Understanding the Development of Africa’s Manufacturing Sector

Underpinning the ‘Africa rising’ narrative, the once touted ‘dark continent’ is now emerging as the new frontier and hub of manufacturing.

Before the Covid-19 pandemic, during the FOCAC summit in Beijing, China had already set the stage for Africa as a new frontier of manufacturing and industrialization. This was witnessed when President Xi Jinping announced eight major initiatives in collaboration with Africa for industrial promotion, infrastructure connectivity, trade facilitation, green development, capacity building, healthcare, people-to-people exchange, and peace and security.

Tapping into President Xi’s vision at the Beijing summit, manufacturing tops the development agenda for the Post-Covid-19 recovery plan. At the regional level especially in Africa, Agenda 2063 – the African Union strategic plan for the continent and the AfCFTA will be the fulcrum upon which manufacturing-based industrialization will be established to escape from the commodity dependence trap.

However, to fully understand the development of Africa’s manufacturing sector within the precepts of the ‘new normal’, a glance at the colonial and post-colonial period is key.

Colonial Period

During the colonial period, Africa’s manufacturing sector was at small scale level and handicraft was used during this period. Owners of mines and major farms had no interest in investing in the local manufacturing sector due to the perception that Africa’s industry wouldn’t have an increase in its oil and ore consumption. 

The imperialists believed that investment in manufacturing in Africa would not generate larger profits as compared to the profits gained through African exports of raw materials.

The East and Central African common markets were created in 1927. During this period free circulation of agricultural, manufactured, and mining goods were allowed in the markets. However, a colonial policy came into force in most African countries prohibiting the establishment of manufacturing businesses except those that were exporting crops related products.

Further, there was a selection of raw materials that were exploited to meet the needs of Western Europe Industries. Infrastructure such as railways and all-weather roads were designed and built to enable minerals and agricultural goods to be shipped from the hinterland to seaports for shipment abroad. Banking, as well as communication (colonial economy components), were also established to facilitate the colonialist’s activities.

Post-colonial

Post-independence period, Africa’s manufacturing sector began to grow. However, strategized under state-led and protectionist policies, a decline in manufacturing outputs began to emerge by the mid-1980s. The collapse of some of the manufacturing industries in Africa was pushed by several factors such as; commodity price decrease, oil, and energy price increase, the rise of interest rates, inter/intra-state conflicts, corruption, and embezzlement of public coffers, and the limitations of domestic markets.

The clarion call from the international communities to revamp the dilapidated manufacturing industries emerged in the 1990s. The reforms came in form of the Western-led structural adjustment reforms, leading to the privatization of state-owned enterprises and trade liberalization that largely resulted in the devaluation of the African currencies and increased competition from foreign products.

Further, in the 21^st-century era, as China continues to be competitive in its manufacturing economy the rising production costs are forcing Chinese firms to relocate their operations abroad. A part of this shift is to Africa. The offshoring of some of these industries is greatly increasing employment opportunities for low-income economies with promising manufacturing sectors.

The emergence of Africa’s manufacturing

Noting, when Beijing introduced the Forum on China Africa Cooperation (FOCAC) in 2000 and the Belt and Road Initiative (BRI) as key policy frameworks on bilateral and multilateral engagements, opportunities began to emerge across Africa especially due to the natural resource wealth in the continent, making the region a critical hub of global trade, commerce, and manufacturing.

These emerging opportunities led to an era of a profound shift in the strategies of many manufacturing companies around the globe. The majority of these companies began to make their entry into the African market, making it the world’s next great manufacturing centerdue to digital connectivity, and improved technologies in the sector growth.

However, African countries are still dependent on raw material extractive industries, often being single-commodity dependent. On the other hand, China’s pride itself on a resource-intensive growth model boosted by its manufacturing sector which requires a large number of commodity inputs. Thus, for purposes of mutual benefit for all, Beijing’s engages Africa to secure some strategic commodity supplies, in particular copper, cobalt, uranium, oil, and iron ore, amongst other raw materials needed to drive its heavy industry, while Africa gets to benefit from infrastructural development.

For instance, the growth and development of Ethiopia’s manufacturing sector has taken place through China’s assistance. Official figures from Ethiopia shows that investment from China created approximately 20,000 manufacturing jobs between 2012 and 2017. One of the Chinese investors in Ethiopia is the shoe manufacturer Huajian Company. The company has spent two billion U.S. dollars building a giant factory in the country. Before the COVID-19 impact, Huajian was employing approximately 8,000 Ethiopians. Shoes produced at its factory account for 65 percent of Ethiopia’s shoe exports.

This notwithstanding, there are key opportunities for Africa’s industrialization and manufacturing sector. With African markets growing and the new African Continental Free Trade Area (AfCFTA) signed in 2018 as a single market for goods and services in Africa, industrialization and the potential in manufacturing to drive job creation and sustainable growth in the continent will be achieved. By promoting intra-African trade, the AfCFTA will also foster a more competitive manufacturing sector and promote economic diversification.

Implementing the AfCFTA well, Africa’s manufacturing sector is predicted to double in size, with annual output increasing from $500 billion in 2015 to $1 trillion in 2025 and creating an additional 14 million stable, well-paid jobs.

However, with the COVID-19 impact and other realities, Africa’s manufacturing sector is still lagging. This is primarily because most African countries are short of capital in manufacturing industrialization. Also, according to the Doing Business Ranking provided by World Bank, Africa performed worst in getting electricity, which became the barrier for many companies from China and other regions from investing in Africa’s capital intensive manufactures.

Similarly, infrastructure deficit also became the biggest constraint for Africa countries to develop their manufacturing industries. A survey conducted by world bank found that, in Africa, transaction costs arise mainly because of the higher costs of infrastructure services (particularly transportation and energy), which make up a disproportionately large part of production and trade costs.

Pre-empting the aforementioned challenges, there is still significant room for growth in African industrialization and manufacturing within the continent. African regional bodies and governments are breaking down trade barriers, improving financial structures, and investing public resources in much-needed infrastructure projects such as in the transport and energy sector.

In summary, positioning the continent as a rising hub for manufacturing, Africa needs to first, accelerate the implementation of the manufacturing pillar of its Agenda 2063 and to transform the African Continental Free Trade Area (AfCFTA) into the fulcrum for local manufacturing.

Second, African Countries need to take advantage of the China-Africa Development Fund, the China-Africa Fund for Industrial Cooperation, and the Special Loan for the Development of African SMEs to spur post-COVID 19 economic recovery to the hard-hit manufacturing sector.

Third, Africa needs research and development, technical capacity, institutional coherence, policy integration, and innovation to fast-track manufacturing and value addition.

Last but not least, political stability is essential for Africa’s manufacturing and industrialization development. China offers crucial lessons in the role of stability in industrialization and sustained development. Notably, although only two African countries were poorer than China by 1980, after 40 years of stability China is by far richer than all African countries.

Taking into consideration the above, by 2030, business-to-business spending in manufacturing in Africa is projected to reach $666.3 billion, and manufacturing will become a pillar of creating new jobs and attracting local and foreign investments.

The author is the Executive Director of the China-Africa Center at Africa Policy Institute.

Source: www.chinainvestiment.com.con