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Africa, the factory floor of the world?

In order to significantly transform the economies of Africa from the current low-income level to middle-income status, value must be added to Africa’s large reservoir of natural and agricultural resources through processing and manufacturing activities – implicit in the transition process from predominantly agrarian to industrial economies.

Carlos Lopes, executive secretary of the UN Economic Commission for Africa.

Carlos Lopes, executive secretary of the UN Economic Commission for Africa.

It is a fact that Africa’s recent relatively good growth performance has not been inclusive regarding its impact on poverty, due largely to the lack of diversification of its growth sources and an over-reliance on primary commodity exports. Also, growth has not necessarily led to job creation, and in some countries, has rather resulted in a rise in inequality!

The absence of significant industrialisation in much of Africa is a missed opportunity for more robust, diversified and sustainable economic development. The Asian industrialisation experiences are the most successful among the developing countries, and there is therefore good reason for Africa to look at this model as a basis for its own industrial development. Specific industrial policies and programmes worked in Asia and can be replicated in Africa. Among these are a sophisticated use of global value chains (GVCs) and the special economic zones (SEZs).

GVC operations concern the global division of labour in production processes and its concurrent effect on the distribution of income and profits between participating countries. Involvement in GVCs presents an opportunity for African economies to move beyond producing raw materials and build dynamic and competitive manufacturing sectors capable of processing the continent’s abundant minerals and agricultural products. It also provides an opportunity to create sustainable jobs and stimulate inclusive growth, as new markets for value-added products evolve both in the continent and in the industrialised and emerging economies.

SEZs are designated areas possessing special regulations and economic incentives for organising production around processing and manufacturing activities. China’s SEZs were key features of its early reforms, transforming coastal towns like Shenzhen or Zuhai into industrial centres within a generation. In the context of its development cooperation with Africa, China has initiated and supported the operation of SEZs in Algeria, Botswana, Egypt, Ethiopia, Nigeria, Mauritius, Tanzania, and Zambia.

African governments have been granting favourable conditions to foreign investors in the SEZs, which they believe will create jobs and boost export earnings. With China graduating to higher-value industrial production, Africa stands to benefit from the outsourcing of lighter manufacturing businesses from China to African SEZs. It is estimated that China has 85 million light manufacturing jobs to export, and GVCs and SEZs could improve Africa’s chances to win a fair share of this number and reverse its declining share on manufacturing.

Long-term strategy for industrialisation

The success of GVCs, SEZs and other industrialisation initiatives requires the creation of an enabling environment that enhances requisite domestic capacity and capability, particularly in respect of physical and social infrastructure, human capital, technological innovation, financial systems, and governance.

In addition, governments need to put regulatory frameworks in place for tackling market failures as part of a wider and all inclusive industrial policy. The creation of such an enabling environment will help realise the full potential of the African private sector.

Africa’s vast unexploited resources and abundance of labour provide opportunities for development of the private sector and attracting private investments for economic diversification and value-addition. The phosphate industry in Morocco has positioned itself in all parts of the value chain from the production of fertiliser to that of phosphoric acid as well as derivative products. Its industrial strategy has led to continued growth and leadership, as it has been punctuated by the steady strengthening of the production tools and a policy of ambitious sustainable partnerships, supported by a prudent financial policy. The Office Chérifien des Phosphates has grown from several hundred people at its creation to nearly 20,000 employees.

It should also be recognised that entrepreneurs in Africa continue to face greater regulatory and administrative obstacles and high transaction costs, which make doing business harder; these obstacles and constraints must be addressed in any industrial policy. Last but not least, deepening regional integration also offers the potential for Africa to tackle some of the challenges it faces in pursuing meaningful and beneficial industrial development.

The strategic importance of manufacturing (including agro-processing) in industrial policy

The creation of food-processing agro-industries can contribute to lifting a significant number of African rural dwellers out of poverty through the additional wage­ earning employment opportunities created. In terms of an appropriate industrial policy, the high forward and backward linkages that can evolve from manufacturing and agro­ processing will contribute to boosting domestic investment, employment and output in the transformation process.

For instance, policies pushing local production processes in Egypt’s textile industry have led to increases in value-addition, contributing, in 2011, 5.6% of the Egyptian GDP, 27% of industrial production, and 18% of total commodity non-oil GDP. Also, Ethiopia’s coffee industry supports 15 million people and contributes about 10% to its GPD with only washing, sorting and grading activities mostly taking place in-country. Imagine the returns should more value addition activities be undertaken in-country?

It is important to add that this strategic role of manufacturing in industrial policy in Africa should be supported by technology and innovation, which are crucial for economic transformation and development. Manufacturing, on the back of the prevailing information and communication technology (ICT) revolution in the region, can be an important source of technological innovation in African economies as well as a conduit for the diffusion of new technologies to other sectors. Examples from Kenya, Tunisia, Rwanda and others show that investment in ICT and its enablers help create synergy and share information faster and more consistently. Tunisia’s Elghazala Technopark and Kenya’s iHub are home to more than 200 companies including subsidiaries of international ICT companies such as Microsoft and Google.

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