The manufacturing sector
could boost huge economic growth for the continent but its share of GDP has not
moved from around 11 per cent over the last 10 years. Economist Moin Siddiqi
investigatesIn
today’s sophisticated global economy, Africa remains a weak link. The region
could become an emerging manufacturing hub through optimal development of
natural and human resources and increased technological transfers. Li Yong,
director-general of the United Nations Industrial Development Organisation,
said: “Africa is by no means destined to lag behind the rest of the world
economy. But to fulfil its economic potential, Africa must industrialise.”
Manufacturing is a major untapped growth opportunity in Africa, but the
sector’s share in gross domestic product (GDP) across the continent has
stagnated at 11 per cent over the past decade, compared to 23 per cent in East
Asia & Pacific, according to the most recent World Bank data. In 2015,
Africa’s manufacturing output was worth US$500bn, of which five countries
(Egypt, Morocco, Nigeria, South Africa, and Tunisia) comprised the bulk of
total capacity. Seventy per cent of production was consumed in the country of
manufacture; tenth and one-fifth, respectively, were traded within Africa and
exported outside Africa, according to Mckinsey Global Institute (MGI).Five
sub-sectors of manufactured categories are: Capital-intensive; e.g chemicals,
transportation equipment. Labour-intensive; e.g textiles/apparel.
Resource-intensive; e.g wood products, paper and pulp. Local processing: e.g
rubber, plastics, fabricated metals, food. High-tech; Computers and office
machinery.
Lagging global competitors
Africa’s share of global manufacturing exports has also stagnated at a paltry
one per cent since 2000. In comparison, the World Bank reported China expanded
its share of global exports from 4.7 per cent in 2000 to 18.8 per cent in 2015.
Other Asian countries; Bangladesh and Vietnam, too, achieved rapid growth in
manufacturing exports by matching low labour costs with active steps to attract
investment, develop skills, and greater access to global markets through trade
agreements.African import products can be manufactured more cheaply within the
region. One third of food, beverages, and other processed goods consumed in
Africa are imported; while Southeast Asian and Latin American countries import
approximately 20 and 10 per cent, respectively, of such goods. Similarly, about
two-thirds of Africa’s supply of capital-intensive items (mainly automobiles
and machinery) are imported, which is twice the level for Latin America.
Despite
abundant local raw materials, Africa still imports a large share of manufactured
products, including cement and refined petroleum. In 2015, 49 refineries were
operating across the region, but little new capacity is expected on stream over
the medium-term, reflecting the challenge of building competitive refineries in
Africa. Regional refining capacity remains low at 2.1mn-bpd, while BP reported
Africa’s total 2016 oil production at 7.89mn-bpd.
Promising fundamentals
Massive natural resource endowments, which can be used as raw materials for
heavy and light industries. Africa boasts the largest unexplored resource
basins on Earth with 80-90, 50, and 40 per cent, respectively, of chromium,
manganese, vanadium and platinum; diamonds; and gold, as well as 60 per cent of
world’s uncultivated, arable cropland (approximately 600mn hectares). It also
holds 7.5 per cent of global oil reserves and huge stranded natural gas
resources. Fairly inexpensive labour and favourable demographics (about
three-quarters of Africa’s population is aged under 35).Hence, it will soon
have the world’s biggest workforce of 1.1bn by 2034, according to MGI analysis.
These demographic trends offer an opportunity for vocational training and skill
development – a prerequisite for building industrial value chains. Unit labour
costs and wages are low compared to other regions.
Africa’s stock of housing, commercial buildings and infrastructure is expanding
– in tandem with rapid urbanisation – thereby creating demand for construction
materials such as cement, metals, and wood.Africa’s
manufacturing output could double within a decade reaching the US$1trn mark by
2025, reckons MGI. Three-quarters of output expansion could derive from meeting
growing domestic consumer and business demand, reducing the volume of goods
that is imported. The rest could derive from boosting exports. Kenya, Ethiopia,
Tanzania, Rwanda. Ghana, Senegal and Mauritius are expected to undergo some
degree of industrialisation, along with Nigeria.The largest opportunity
forincreasing manufacturing value added lies in the capital-intensive category,
like machinery/transport equipment, followed by agri-food value chain.
Resource-intensive manufacturing (cement and petroleum products) and labour
intensive goods (such as textiles/clothing) are smaller but still significant
outlets for manufacturers to service both local and regional markets. As
Africa’s business sector expands, demands for inputs such as machinery/
equipment and fuels/chemicals are increasing fast.
That
makes the manufacturing of capital-intensive innovations a profitable
sub-sector, however, that opportunity is mostly confined to those with
established manufacturing hubs (Egypt, South Africa and Morocco). Nigeria has
capacities in petrochemicals and fuels, Kenya in machinery and auto
spare-parts, Botswana in diamond cutting, Zambia in metal
processing, Ghana in gold refineries and aluminium smelting and Cameroon
and Sierra Leone in steel-making underpinned by iron ore reserves.
Labour-intensive manufacturing can integrate more African countries into global
supply chains. But regional share of global labour intensive exports (US$1.6trn
in 2014) was one per cent, well below 35 per cent share of global total for
China in this category.
Source: Business Report, South Africa Thursday, 29 June 2017