Africa has the opportunity to follow in the footsteps of Asia’s manufacturing giants over the next decade, using industrialisation as a strategy to uplift millions of people from poverty and create jobs for its burgeoning young population. In doing so, it could reinvent itself as the world’s next production powerhouse.
That’s according to Vinny Perumal, CEO of KAS Africa, who says that the manufacturing sector holds the key to unlocking the economic potential of South Africa and the wider continent, with the continent’s young population emerging as an asset in a changing world.
“According to the International Labour Organisation (ILO), over one in five African young people were not in employment, education or training (NEET) in 2019,” she says. “Furthermore, half of the countries among the top 10 for the highest rates of youth unemployment are in Africa, with South Africa topping the list.
“This is a humanitarian crisis. Yet, at the same time, Africa’s youthful population offers the continent the potential to become an industrial powerhouse at a time the dynamics in global manufacturing are changing. South Africa and other African countries should seize the opportunity to use manufacturing to reduce poverty and expand the middle class.”
Perumal says nearly every country in the world that has grown into a prosperous nation has done so through industrialisation. Over the past 20 years, China’s growth on the back of low-cost manufacturing for export has not only transformed the country, but also played a major role in growing global wealth. Today, China is no longer known only as a low-cost manufacturing hub, but also as a leader in the fourth industrial revolution.
Africa’s opportunity as China moves into new markets
Now, as China moves towards more high-tech and less labour-intensive manufacturing, Africa’s domestic markets grow, and companies look to build more resilient global value chains, there is an enormous growth opportunity for Africa. Seizing it could transform the face of the continent’s economy. By some estimates, every 100 jobs created in a factory will help create 160 service or supporting jobs.
Perumal says: “In fact, some researchers and economists are already reporting the first signs of a manufacturing revolution in Africa. One estimate shows a bounce-back after the de-industrialisation of the 1980s to the early 2000s, with manufacturing production in Africa more than doubling from $73-billion to $157-billion between 2005 and 2014.
“Among the factors that may explain this include better governance in many parts of the continent, more business-friendly policy, and the rise of smaller factories making goods to meet the demands of an emerging middle class. The challenge is now to scale these developments and grow intra-Africa trade and exports.”
While it’s unwise to generalise about a continent of 54 diverse countries, Perumal notes many reasons to be optimistic about manufacturing across most major African economies. She says that the African Continental Free Trade Area (ACFTA) and Africa’s close ties with the BRICS countries are creating new export markets.
Intra-African trade as a catalyst
The potential for more intracontinental trade is particularly important because it will help African manufacturers achieve real economies of scale – something that was always challenging when export major markets were far away. Business-to-business spending in manufacturing in Africa is forecast to top $666-billion by 2030, more than a third more than in 2015.
Another reason for optimism is the focus that African governments are putting on industrial strategy and localisation of production. This could be key in rebuilding capacity in areas such as consumer goods, clothing & textiles, and agri-processing, where many African countries have become dependent on imports.
Nonetheless, there are still barriers to industrialisation. Governments will need to focus on building infrastructure – particularly road, rail and power – to create hospitable conditions for manufacturing. They will also need to invest in education and skills development, particularly STEM (science, technology, engineering and mathematics), to keep up with the high-tech nature of modern manufacturing.
“These are challenges that will require a spirit of genuine public-private partnership,” Perumal says. “Industrialists and the government should collaborate to create a framework for growth. This is a strong lesson we can learn from the successes in China and other Asian countries. We can make the ‘made in Africa’ brand synonymous with quality, innovation and unique products.”
She concludes: “African manufacturers have shown their mettle during the COVID-19 crisis, which has also displayed the importance of resilient supply chains. We have the opportunity to reinvent Africa’s manufacturing sector and turn it into a major global player, in so doing helping to drive socioeconomic development across the continent.”