Made in Africa

November 20th marked yet another “Africa Industrialization Day” by the United Nations. There have now been 25 such events, and they seem to have come and gone with relatively little notice. This year may be different: Africa’s failure to industrialize has come to the attention of a growing number of observers, noting with some alarm at the fact that many African countries are de-industrializing while they are still poor, raising the worrying prospect that they will miss out on the chance to grow rich by shifting workers from farms to higher-paying factory jobs.

By any measure Africa’s failure to industrialize is striking. In 2013 the average share of manufacturing in GDP in sub-Saharan Africa was about 10 percent, half of what would be expected from the region’s level of development. Moreover, it has not changed since the 1970s. Africa’s share of global manufacturing has fallen from about 3 percent in 1970 to less than 2 percent in 2013. Manufacturing output per person is about a third of the average for all developing countries and manufactured exports per person, a key measure of success in global markets, are about 10 percent of the global average for low income countries.

This lack of industrial dynamism is a growing matter of concern to Africa’s political leaders, as well. Historically, industry is the sector into which resources have first moved in the course of economic development. Industry is the pre-eminent destination sector at early stages of development because it is a high productivity sector capable of absorbing large numbers of moderately skilled workers. Between 1950 and 2006, about half of the catch-up by developing countries to advanced economy levels of output per worker was explained by rising productivity within industry combined with labor moving out of agriculture into manufacturing. 

The objective is clear—Africa needs more industry—but the path forward, remains 'more a marathon than a sprint'. One of the major constraints to Africa’s industrial development is a lack of the “basics”—infrastructure, skills and institutions. While industrialization cannot succeed without these, they are not enough. Three closely related drivers of firm-level productivity—exports, agglomeration and firm capabilities—have been largely responsible for East Asia’s industrial success, and their absence goes a long way toward explaining Africa’s lack of industrial dynamism. For example, in Tanzania, special economic zones (SEZs), which are export-oriented industrial clusters, contain about 40 firms, employing around 10,000 people. Vietnam on the other hand has 3,500 firms in its export processing and industrial zones, employing 1.2 million workers. Putting policies in place that promote manufactured exports, encourage the development of industrial clusters and attract more capable foreign direct investors outside of the natural resources sector are essential first steps in reversing Africa’s industrial decline.