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What if Africa's future isn't in manufacturing after all?

Monday February 24 2020

By BITANGE NDEMO
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Last week, I participated in two conferences in Bonn, Germany.

The first one was organised by the Germany Development Institute.

Most participants came from top research institutions. They were mostly academics from top universities in Europe and the US, leading consultants from think tank organisations and senior officials from development agencies.
They had all assembled to discuss Africa’s employment perspectives towards 2040.

The second conference was organised by Hochschule Bon-Rhein-Sieg, University of Applied Sciences for the 8th annual University Entrepreneurship and Enterprise Development in Africa in collaboration with the University of Nairobi and the University of Cape Coast in Ghana.

Let me focus on the first conference, since much of what we discussed here was similar to the other conference. Further, the first one is the kind that in my view every elected leader should be subjected to.

The African Union Summit should have one such exposure too. Reflections from such a meeting touches on virtually every future plan including: the achievement of Sustainable Development Goals by 2030, achievement of the African Union by 2063 and several other targets like visions from different countries, ranging from 2025 to 2040.

Whichever angle from which you look at Africa’s future, the key challenge is that 30 million new Africans enter the job market every year.

In total, 360 million are underemployed, with 84 percent in the informal sector.

The nagging questions that the conference sought to answer included: how do we create large-scale formal jobs? How is Africa reacting to global trends? Given the fact that manufacturing is dying, is it too early for the continent to start deindustrialising, in other words, moving away from manufacturing?

In much of the world, manufacturing was the main source of job creation accounting for more than 30 percent of employment in most countries that were moving from an agrarian economy.

Newly industrialised countries of Asia rapidly grew on the backdrop of export-oriented manufacturing programs.

Africa, under the tutelage of the World Bank, focused on a manufacturing strategy that focused on import substitution. That policy has failed.

Increased automation has reduced the contribution of jobs from manufacturing to barely 15 percent in most parts of the world.

In Africa, the sector only contributes six percent of the jobs. More than 60 percent of Africa relies on inefficient agricultural systems for income.

GLOBAL TRENDS

As though these were not enough problems for Africa, some economists argue that global trends could undermine Africa’s progress.

These include digitalization, decarbonisation (responding to environmental concerns on carbon emissions and the future of oil), decentralisation (restructuring of local governments or devolution as it popularly known in Kenya) as well as issues relating to regional integration.

Africa with its marginal manufacturing capabilities has lost an opportunity to replicate the Asian miracle. The continent may never become a Tiger or Cheetah but each of its countries will find its place.

There are still large infrastructure gaps, and the necessary skills to take advantage of low-end manufacturing that is moving out of China are lacking.

There are also widespread, continued policy and regulatory failures. Whereas some countries could deal with these challenges, it was argued that several others might not.

Instead, some participant argued that Africa should deindustrialise (abandon manufacturing altogether) and put its effort on what John Page from the Brooking Institution referred to as industry without smokestacks.

Indeed, he and Richard Newfarmer, Richard S. Newfarmer, and Finn Tarp co-edited a book, Industries Without Smokestacks: Industrialization in Africa Reconsidered, that makes the case for Africa to reconsider its industrial policy.

Page made the case for tourism, Information and Communications Technologies (ICTs), food processing and horticultural production. He argued that these are areas that Africa has shown demonstrable capabilities. The sectors cut across the local and international clientele. Productivity improvement is likely to take place and make the countries more productive and competitive.

Economists from institutional organisations that have long been helping Africa with development of industrial policies opposed the suggestion of industries without smokestacks and instead made the case for Africa to continue pursuing manufacturing as well as these other emerging areas.

GREATLY BENEFITTED

India, for example, grew on the backdrop of ICTs but it never abandoned its attempt to leverage manufacturing for rapid economic growth.

In the recent past, India has greatly benefited from China’s declining competitiveness in manufacturing light electronics.

The value of domestic manufacturing and assembly of mobile phones jumped nearly eight times from $3 billion (Sh300 billion) in 2015 to $24 billion (Sh2.4 trillion) in 2019.

Combined production of electronic goods in value terms more than doubled from $31 billion (Sh3.1 trillion) in 2015 to $66 billion (Sh6.6 trillion) in 2019.

I now understand why Harry Truman demanded, “Give me a one-handed Economist. All my economists say, ‘on the one hand...on the other”. We never really had a consensus on the kind of structural transformation (How to reallocate resources to economic activity across the sectors like agriculture, manufacturing and services) needed to realise economic transformation and create jobs.

In my view, Africa can still prove most of these economists wrong. The continent is rapidly beginning to urbanise. Although economists argue that African cities are constrained and that agglomeration (firms located close to one another to foster competition and lower cost) is not possible, there is a strong case for African countries to just do that and succeed.

Kenya’s job creation will depend on what we do with industrial clusters that were envisaged in vision 2030. The vision planned two industrial corridors that will cover more than 80 percent of the population.

The first one runs through from Mombasa to Nairobi through Naivasha to Kisumu and Malaba. The Naivasha industrial cluster is underway and with proper planning it will be more productive and create more jobs.

The second is the Lamu Port and Lamu-Southern Sudan-Ethiopia Transport Corridor (LAPSSET) corridor. Without these corridors, urbanisation in Kenya will be even more constrained.

Isiolo, which falls within the LAPSSET corridor, was to become a tourist hub in what we refer to as the Mount Kenya circuit. As earlier argued, tourism was referred to as the industry without smokestacks. It cannot create jobs without developing the infrastructure.

What will 2040 look like? Well, let us pursue our dreams and, like Truman, hope that one day a one-handed economist emerges.

Our population is growing. Emerging technologies present new opportunities. We simply need to develop capabilities in emerging sectors and compete with a purpose.

This is how we can inclusively create sustainable jobs.

The writer is a professor of entrepreneurship at University of Nairobi’s School of Business.