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Made in Africa?

Manufacturing opportunities. Anyone reading around the SSA development literature a few years ago would have struggled to escape what former World Bank Chief Economist, Justin Lin, called the “85 million jobs bonanza”. This was the estimated number of employment opportunities that were set to be discarded by China over the following decade or so as part of its own necessary rebalancing from exports to domestic consumer spending as the key driver of growth.

Grabbing a share of these jobs was the next leg of SSA’s “structural transformation” with the attendant benefits of sustaining and possibly boosting the current growth trajectory while also squeezing poverty. The broad consensus remains that without a vibrant and globally competitive manufacturing sector, the recent SSA growth spurt could soon run out of steam.

Manufacturing is supposed to be critical for clambering up the development curve for five key reasons:

(i) It has positive spillovers to other sectors of the economy. For example, producing fertiliser can help to raise agricultural demand and output;

(ii) It boosts demand for other critical growth drivers such as infrastructure and serves to deepen banking and capital markets which, in turn, helps to improve the efficiency with which investment is allocated across the economy.

(iii) As household incomes rise the share spent on food declines while the share devoted to manufactured products increases which boosts the scope for trade and exports,

(iv) It has a greater potential for job creation than agriculture, extraction, and, for the most part, services.

(v) It helps to make many economies which are over-dependent on resource extraction and exports more resilient to adverse price shocks.

In order to receive the manufacturing baton, all SSA governments had to do was to put in place the required power and transportation infrastructure while improving the “business climate” – the standard laws of economic dynamics and comparative advantage would kick in to do the rest.

Chinese encouragement. Indeed, in an attempt to accelerate progress, the World Bank was actively talking to Beijing about supporting the establishment of labour-intensive manufacturing facilities on the continent for the production of items such as toys, furniture, textiles and consumer electronics. SSA futurologists even speculated that the iPhone25 could be assembled in Nairobi, Libreville or Gaborone rather than Shenzen.

However, so far the factories and job opportunities have failed to come ashore in anything like the numbers envisaged. There have been some noteworthy successes, such as Huajian Group (shoes), H&M, Tesco and Primark (all clothing) in Ethiopia, Hisense (electronics) and China FAW Group (autos) in South Africa. But the envisaged shift of SSA economies away from small-scale, informal agriculture and service activities, especially retail and distribution, typically buttressed by a critical but fragile mineral export sector, to the large-scale manufacturing of a diversified range of goods with significant export potential remains a distant aspiration.

Africa falling. Research by the United Nations indicates that the sector accounted for around 20% of GDP over 1961-1979, before falling to 15% in 1980-1999 and 10% in 2000-2012. More recent data from the World Bank points to a small recovery to 11% in 2015 partly on the back of foreign direct investment. By comparison, manufacturing as a share of the Indian economy has risen 14% in 1960 to 17% in 2015, while China has seen its contribution rise from around 30% in the mid-1960s to a peak of 40% in the early 1980s before falling back to around 30% today.