Africa Must Manufacture and Trade Its Way to a ‘Lion Economy’ and Build a Middle Class

Joseph Dana

Despite a recent downturn in the global economy, an unprecedented shift is underway throughout the so-called non-West. From Southeast Asia to Latin America, these economies have seen explosive urbanization and the emergence of a new middle class. Manufacturing remains the engine behind the re-emergence of non-Western economic power. Robust manufacturing sectors have created millions of jobs in countries such as China and India, that have in turn put these economies on growth trajectories. But Africa remains an anomaly in this transformative story.

With one of the world’s fastest-growing populations, Africa’s urbanization rates are also exploding. Yet its economies are not meeting their potential. While the continent has benefited from the power of the internet to create new industries, Africa’s manufacturing sector has lagged woefully behind those of the rest of the world. Poor governance (think: the lack of trade friendly legislation), a lack of investment in local and regional infrastructure (think: a paucity of efficient ports) and high costs are all factors behind the abysmal state of the sector.

Here is the rub: If African countries want to free themselves from the remnants of colonialism and establish healthy economies, leaders must get serious about manufacturing. The next generation of Africans already is in desperate need of jobs. A robust manufacturing sector that absorbs large numbers of workers is the tried and tested path to independence. Factories offer pathways from working class to middle class and even to higher management that no other sector can compete with. It worked in the West; it worked for the Asian Tiger economies.

According to a report this year by the Brookings Institution, business-to-business spending in manufacturing on the continent is projected to reach $666 billion by 2030, which is $201 billion more than it did in 2015. Given rising population figures, Africa could create 100 million manufacturing jobs if the correct policies are put into place. The problem is that “if.”

First, some optimism. The African Union recognizes the potential positive impact manufacturing investment – and by extension, trade – can have for the continent. The regional body placed serious focus on the sector in its Agenda 2063, with targets for infrastructure upgrades, regional trade agreements and the creation of several special economic zones in countries outside of the traditional African manufacturing bases of South Africa, Nigeria and Egypt. One such attempt is the African Continental Free Trade Area (AfCFTA), launched in March to create a single market for goods and services in Africa. While the rollout of AfCFTA has lagged due to slow country implementation, the direction of travel is positive.

There is an additional cause for optimism. Financial technology is one booming cross-border business sector. With smartphone penetration on the rise, fintech startups are devising new ways for Africans to do business, send money and bank, regardless of where they are on the continent. Applications target migrant groups remitting money home, insurance companies providing services through mobile phone carriers and even funeral insurance companies selling their products on smartphones. The fintech sector is not large enough to create sustainable growth platforms for countries but it does demonstrate that countries have what it takes to work together toward an economic goal. Such cooperation is critical for a viable continent-wide manufacturing sector to take hold.

Additionally, small countries are embracing a manufacturing ethos. In Ethiopia, for example, small textile companies are trying to create a viable manufacturing sector from the ground up. SoleRebels, a footwear company that has expanded across the world, is one such company. Each of their shoes is crafted by hand in Ethiopia and the founder, Bethlehem Tilahun Alemu, says she has no intention of outsourcing labor as her brand continues to grow.

Yet, more generally, the road is going to be long for Africa’s manufacturing sector. Opening a factory remains an expensive and bureaucratic process. According to a 2017 report by the Center for Global Development, small African manufacturing plants were 39 percent more expensive than similar facilities elsewhere. Medium-sized and large factories were a staggering 50 percent more expensive. Despite high levels of unemployment, labor costs were found to be high in countries from South Africa to Tanzania. All this makes little sense, given that the continent remains among the world’s poorest. The reason, in one word, is corruption. It exists on a massive scale through the accumulation of a multitude of small payoffs – almost like a differential calculus of graft.

Without broad political will on a country level, there will be little change. At a time when large numbers of people in several countries want to free themselves from the legacy of colonialism, investment in manufacturing as a path to independence must be made easier. Politicians need to get out of the way by enacting manufacturing and trade friendly laws, better prevent officials from seeking bribes at every stage of life and build the infrastructure so Africans can trade with each other their comparative advantage. Africa needs a “Lion economy.”

Joseph Dana, based between South Africa and the Middle East, is editor-in-chief of emerge85, a lab that explores change in emerging markets and its global impact. 

AFP PHOTO/RODGER BOSCH