Africa’s manufacturing sector can lead trek to global economy

Friday June 15 2018

Workers at a modern textile factory set in the special economic zone in Addis Ababa, Ethiopia. PHOTO | AFP

Workers at a modern textile factory set in the special economic zone in Addis Ababa, Ethiopia. PHOTO | AFP 

By AKINWUMI ADESINA
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Africa is at a crossroads. Six of the world’s ten fastest-growing economies are now located in the region, and the continent’s GDP is expected to grow at a rate of 4.1 per cent this year, up from 3.6 per cent in 2017.

Yet its economic growth has not been accompanied by a commensurate level of job creation, which has particularly negative implications for women and young people. In fact, today’s jobless growth could even reverse the gains made in eradicating poverty.

Africa’s growth, while impressive, has been volatile, because it has been driven mainly by high commodity prices, rather than by manufacturing. The economic effects of this imbalance should not be underestimated.

Among other things, it explains why a region that produces about 75 per cent of the world’s cocoa accounts for just 5 per cent of the nearly $100 billion annual chocolate market.

Despite its vast natural resources, Africa will remain at the mercy of commodity prices and trade flows until it undertakes a profound structural transformation.

Africa can unlock its true potential by following in the footsteps of every modern economy and transiting from agriculture to manufacturing.

Its manufacturing sector is the weakest link in its ongoing integration into the global economy.

Today, primary products (raw materials) comprise 62 per cent of Africa’s total exports, the highest share in the world. At the same time, manufactured exports per capita in 2014 totalled just $218, which is among the lowest in the world, and far below Asia ($883) and Latin America ($1,099). Clearly, Africa must start catching up.

Fortunately, there is already a global consensus that industrialisation matters, and that it is in everyone’s interest for Africa to become the global manufacturing power it ought to be. With its “High 5 Agenda,” the African Development Bank (AfDB) has made industrialisation a top priority.

Likewise, industrialisation is a key component of the African Union’s “Agenda 2063.” And, in 2016, the United Nations General Assembly declared 2016-2025 the “Third Industrial Development Decade for Africa.”

But such pronouncements are meaningless in the absence of concrete action. To change the region’s economic trajectory, African policymakers must focus on industrial policies, infrastructure financing, and leadership.

Industrial policies can be effective in boosting growth. The question is whether states possess the capacity to implement the policies they design. If they do, they can channel resources toward industry and marshal available technologies to create synergies between agriculture and manufacturing.

Infrastructure’s place

Ethiopia has created special economic zones, where it has lowered production costs by investing in infrastructure.

As a result, the country has emerged as Africa’s largest hub for textile manufacturing, attracting major players. Similarly, Kigali’s Special Economic Zone, which exempts firms from taxes for 10 years, has attracted $20 million from Volkswagen for a new vehicle-assembly plant.

But industrialisation cannot happen without power, roads and railways, which is why infrastructure must be the key focus.

As of now, the AfDB pegs Africa’s infrastructure gap at $130-170 billion per year. Closing it will require more financing and innovative thinking, particularly joint public-private efforts.

To that end, the AfDB has expanded its portfolio for financing new infrastructure projects in several countries. As part of our “New Deal on Energy for Africa,” we have scaled up investment in renewable energy and put $265 million toward developing two solar-power plants in Morocco.

In Côte d’Ivoire, where demand for energy is surging by 8-9 per cent annually, we are investing $60 million to bring a new 44MW hydropower plant.

Africa should make such investments now to reap the demographic dividend of the continent’s population bulge in the years ahead.

As manufacturing expands, they will need to be supported by more robust knowledge- and skill-based economies, meaning higher investment in education to boost technical and vocational skills and training.

No country has ever undergone economic modernisation without industry. But, more to the point, no functional industrial sector has ever emerged in the absence of committed leadership.

Mauritius, which in the 1970s was a low-income mono-crop economy with a per capita GDP of just under $250 is today an upper-middle-income country with a more diversified economy and a per capita GDP of around $9,600. It is cited as a model of economic success in Africa.

Africa is well placed to seize many of the opportunities that the global economy offers emerging markets.

Akinwumi Adesina is President of the African Development Bank.

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