30 Oct 2021 / Article

Is Africa too late to follow Asia’s industrialisation playbook?

Asia’s strategy of shifting from agriculture to manufacturing for export markets has delivered significant growth, but opinions are divided as to whether the approach can propel Africa.

 

African countries have naturally looked to Asian growth strategies that have helped Asian economies industrialise faster than the global average. China, for instance, achieved within 25 years industrial development that many economies took at least a century to attain.

 

In spite of following the Asian playbook, Africa’s industrial average contribution to continental gross domestic product (GDP) per capita remains flat, at around $700, and its share of global manufacturing output has remained at less than 3% over the past 20 years.

 

This led Rwanda’s Paul Kagame to say Africa may have been too slow to pursue Asia’s successful growth strategy of industrialisation and must look instead to alternatives, during his inaugural speech as African Union Chairperson in 2018.

 

But such a narrative is “mistaken” and “extremely confusing,” and there’s little empirical evidence to back it, according to Albert Zeufack, the World Bank’s Chief Economist for Africa.

 

“The idea that Africa has missed the manufacturing train or should deliberately choose to skip this step in its development is misleading,” Zeufack said in a panel discussion during the recent Africa CEO Forum 2021 Digital Edition. “Based on our research, it is clear that Africa is not beyond industrialisation.”

 

Kenyan minister: ‘Many countries have looked inward’

 

Betty C. Maina, Cabinet Secretary in Kenya’s Ministry of Industrialisation, Trade and Enterprise Development also does not agree that Africa’s industrial sector is withering. This is especially in the wake of the Covid-19 pandemic, which disrupted the global supply chain and forced most countries to ramp up their respective capacities to produce critical supplies like pharmaceuticals and protective gears.

 

“Sometimes it appears Africa is de-industrialising. But a closer look at the numbers shows we have an increase in manufacturing output in several countries, such as Kenya and its neighbouring nations,” she said. “Covid brought to the fore the need to be self-sufficient in some critical supplies and many countries have looked inward.”

 

Local manufacturing crucial to self-sufficiency – McKinsey’s

 

For Acha Leke, the Chairman of McKinsey’s for the African region, the significantly large investments being made by companies on the continent such as Dangote and Ford prove that there’s life in the manufacturing industry in Africa.

 

“The sector has struggled but remains important,” he said. “Job creation is one of the biggest problems on the continent today. Aliko [Dangote] always says when you import a product, you export a job. So, it’s important we produce locally.”

 

According to Leke, local manufacturing is also crucial for self-sufficiency. “We learnt that the hard way through Covid-19. Of all the vaccines in the world, 25% are being administered in Africa but we produce less than 1% of vaccines.”

 

Scalability issues

 

Africa’s richness in raw materials and its youthful, competitive labor force are also some of the reasons Leke believes the continent is well positioned for a robust industrial sector.

 

While Africa certainly has resources to build a solid industrial base, the continent faces a problem of scale, according to the Chief Executive of Saint Gobain’s Africa operations, Jean Claude Lasserre.

 

“In many African countries, the size of each market is not big enough to have economics of scale. This is where the AfCFTA comes in and we need it to materialise in the future.” According to Zeufack, the World Bank’s research shows that most of the gains from the continental trade agreement will come from manufacturing, by riding on regional value chains.

 

A digital alternative

 

But the experts hold that Africa is not limited to the classic industrial playbook deployed in Asia as global businesses increasingly turn to automation technologies such as robotics and artificial intelligence, and global value chains (GCVs) shorten through local production in the wake of Covid-19.

 

The Covid crisis and its disruptions to GVCs gives Africa an opportunity to develop regional value chains through the AfCFTA, provided the right policies are in place, the panel agreed.

 

“Industrialisation remains a viable path for countries in Africa but the policy environment has to be right,” Zeufack said. “If, for instance, you’re running an overvalued exchange rate, it’s definitely going to be difficult to embark on an export-led growth model.”

 

Three sectors key to Africa’s growth

 

Another barrier to industrialisation is finding sufficient financing. Industrial policies need capital, for which multilateral banks are crucial.

 

Last year, the European Investment Bank (EIB) provided €5 billion for new private and public investments across Africa, its largest engagement in its 55 years on the continent.

 

In public sector lending, the EIB is concentrating on infrastructure and its private sector focus lies in three industries: Health, Green Economy and Digital.

 

These select industries, according to Maria Shaw-Barragan, the bank’s Director of Lending in Africa, Caribbean, Pacific, Asia and Latin America, are believed to have the most potential to drive Africa’s industrialisation forward.

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