’s automotive ecosystem, the company is now in the process of constructing its third manufacturing unit in Morocco. As a result of Chinese integration into the value chain, Europe’s two best-selling car models – the Peugeot 208 and Renault’s Dacia Sandero – are made in Morocco with Chinese components that are also made in Morocco. Germany’s Opel and Italy’s Fiat, along with Peugeot, have begun the production of EV models. As Chinese firms locate EV battery manufacturing in Morocco, China now eyes the possibility of a Chinese automaker establishing a Chinese-led manufacturing value chain in the kingdom.

While seeking to emulate Morocco’s success, Egypt is looking directly to China for the establishment of manufacturing value chains. In Egypt, China already presides over the commercial maritime artery that connects Egypt’s ports to the European mainland at the massive Chinese-run trans-shipment port in Piraeus, Greece. A leading Chinese port developer and operator runs the Alexandria port and its auxiliary El Dekheila, which handles most of Egypt’s foreign trade as well as the large nearby port at Abu Qir. The same company is developing a new container terminal in the Suez Canal Economic Zone in which China is the largest investor. China is also developing Egypt’s high-speed rail system, with trials starting in 2024.

Beijing’s push to develop a manufacturing base in Egypt is being conducted through the appliance manufacturing sector. In 2023, Chinese home appliance giant Haier completed the first phase of its factory build-out in Egypt and the company plans to start production of air conditioners, washing machines and televisions in 2024. With the additional production of refrigerators and freezers, Haier expects to produce 1 million home appliances per year in Egypt. Chinese firms are also beginning to develop a manufacturing base for industrial products that could serve as inputs, such as iron, steel and chemicals. While Cairo’s hopes that top Chinese automaker Dongfeng would produce its E70 electric car at the now moribund El Nasr Automotive plant have not materialised, Chinese EV production could spur an automotive manufacturing renaissance in Egypt.

Algeria holds out similar hopes for China, which has been in the process of building El Hamdania as a huge, $6 billion trans-shipment port located about 60 kilometres west of Algiers. Algeria needs foreign partners to help it expand beyond the hydrocarbons sector, which accounts for more than 90 per cent of its export revenues. That role is currently being played by Turkey, which is Algeria’s largest foreign employer. A Turkish textile firm operates Africa’s largest textile production plant in Algeria while one of Turkey’s top steel manufacturers operates a $2.4 billion iron and steel complex. Algeria’s enthusiasm for Brics membership is also motivated by its need to get ahead of the pack so as not to be lost in the shuffle among the many African nations seeking Chinese investment. This is particularly true regarding Algeria’s regional rival: Morocco. While the development of Algeria’s manufacturing sector has stalled, Morocco’s industries have gained the interest of Chinese investors.

China’s economic engagement in North Africa enjoys a passive synergy with Russia’s efforts in the region, which have focused primarily on energy production and related petrochemicals industries. Russia’s Rosneft owns a stake in Egypt’s Zohr offshore natural gas field, the Mediterranean’s largest gas find. Russia’s Rosatom is also building Egypt’s Dabaa nuclear power plant. Morocco has embarked on a slow and cautious economic engagement with Moscow that has led to the signing of a 2019 agreement for Russia to build a $2.3 billion petrochemical complex and oil refinery in Morocco and a more recent agreement for a Rosatom subsidiary to explore the development of desalination plants in the kingdom.

Beyond these specific projects Moscow has been actively working on creating a free trade area with Egypt, Tunisia, Algeria and Morocco, which the Kremlin envisions being integrated with the Russian-led Eurasian Economic Union that also includes Belarus, Armenia, Kazakhstan and Kyrgyzstan. Free trade within such a bloc could be beneficial for both Russia and the North African nations. Algeria and Egypt rank as the world’s third and fourth-largest export markets for Russian weapons, being the largest buyers of Russian arms after Brics members India and China. Egypt is the largest buyer of Russian grain while Algeria ranks third. Morocco is one of the top buyers of diesel fuel from Russia. The expansion of trade with Russia, China and the other Brics co-founders could also promote the adoption of a Brics currency to settle accounts within the grouping.

While requiring the maintenance of a careful balance between Morocco and Algeria, Egypt’s Brics membership signals that China and Russia will continue to expand their economic engagement across North Africa. From Cairo to Casablanca, the Southern Mediterranean is shaping up as a central arena of intense global competition over the new nexus of supply chains that are connecting Europe, Africa and Middle East.

Prof Tanchum would like to thank Lorenz Brandstatter and Regan Marina Thomas for their research assistance

Published: August 25, 2023, 6:00 PM