The primacy of manufacturing in unlocking Africa's potential

The primacy of manufacturing in unlocking Africa’s potential

By Jean-Paul Thill, KPMG Coordinator for Francophone Africa

In seeking productive investment destinations, the world’s attention has shifted from the BRICS nations to Africa – which is not, of course, a single economic region, but an array of 54 hugely diverse countries. Africa is often perceived as a “last frontier”, but it offers far more than just the resources – minerals, oil and gas – ascribed to frontier economies. The continent is witnessing the rise of an immense consumer class, mostly youthful, and desirous of the same goods and services as the fully developed world.

“Ease of Doing Business” is crucial

However, if Africa’s people are to prosper in the global economy, much remains to be done. All the world’s emerging countries are competing to attract foreign direct investment, and simply possessing attractive resources or demographics is not enough. The World Bank’s Ease of Doing Business Index, controversial though it may sometimes be, is a crucial indicator for African countries. Improving governance is vital to improving one’s ranking on the index – corruption and ineffective courts of justice are not attractive to foreign investors.

Giving hope to young populations

Beyond all this, to build modern economies, Africa’s countries and regions need to invest in manufacturing – exactly as China has done. Manufacturing, as opposed to the mere exporting of raw materials, results in a local “value chain” that creates and sustains employment, catalyses greater sophistication across the economy, and improves the national current account by reducing reliance on expensive imports. Africa holds some encouraging examples (for example, the processing of cocoa in the Ivory Coast) but the field for a more concerted manufacturing-drive is wide open.

Most vitally, a strong manufacturing sector will give young populations hope for the future – in the form of an economy that can employ, skill and equitably reward them. Without this hope, Africa’s “demographic dividend” – the promise of some two-billion consumers by 2050 – will become a demographic time-bomb.

China vs India – what lesson for Africa?

To improve their manufacturing bases, African countries and trade blocs might look to the contrasting examples of China and India. China created SEZs (Special Economic Zones), with ten-year tax exemptions for incoming manufacturers. India could never quite convince itself that it needed something similar. While China has become “the workshop of the world”, India – with its focus on the service sector – is struggling to contain unemployment and inequity.

Restraints to be tackled

We are hopeful that more African governments will establish and nurture their own, locally appropriate SEZs, and that local manufacturing enterprises will likewise be encouraged to flourish.

This said, many African countries still face an array of restraints to establishing strong manufacturing sectors. While these restraints are not insurmountable, they do need to be tackled very seriously.

Again, improvements in governance will be vital. In manufacturing, especially, investments cannot flourish if they are not protected by stable fiscal systems. Judicial systems likewise need to become world-class. Any investor contemplating a factory-partnership will want to be sure that disputes can be fairly resolved.

Other restraints may be cultural. Often, in Africa, it is difficult for entrepreneurs to accumulate wealth. Success is attended by strong expectations, from an extended network of relatives and friends, that the entrepreneur will share wealth and provide jobs (regardless of whether a relative has the skills for the job). Another frequent restraint is a traditional bias toward trading – adding mark-ups to goods from elsewhere, as opposed to actually making those goods.

The importance of education

This brings us back to Africa’s youthful demographic. Through their access to Africa’s phenomenal new ICT (Information & Communications Technology) networks, the continent’s young people are increasingly challenging their countries’ political and cultural restraints. They are also clamouring for the kind of education that will truly skill them. The more we boost education, training and skills development programmes for this up-and-coming generation, the more we will boost Africa’s potential for investment into manufacturing. And it is then – when powerful manufacturing sectors take root in Africa – that our “last frontier” continent will truly boom.

David Okwara

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One Response to The primacy of manufacturing in unlocking Africa’s potential

  1. Anthony Busino December 8, 2014 at 3:37 am #

    Terrific write-up. To add to ” immense consumer class, mostly youthful, and desirous of the same goods and services as the fully developed world”… researchers are predicting that mobile phones in Africa will increase close to 20-fold in the next five years. That’s more than 5X the growth rate in the rest of the world.

    I think this is really interesting as most African mobile users utilize their phones to access the internet because of the lack of landline access.

    Do you think this rapid growth of mobile/internet access will decrease restraints, increase information sharing, and eventually promote a middle class?

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