In the spring of last year, Chinese Premier Li Keqiang visited Ethiopia on the first leg of his four-nation tour of Africa. The visit had the usual trappings of official state visits with the rolling out of red carpets, a review of honor guards and the playing of national anthems.
Behind the pageantry the visit was like most of China’s dealings in Africa over the past decade, transactional in nature. Chinese ministers and company executives accompanying Li signed a series deals with their Ethiopian counterparts. They encompassed the usual list of items countries in the continent seek to secure from the People’s Republic: favourable loans and cooperation to expand roads and telecom services.
Buried in the folios that were exchanged and signed was an interesting arrangement that speaks to a wider phenomenon spreading across the region. The agreement set out for the creation of industrial zones in Ethiopia for light manufacturing. The country has already grown its nascent textile industry rapidly and is well on track to reach its target of exporting more than $1 billion USD in textile goods by 2016.
Other countries have been a part of the building momentum behind this trend, with Nigeria being the beneficiary of a new General Electric plant producing industrial equipment and Kenya’s Mobius Motors seeing success in producing vehicles suited for the African market. This quiet boom is a welcome development for continent. There is a direct correlation between exportation levels and the economic success of a country. By increasingly adding value to products before they are sold, revenues are boosted making it an ideal industry to drive development.
Propelling the growth of the sector in Africa is the decline in the comparative advantage of low labour costs among East Asian nations, particularly China. The increase in Asia’s prosperity has raised the cost of doing business in the region and encouraged firms to look for other manufacturing destinations. This together with China’s measures to restructure itself away from being export oriented to domestic consumption presents a huge opportunity for countries to capture investment and build their industrial capacity.
What makes Sub-Saharan Africa an attractive option for many firms is the abundant and low cost labour pool and favourable demographic trends. The continent will see the addition of 122 million people to the labour force by the end of the decade and will have the largest labour force in the world by 2035. This coupled with the prevalence of English and French as well as favourable time zones for European and American firms makes the region logistically attractive. The appeal has been strong enough that Swedish clothing giant H&M now sources from Ethiopia and Anglo-Dutch Unilever operates 3 plants in Kenya, Nigeria and South Africa.
Although much progress has been made across Africa in developing the sector, several obstacles must be surmounted before the continent can become the world’s workshop. Chief among these is access to quality infrastructure. Transport infrastructure is essential at all stages of the value chain and a consistent supply of electricity needed for production are both areas the continent lags far behind in. Only ten African countries rank in the top half of the WEF “Quality of Transport Infrastructure” index while only five rank in the top 90 of the “Quality of Electricity Supply” index”. Major projects underway such as the $20 billion USD “Power Africa” initiative and the $4 billion USD East African Railway line linking EAC members are welcome steps towards closing the gap.
Moreover, finding workers with the appropriate skills and education remains a challenge. Despite the abundance of labour, productivity still trails behind countries outside the region. Investing in vocational technical training and reforming education to emphasize engineering and sciences is necessary to remedy the problem. For countries that already have taken measures in making the required investments, returns are already being made. Kenya’s policies on boosting skills have propelled it to 53rd in the innovation index of the Global Competitiveness Report, while Rwanda ranked 66th.
Perhaps the most daunting hurdle to overcome is the perception issue. In a year where the headlines about Africa were dominated by Ebola, terrorist insurgencies and fractious civil wars the overarching narrative of economic growth and opportunity was overshadowed. The manufacturing sector is especially sensitive to these concerns due to capital intensive production facilities being reliant upon long-term political stability as a result of their immobility. Similarly the threat of inflation that arises out of political instability is a fear that prevents firms from having the confidence needed to launch operations.
While these concerns may be warranted in several cases in the continent, they lead to blanket generalizations. For firms looking beyond these misconceptions through sound analysis, they stand to reap the rewards of unlocking the latent potential.
While the manufacturing sector in Africa is still in its infancy the drivers behind this trend are strong enough to encourage its continued expansion. Although the challenges of infrastructure and the skills gap still need to be tackled they are not irreparable. In contrast, the continent’s cheap labour, accessible raw materials and growing market set it down a bright development path.
Luckily for the countries of the African continent, the nut and bolts are already in hand. The only step remaining is to put the pieces together.
Abdullah Abdi is an M.A. candidate at Carleton’s Norman Paterson School of International Affairs. He completed his undergraduate degree in International Development and Globalization at the University of Ottawa. His areas of interest includes economic development and trade, Africa, and the Middle East.
Featured Photo from Wikipedia Commons.