Promoting industrialization in Africa

Promoting industrialization in Africa
According to Africa Economic Outlook 2017, the total value of services (imports and exports) in Africa expanded from about $73 billion in 2000 to nearly $259 billion in 2015. It more than tripled over the 15-year-period

The continent’s growing, youthful and increasingly skilled population — with quality education and training — presents opportunities for growth in the service sector, especially exports at a time when the rest of the world faces a rapidly ageing population. By 2050, it is projected that 34% of population aged between 15-24 years will be African.

Many African governments are embracing industrialization, which calls for new economic strategies.

At least 26 African countries have industrialization strategies in place in 2017. While past efforts to industrialize Africa were often unsuccessful, the current industrial revolution and today’s global environment offer new opportunities, along with challenges.

Three strategies are essential for the continent to industrialize:

Promote a competitive private sector,
Target economic sectors with high-growth potential including non-manufacturing
Better harness the potential of entrepreneurs.
The main objective for African governments is to create the conditions for their economies to return to a higher, more inclusive and sustainable growth path. Africa’s gross domestic product grew over 5% per year between 2001 and 2014, but poverty remains high.

While high economic growth is necessary, more is required to improve living standards for the whole population. Africa will need more and better jobs: between 2015 and 2030, every year 29 million new entrants will enter the labour force in Africa.

Countries need to offer mass employment opportunities that are relatively accessible to Africa’s large population of unskilled workers.

The service sector’s share of gross domestic product (GDP) growth in Africa rose from an estimated 44% (2000-2010) to 47% (2010-2014) with the highest contributing service sub-sectors being: trade, transportation and business services (including real estate).

The service sector has been a key contributor to Africa’s GDP accounting for an estimated 49% of the region’s GDP in 2016. The sector also absorbs a large proportion of youth employment, improves gender parity, and offers promising opportunities for export diversification.

Economic transformation will not be possible without industrialization. Industrialization is necessary for Africa to transform its economies by re-allocating resources from low-productivity sectors to higher ones.

Only industrialization can bring about unconditional convergence with the more advanced economies.
Industrialization is a catalyst for job creation, higher productivity and innovation.

The continent’s regional market has demand constraints but its growth provides opportunities for tradable manufactured goods, modern services and processed agricultural products.

In turn, more exports can open countries to technology spill-overs from abroad. Industrialization can increase access to capital, technological innovation and learning (Lin and Monga, 2013).

Since the mid-1990s, economic policies in African countries have largely followed the “Washington consensus”.

Government have focused mostly on improving the business environment. While these policies have had positive impacts, progress has been slow.

Their generic policy prescriptions have overlooked countries’ specification.

In addition, they have often called for a capacity beyond that of African governments. Without the support of industrialization strategies, the manufacturing sector faced a number of crosscutting challenges.

According to World Bank 2016, extractive industries in Africa have expanded quickly since 2000, thanks to higher commodity prices.

Their value added share of GDP (together with the smaller shares of construction, electricity, gas and water) increased during the commodity boom after 2000, reaching a peak of 32% in 2008, and gradually declined to around 20% in 2015.

While often highly-productive, extractive industries are capital intensive and do not create many jobs. In 2010, labour productivity was 28 times higher in mining than in manufacturing (87 times higher than in agriculture). But mining employs less than 1% of the labour force.

New technologies open up possibilities for new sectors to emerge. Cape Town, Lagos and Nairobi are emerging as hubs for global start-ups, especially in sectors such as financial technology and renewable energies.

These sectors are likely to grow thanks to Africa’s demography and urbanization. New technologies, with appropriate policies, could also help reduce pressure on the environment for instance by promoting “green industrialization”
New technologies decrease the demand for low-cost labour in manufacturing and increase the need for skills.

Ethiopia risks losing around 44% of current jobs across sectors to automation (Frey, Osborne and Holmes, 2016). In addition, technology can reduce the incentive for multinational companies to offshore production to countries with low cost labour.

Investment in technical skills and in science, technology, engineering and mathematics will be necessary to develop African robot engineers, industrial engineers, data analysts, cloud architects, software developers, security analysts and health workers.