BRILLIANT TECHNOLOGIES AND BRAVE ENTREPRENEURS: A NEW NARRATIVE FOR AFRICAN MANUFACTURING.

Author:Naude, Wim
 
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Africa needs to industrialize to create jobs. Its population is young and growing fast, and at more than one billion people already, is the second highest of any region after Asia. Due to rapid rural-urban migration, its urban population will triple by 2050. (1) It has been estimated that the African labor force will swell by more than 170 million people between 2010 and 2020. (2) If there are no productive jobs for these people, the fight against poverty will be lost, given that the most important determinant of whether someone in Africa is in poverty or not, is whether they have a job.

When countries in the West and in Asia experienced similar demographic pressures in the past, industrialization enabled them to create jobs and welfare simultaneously. So far, however, the verdict is that African countries have not yet seen significant industrialization. (3) Pessimism about the prospects for manufacturing in Africa is deeply rooted. Recently, some have even suggested that manufacturing is not important anymore and that developing countries, including those in Africa, should perhaps not even bother with manufacturing. (4) Gollin is of the opinion that developing countries should pursue "structural adjustment without industrialization." (3) In this regard, Newfarmer et al. argue that African countries should focus on tourism, information and communications technology (ICT), and other services that may share "the characteristics of manufacturing." (6) Hallward-Driemeier and Nayyar further deepen the suspicion towards Africa's manufacturing potential by arguing that it has become less feasible for low-income countries such as those in Africa to embark on manufacturing-led development. (7)

In this paper, I take issue with these views. More optimism may be warranted, manufacturing may be more feasible, and indeed may present a preferred pathway to structural adjustment in many African countries ("Africa" will in this paper be short for Sub-Saharan Africa). African countries face a unique opportunity to grow manufacturing because of the convergence of "brilliant" technologies (as labeled by Brynjolfsson and McAfee) associated with the Fourth Industrial Revolution (4IR) with a resurgence in start-up entrepreneurship. (8)

While the opportunity for industrialization exists, achieving it will not be easy or automatic: while technology and entrepreneurship offer unprecedented opportunities, they are both double-edged swords. Both basic and novel approaches are required from governments and from international development organizations: novel approaches to regulate and promote (for instance, the digital economy) and basic approaches to support (for instance, in the provision of infrastructure).

In section two, I outline the reason why I believe that manufacturing remains a vital sector for African economies. In section three, I critically analyze the nature and impact, both in terms of opportunities and risks, that the "brilliant" new technologies associated with 4IR imply for Africa. In section four, resurgent entrepreneurship is noted. Section five concludes.

Why Manufacturing Is Important for Africa

Contradicting the old narrative that the continent has no prospects as far as manufacturing is concerned and should rather focus on something else, in this section I show that: (i) manufacturing in fact increasingly contributes, in absolute numbers, to greater value-added and employment; its share of gross domestic product (GDP) has been more stable in Africa than elsewhere; (ii) manufacturing contributes to higher labor productivity growth, and; (iii) the quality of jobs in manufacturing is better than those in many services and agriculture. Moreover, with agriculture's strained capacity to create more jobs, manufacturing may be even more important for future jobs.

Manufacturing output and employment is reviving

The current dominant narrative about African manufacturing is that it is failing and that the continent is de-industrializing. (9,10) This narrative is supported with reference to falling shares of manufacturing in output and employment. However, considering the absolute size of manufacturing in Africa, a different narrative unfolds. For instance, far from stagnating, total value-added in manufacturing (in constant U.S. dollars) has almost tripled since 1980, from US$ 66 billion to US$ 158 billion in 2015.

More interestingly, most of this increase took place after the year 2000. Between 1980 and 2000 manufacturing still grew, but slowly, at 1 or 2 percent per year on average; however, between 2000 and 2015 there was a revival, with manufacturing achieving an average annual growth rate of more than 5 percent per year. As recognized by Signe, "manufacturing in Africa has grown 3.5 percent annually from 2005 to 2014--faster than it has in the rest of the world. Some countries, such as Nigeria and Angola, have experienced an increase in output of over 10 percent per year."" This revival suggests an improvement in the fortunes of manufacturing, contradicting the pessimistic narrative of an unstoppable down-wards slide. It rejects any claim that African countries have been "prematurely" de-industrializing.

Even when closely scrutinizing the relative shares of African manufacturing, one can discern a different narrative. For instance, the relative average share of manufacturing value-added declined from 8.3 percent to 7.4 percent from 1962 to 2007. (12) This is relatively small compared to declines in other regions. Moreover, the aggregate decline reflects the impact of absolute declines in the large economy of South Africa, which has more to do with its own particular political difficulties than industry-wide conditions.

A new narrative also emerges when considering employment trends. Here, the fact is that the total employment in manufacturing in 18 of the largest African economies (for which there are data) increased from an estimated 9 million in 2004 to more than 17 million by 2014, an increase of 83 percent in only ten years. (i)

The only African economies where the absolute level of employment in manufacturing declined between 2004 and 2014 were Mauritius and South Africa. On the other hand, countries such as Ethiopia, Kenya, Nigeria, and Burkina Faso have experienced notable increases in manufacturing employment; for example, in Ethiopia, manufacturing employment levels grew from just about one million workers in 2004 to more than 5.6 million workers by 2015. Adding 4 million jobs to manufacturing in less than a decade is an indication of revival, not decline.

Finally, even in terms of its share contribution, a different narrative better tells the story: although it is true that the share contribution of manufacturing to jobs in Africa is the smallest of any region, it has nevertheless not been declining as elsewhere. In fact, the share of workers in manufacturing for Africa as a region has increased from around 5 percent in the early 1970s to almost 10 percent by 2008.

Manufacturing is driving higher productivity growth

According to data from the Africa Sector Database, over the period 2005 to 2014, the African countries with the highest manufacturing employment growth, such as Ethiopia and Burkina Faso, also enjoyed high labor productivity growth. (13) In Africa, labor productivity outside of agriculture is much higher than in agriculture: according to McMillan and Heady, it is 7.7 times more productive. (14) Evidence has also been found that labor in manufacturing is in some countries up to "10 times higher than in agriculture" as measured by marginal output, and that, "income per capita could be two and a half times larger in Malawi and Kenya if physical and human capital were reallocated to the higher productivity industrial sector." (15)

Finally, where structural change in Africa bypassed the manufacturing sector, the consequences have generally been reduced productivity and economic growth. McMillan and Heady, for example, found that between 1990 and 2005 the movement of labor into service sectors, including tourism, trade, and others saw labor moving "from high to low-productivity activities...reducing Africa's growth by 1.3 percentage points per annum on average." (16)

The quality of jobs in manufacturing is better

Throughout the world, the quality of jobs in manufacturing tends to be better than in agriculture, or even services. (ii) This seems to be the case also in Africa, given that only 5.4 percent of the working poor worked in industry between 2002 and 2012, compared to 16.4 percent in the service sector and 78.2 percent in agriculture. (17)

There are many reasons why manufacturing jobs tend on average to be better than those in primary sectors. One reason is that they are largely located in urban areas, where jobs are better paid and better supervised and protected. (18) Cities can offer access to various amenities that improve the quality of life, and manufacturing makes it possible for...

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