Africa’s manufacturing contradiction

By Antony Mutunga

According to the World Bank, in 2017 the manufacturing sector accounted for 16 percent of the global GDP. Good news, right? Not so much for Africa.

Manufacturing is considered the weakest link in Africa’s ongoing integration into the global economy. According to the UN Economic Commission for Africa (ECA), the contribution of the sector to the continent’s gross domestic product has actually declined from 12 percent in 1980 to 10 percent in 2017.

Even though Africa is full of the raw materials that make other economies thrive, a large quantity is never manufactured or refined on the continent. In fact, Africa exports 62 percent of its raw materials, which is the highest share of raw materials obtained anywhere in the entire world.

Africa’s manufacturing sector suffers for the same reasons we are unable to stem vices like corruption – a lack of visionary leadership and working policy framework. Consequently, most governments have deliberately failed to create an enabling environment for market-based growth, which would also have the welcome effect of creating much-needed jobs.

In the 1990s, when China’s burgeoning manufacturing industry created endless appetite for natural resources, countries such as Gambia and Zambia were among the biggest beneficiaries of the ensuing high commodity prices – owing to their abundance of resources. However, instead of investing the proceeds in establishing their own factories, the respective governments chose to, among others, increase the wages of civil servants!

Tragically, Africans in charge have often succumbed to bribery, nepotism and primitive acquisition of wealth at the expense of economic development – as long as they line their pockets with national money, nothing else matters.

But, despite this picture of gloom, there are exceptions. Countries like Tunisia and Mauritius adopted the models initiated by Asian countries and succeeded in growing their manufacturing bases. Tunisia formulated policies and reforms that focused on manufacturing as a way of increasing its capital flow. Investors, wooed by a favourable business environment, a strengthened financial sector, modern infrastructure and skilled human resources, came flowing in.

Mauritius focused energies on investing in export-processing zones (EPZs) as a way of developing its manufacturing sector. As a result of the sugar boom in 1970s, local companies directed their profits towards investing in joint ventures with foreign investors in EPZs. The country, as a result, had in plenty companies that were export-led, which in turn saw its economy rise and investments in the manufacturing sector expand.

What foreign – and even local – investors often decry is the sorry state of infrastructure, including roads, rail and energy. Because of the tendency of many countries to rely on rain-produced electric power, energy is often erratic and expensive (where diesel generators have to be used). As well, the attendant consequence is that transport prices rise where there is poor transport infrastructure.

Electricity – or energy in general – in sub-Saharan Africa is weak and underdeveloped in terms of access, installed capacity and consumption. This has seen the region’s industrial and residential sectors suffer not only from power shortages and outages but also from high costs. The biggest casualty, naturally – because it is the biggest consumer – is manufacturing! High energy costs, with their attendant woes, are the primary reason Sameer Africa and Eveready, for instance, closed shop and relocated to India and Egypt, respectively.

What foreign – and even local – investors often decry is the sorry state of infrastructure, including roads, rail and energy.

This is not a uniquely Kenyan problem. Manufacturing associations in Rwanda and Uganda cite high energy costs as contributing factor to high production costs that have caused some companies to shut down. Even where they don’t suffer owing to energy costs, they cannot hope to compete with cheaply produced goods elsewhere, which is what eventually drives them out of business.

Recently, governments have intentioned to establish or revive and expand manufacturing bases, and the one item at the top of their agenda is affordable energy. An already discussed solution to this is to explore renewable energy. Granted, the region has room for growth in hydropower, and Ethiopia is a leader in this regard – together with DRC, they two have the potential to feed about 15 other countries with electricity. But greater focus is on wind and solar power. According to McKinsey, the potential for solar power in Sub-Saharan Africa could be as high as 11 terawatts (TW).

Happily, some countries have also created policies that will ease the burden of energy costs on manufacturing. In Rwanda, the government plans to connect heavy industries with electricity at no cost as it seeks to ease the cost of setting up business – the cost of connecting power costs up to Sh4.5 million (Rwf40 million) per kilometre.

Elsewhere, underperforming structural economic infrastructure, in terms of water management and logistical facilities, are the other problems reported. Most African nations lack access to consistent and reliable sources of public utilities, which discourages business because investors are unwilling to foot additional expense just to run.

The substandard state of roads and rail also drives costs up, and is undesirable where perishable goods are involved, owing to the time taken. Transportation is particularly woeful in Nigeria, Africa’s second largest economy. Many companies have had to shut down because of unusually high transportation costs – comparatively.

In mitigation, Ethiopia is robustly addressing its own shortcomings. For starters, it has established the Addis-Ababa-Djibouti railway, which has seen time taken between the two destinations reduce from 3 days to 9 hours. Additionally, the country’s Grand Renaissance Dam, once complete, will provide enough water to most or all of its industries; it will be the biggest in Africa.

These investments have seen Ethiopia, in recent years, expand its manufacturing sector by an annual average of more than 10 percent. The sector has also attracted more foreign direct investment than any other sector in the same period. Following in suit is Kenya, which is also working to bridging connectivity gaps between ports and different destinations. The standard gauge railway is a major factor in this regard. Despite misgivings on cost and feasibility, construction is ongoing.

Where countries are not grappling with energy or infrastructure, skilled workers and the adoption of technology are the other hurdle. Despite massive gains, there has not been appreciable investment in technical knowledge. As with everything, the manufacturing sector has evolved, requiring certain skills which many people do not have due to a lack of targeted education and training. Additionally, the continent continues to lag in terms of technological advancement, which makes swathes of its workforce somewhat obsolete.

Ghana is documented as having one of the most visible shortages of skilled and semi-skilled professionals. To exemplify, the country had to rely on specialists from neighbouring countries when it started producing oil in 2010.

Rwanda, again, is a leader in innovation as it is in incentive, with President Paul Kagame promising “to create an ICT infrastructure comparable to any in the developed world.” This is the path the rest of the continent must faithfully follow. (