A 2014 research study titled “What are the determining factors of industrialization in Africa” found that African countries were unable to build a structural transformation of their economies.
Most disappointing is also the fact that even those countries that have achieved macroeconomic stability and evidenced good governance seem unable to attract much investment outside of the extractive sector.
According to the research study, obviously, despite the gap of industrial performance between Africa and other emerging countries, industrialization seem s to be given less weight than deserved in African countries.
“Most political leaders have indeed underestimated the real potential of industrialization for the continent. At the same time, only a few researchers have dealt with the reasons that lie behind the delayed emergence of Africa as an industrialized bloc. Therefore, understanding the underdevelopment of industry in African countries and paving the way for an appropriate industrial policy to them seems challenging”, laments the research study.
The research study concluded that “in Africa, the industrial landscape continues to be poor. This gives the problem of industrialization a very important interest. In fact, globalization and deep integration offers African countries considerable potential for future growth via industrialization”.
The study found that for the whole Africa region, financial development, economic development, the labour market flexibility and the real effective exchange rate are clear determinants of industrialization.
“It goes without saying that things have to be changed, especially given the low capacity of the extractive sector to offer enough jobs in Africa. Put it differently, to increase hopes for an effective industrialization and so for a real emergence of Africa, African countries should improve the resilience of their financial system in order to reap the benefits of financial openness. Moreover, they should implement more measures to streamline foreign direct investment (FDI) inflows. Finally, they have to keep basic macroeconomic fundamentals at sensible levels such as inflation and exchange rates”, states the research study.
The research paper, basing on sub-regional results advises that eastern countries should improve good governance while southern ones should introduce more flexibility in the labour markets as well as improve good governance.
FDI attractiveness seems to play a crucial role in boosting industrialization in southern African countries. The FDI ratio is positive and significant solely in that sub-region. It might be explained by the high level of quality of human capital which contributes actively and exclusively to the industrialization transition among southern African countries. Moreover, northern countries should deepen their trade openness while western ones should enhance human capital.
The research study further notes that, in all, “African countries have to build modern industrial sector through good conception, execution and steering of industrial policies. This means essentially better mobilizing of resources, improving business environment, building sound macroeconomic stability, ensuring good governance and enhancing human capital to attract the adequate foreign direct investment from abroad (not just targeting the FDI based on the low wages in developing countries) which is an intermediate goal to achieve industrialization”.
Yet another 2018 Africa Growth Initiative publication titled “The Potential of Manufacturing and Industrialization in Africa: Trends, Opportunities, and Strategies” also concurs that “despite their manufacturing potential and promising trajectories, most African countries have remained relatively dearth of factories. This limited industrial development represents a missed opportunity for economic transformation and quality employment generation that alleviates poverty”.
The publication projects that by 2030, the business-to-business spending in manufacturing in Africa will reach US$663.3 billion, $201.28 billion more than in 2015.
It is emphasized in the publication that “while policy solutions are likely to differ across countries, manufacturing and industrial development will be central to Africa’s ability to meet its development goals”.
However, despite the shortfalls facing the African industrialization drive, the silver lining is the potential, an acclaimed author on economics and a consultant, Irene Yuan Sun considers Africa to be “the world’s next great manufacturing center, potentially capturing part of the 100 million labour intensive manufacturing jobs that will leave China”.
According Sun, this trend creates a huge opportunity for the continent, not only for countries such as South Africa, Egypt and Nigeria (all regional outperformers in the Global Manufacturing Competiveness Index), but also for new players such as Ethiopia, Morocco, Rwanda, and others (all of whom recently adopted policies enabling manufacturing and industrial development).
“Today, leaders are increasingly realizing that manufacturing is a major factor in helping Africa achieve its goals successfully, reaching the next stage of economic development. The African Union has put the sector front and center in its Agenda 2063.
“African governments are seeking new and innovative ways to attract investment and nurture industry, implementing strategies that involve targeted investment in infrastructure, improved regional integration, and the establishment of special economic zones (SEZs) for priority subsectors”, states the publication.
According to the publication, in order to reach its manufacturing and industrial potential, “much needs to be done by the public and private sectors to increase Africa’s economic complexity, diversity, competitiveness, and productivity”.
Industry generates substantial backward and forward linkages with other sectors, providing a wealth of opportunities for suppliers, distributors, retailers, and business services.
For example, the inputs needed for different kinds of industrial production generates demand for agriculture, mining and other raw materials, as well as for energy and information technologies, while it increases the supply of products for consumer markets, construction, and other sectors.
Moreover, in macroeconomic terms, a strong manufacturing sector is argued to improve a country’s external account balance by decreasing imports and diversifying exports, thereby increasing resilience to external shocks as compared to reliance on primary commodities.
The research paper acknowledges that in terms of industrial development – manufacturing value added (MVA) and manufacturing exports, “Africa lags far behind the rest oif the world, even among developing countries. In 2017, Sub-Saharan Africa’s MVA was only about $145 billion. In contrast, developing countries in Asia are far ahead and nearing OECD members”.
Due to natural resource wealth in Africa, much of the region’s industrial production remains centered on the resource-based manufacturing. Resource-based manufacturing accounts for approximately half of total MVA and manufacturing exports.
Despite the worrying trends, manufacturing in Africa has grown 3.5 percent annually from 2005 to 2014, faster than it has in the rest of the world. Some countries, such as Angola and Nigeria, have experienced an increase in output of over 10 percent per year.
As a result, the value of production in Sub-Saharan Africa has increased from $75 billion in 2005 to over $130 billion 2016. Moreover, manufacturing exports have increased even more rapidly than total output, at a compound annual growth rate of 9.5 percent, with shipments of heavy manufactures such as transport vehicles, appliances, electronics and heavy equipment – expanding by an impressive 14 percent.
Along with upstream and downstream sectors like construction and extraction, manufacturing is now among the top sectors for investment flows into Africa, accounting for 22 percent of total FDI in 2015.
