Made in Africa: Manufacturing growth in the region
Paul Kruger, tralac Researcher, discusses the potential for manufacturing growth in the region
The 22nd World Economic Forum (WEF) on Africa which was recently held in Addis Ababa, Ethiopia brought together stakeholders from government, private sector, civil society and academia to discuss ways to shape Africa into a more prominent force in the global economy. Many African countries have seen dramatic transformation of their political and economic landscapes, but the continent as a whole has not yet found the path leading to sustainable growth and increased wealth. There is widespread optimism on the potential of Africa to become influential in a globalised world, but it continues to struggle with well known challenges. One such challenge is the strength of Africa’s manufacturing sector – currently it accounts for a mere 1 percent of global manufacturing and is losing ground in labour intensive manufacturing. One of the sessions at the WEF, entitled ‘Manufacturing Growth’ discussed possible solutions to bolster competiveness and increase productivity with the view to enhance Africa’s share in the manufacturing space.
All panellists emphasised the importance of manufacturing in the overall growth and development strategies of a country or region. A robust manufacturing sector is essential if countries want to build sustainable wealth and develop into richer nations. This is likely why there has been a revival of the strategic use of industrial policy to support development in the region. There are certain issues that strengthen the argument for more robust industrial development, most notably the mineral resource boom which can ensure a steady supply of inputs to support beneficiation and increased demand due to the recent consumption boom. The current economic climate will however be an inhibiting factor as the crisis in the developed world limits the potential of export lead growth strategies for these countries. Rob Davies, South African Minister of Trade and Industry, therefore argues that Africa also needs to strengthen its domestic markets to sustain industrial development plans. Domestic markets are too small to achieve sufficient scale, but opportunities and possibilities increase if the three regions of EAC, COMESA and SADC are combined to create a larger regional market. In this context, the regional industrialisation efforts of the Tripartite FTA can be instrumental in creating conditions for enhanced economic activity and the promotion of value added industries.
COMESA, EAC and SADC have already made the decision to treat manufacturing as a priority activity, but there are certain challenges countries have to address to improve their competitiveness vis-à-vis the rest of the world:
Infrastructure development. Basic infrastructure in transport and energy have been identified as major challenges. Connections amongst African countries remain poor and infrastructure needs to be strengthened in order to support the scaling of manufactured products across the region. Infrastructure is an important tool to promote industrial development. An environment which would allow companies to quickly and effectively scale across the region will attract more interest from foreign investors, including multinationals. The ability to move goods around with more ease and at lower cost is crucial to the development of the regional market.
Skills development. The right kinds of skills are necessary to create a strong manufacturing sector. Africa has talented people but does not have enough of them. The heart of any industrial strategy should consist of efforts to develop a more skilled workforce, especially in engineering, technical vocations, management and business. Skills development should include investment in research and development which is necessary to further advance a country’s innovation base.
Small and medium business development. Not enough is being done to nurture the development of small and medium businesses. These companies still face several hurdles including access to capital, regulatory red tape and a lack of support and mentoring. For these reasons smaller companies find it difficult to scale up and become competitive on a regional or global level. The right kind of support and assistance are needed to turn small and medium businesses into successful regional and international companies.
Increased engagement between government and the private sector. Links between business and the state have to be deepened to understand the practicalities around industrial development. The right industries have to be identified and the complete value chain has to be considered to determine the appropriate industrial strategies. Initiatives to establish better communication channels have been given priority, but it has been highlighted that the manufacturing industry remain less influential in trade policy making matters than other stakeholders.
Other challenges mentioned include the regulatory environment, trade facilitation, political stability, and a lack of bankable infrastructure projects.
The panellists remained upbeat on the potential of the manufacturing industry, despite the challenges Africa is facing. According to Minister Rob Davies, there are many opportunities for engineering and construction firms to produce inputs for the infrastructure development programs. Manufacturing activities in the green industries, agro-processing and mineral beneficiation were also highlighted as areas where Africa has potential for industrial development. One of the panellists from the private sector, William V. Hickey CEO of multinational Sealed Air, remarked that despite several plans to grow the manufacturing sector – very little progress has been seen over the last ten years. For him, the most important challenge is to transform Africa into a truly regional market in order to support economies of scale in the manufacturing industry. This session confirmed that better access to the wider region will be the basis for growth and development in Africa, but recognised that serious challenges are impeding the success of a more integrated regional market. Top of the list, particularly for the private sector, is getting the products from the factory door to the market; but at the moment this is an onerous and very costly process. Industrial development is intertwined with transport and trade facilitation – without infrastructure that scale manufacturing needs, the industrial development revolution will not happen in Africa.
The full session on ‘Manufacturing Growth’ can be downloaded here.