This is why African Manufacturing is doing better than you think:

More often than not, manufacturing in sub-Saharan Africa is mostly treated in disregard. The economist made a report that the said region’s manufacturing sector as a share of GDP is shrinking.

However, contrary to the views and opinion of many, African manufacturing is doing well.

Trade, employment, foreign direct investment (FDI) and production have actually improved over the past decade, which faster than the global average. This is thanks to strong growth in parts of Africa, enforcement of domestic policy and institutional improvements, as well as rising wages in China.

This creates a creeping opportunity for African countries to attract investment in the higher value added and export-led manufacturing, essential for their industrialization and development.

By learning from and building on exemplary experiences in a range of manufacturing sub sectors and countries in Africa, policy-makers should employ this strategy. As a result, donors can be able to support this process and assist in making this opportunity a reality.

Let us look at the data over the last decade that shows the upturn in manufacturing production, exports and FDI in Africa.

Between 2005 and 2014, manufacturing production almost tripled, from $73 billion to $157 billion, with an annual growth of 3.5% in real terms. Countries like Uganda, Tanzania and Zambia show particularly strong annual growth; with Uganda’s manufacturing growing by 5% over 2010 to 2014, Tanzania’s by more than 7% and Zambia by 6% over 2008 to 2012.

There was a noted increase in the food and beverage sector, which was faster than average. This is partly because of the importance of growing domestic demand. However, the textiles and clothing sector didn’t do so well, with the sector being unable to withstand competition from Asian imports. Nevertheless, this is now changing due to the increased Chinese investment in labour-intensive garment manufacturing, in countries such as Ethiopia or Rwanda, growing on to the regional markets.

Sub-Saharan African manufacturing exports(inclusive of re-exports) doubled between 2005 and 2014 to a sum of more than $100 billion. African countries have also increased exporting manufactures to each other , from 20% (2005) to 34% (2014)

And while the global economic slowdown led to a 30% decline in the value of non-manufacturing African exports to the EU, US, Japan and China in 2015, manufacturing exports – especially to China – held up much more positively. This is important: manufacturing offers African countries a chance to increase resilience to economic shocks.

This is what African countries can do:

Countries such as Kenya, Nigeria, Rwanda, Ethiopia and Tanzania are already relatively well positioned to attract manufacturing FDI. Factors such as Rwanda’s investment culture, Ethiopia’s competitive labour costs, Tanzania’s transit location, Kenya and Zambia’s relative production complexity and Nigeria’s size of market are conducive for manufacturing investors.

The following are elements of a coherent industry strategy:

  • An export push, including regional trade and integration.
  • Gradual improvements in the basics, including sound macroeconomic management, stronger general investment climate, support for the private sector and development of public infrastructure and relevant skills
  • Agglomeration through building and running efficient special economic zones and industrial parks.
  • Active foreign direct investment promotion and building linkages with local firms;
  • Supporting local small and medium enterprises to enhance productivity and access technology and long-term finance to help them venture into new or more sophisticated products;
  • Improved coherence and implementation coordination within government.
  • Strengthened consultation and collaboration between government and the private sector

Moreover, African governments also need to take an adaptive approach. Many were used to set ambitious yet flexible targets for large scale industrialization. But as the Rwandan president Paul Kagame said during his speech at African Transformation Forum:

‘‘Plans and frameworks should not become a barrier to action or course correction. Mistakes will be made along the way and money wasted. We have to stay adaptable and flexible.’’

This is what donors can do to support African Industrialization:

  • Incentivizing development finance institutions to do more to kickstart industrialization directly.
  • Actively pursuing an import strategy that recognizes manufacturers made in Africa.
  • Actively promoting FDI into African manufacturing, for example by convening and coordinating investment missions open to a wide variety of potential investors.

Industrial development is a priority area for the implementation of Sustainable Development Goals in Africa. This same industrialization leads to wealth creation, greater incomes, significant job creation, economy-wide productivity and resilience throughout the economy.

It’s high time we recognize the potential Africa holds and support a smart approach to industrialization in the region.