Made in Africa: Some new thinking for Africa Industrialization Day

This Friday, November 20 marks 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, including the venerable magazine, The Economist. In its November 7 issue The Economist notes with some alarm at the fact that “many African countries are deindustrializing 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. The U.N.’s Economic Commission for Africa (UNECA) will publish a major report on industrialization in Africa next month. The African Union has adopted an “Action Plan for the Accelerated Industrial Development of Africa.” And the newly adopted United Nations Sustainable Development Goals (SDGs) highlight the need for job creation and industrialization, two themes introduced largely at the request of African governments.

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, at least in the eyes of The Economist remains “more a marathon than a sprint.” Some of us who study Africa and industrial development are not so pessimistic. Over the past five years the African Development Bank, Brookings and United Nations University-World Institute for Development Economics Research have jointly sponsored a multi-year, multi-country research project designed to answer three questions: Why is there so little industry in Africa? Does it matter? And, what can be done about it? Our forthcoming books, Made in Africa: Learning to Compete in Industry (Brookings Institution Press) and Manufacturing Transformation: Comparative Studies of Industrial Development in Africa and Emerging Asia (Oxford University Press), offer some new thinking on what makes firms in low-income countries more competitive and what makes countries more attractive to competitive firms.

A series of policy notes (referenced in this blog) gives some of our insights into what needs to change if Africa wants to move from a marathon to a sprint in terms of industrial development. As The Economist correctly points out, one of the major constraints to Africa’s industrial development is a lack of the “basics”—infrastructure, skills and institutions—but a major finding of our research is that 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, one of the continent’s more successful cases of industrial development, special economic zones (SEZs), which are export-oriented industrial clusters, contain about 40 firms, employing around 10,000 people. Vietnam 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. In Made in Africa we spell out how African governments can do just that.