Wednesday, July 28, 2021

Southern Africa in premature de-industrialisation

The general pattern in the developing world has been slow industrialization, followed by deindustrialization much sooner, with serious economic, social, and political implications. This process of premature deindustrialisation is not unique to Southern Africa but it is more consequential for the region, given the scale of its development challenges.

A recent report published by African Union (AU) and the Organization for Economic Cooperation and Development Center (OECD) titled “Africa’s Development Dynamics 2018”, shows that owing to its young, rapidly growing labour force, the region now needs to create more jobs than it ever did.

The question is however whether the region can produce those jobs outside manufacturing sector which is recording a decline in its contribution to the region’s Gross Domestic Product (GDP).

According to the AU/OECD report, the region has over the years shown a trend toward “premature de-industrialisation”, whereby countries start de-industrialising at a lower income level than in the past.

Even the big brother – South Africa, which has the most advanced industrial sector in the region, manufacturing value added has decreased to 13 percent of its GDP.

Lately Botswana launched a crusade against the importation of certain products and goods in an effort to diversify the economy from minerals to other sectors including manufacturing. Hardly a month after imposing restrictions on the importation of vegetables and bottled water, the country has extended the restriction to cement.

The diamond rich nation says it is restricting importation of some products to boost economic activity and employment creation.

Economists generally agree that the manufacturing sector can be crucial in providing productive jobs for relatively unskilled workers. It also allows for rapid productivity improvement to catch up with global competitors.

The AU/OECD report further stated that the rising of the middle class in the region, which increases the number of urban consumers, also offers new opportunities for local producers to tap into domestic markets.

However, challenges to industrialisation within the region remain. These include a lack of appropriate skills, a power deficit, a lack of finance, weak co-ordination and implementation of regional industrial policies, and poor infrastructure.

As such the AU and OECD researchers say Southern Africa needs to tackle these constraints to ensure that its industrial sector grows.

The 2015 ÔÇô 2063 Industrialisation

Plan and Roadmap

The reduction in the share of manufacturing in the region is said to have prompted the SADC Industrialisation Plan and Roadmap 2015-2063. Adopted in 2015, it sets out clear and ambitious targets to transition from the commodity-dependent growth path to value-adding, knowledge intensive and industrialised economies. It aims to do so through targeted and selected industrial policies which facilitate investment in strategic economic sectors.

The AU/OECD report stated that diversifying the region’s economies and links with global markets is key to sustaining long-term growth.

Between 2000 and 2008, the region recorded strong growth at 5.2 percent annually ÔÇô peaking at 7.8 percent in 2007. During this period, high commodity prices boosted growth in the natural resource-rich countries such as Angola, Botswana, South Africa and Zambia. Good macroeconomic management and increased investment also increased growth.

However, growth has slowed down in recent years. Between 2009 and 2016, Southern Africa’s economic performance decelerated to 3.6 percent per annum on average. Among the African regions, the global economic recession affected Southern Africa the most. The slowdown is also a result of an electricity deficit and of reduced agricultural production due to drought. Growth is expected to have decelerated further to 1.6 percent per year in 2017 and 2018 due to political uncertainty and low business confidence. Beyond 2018, growth in the region should strengthen as demand for commodities is projected to increase, electricity supply is improving in most countries and investor confidence is improving.

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