As the African continent unites around the African Continental Free Trade Area (AfCFTA), increased investment in infrastructure, and a growing youth population ready to contribute to the economy, Africa can become a manufacturing hub with substantial export capacity globally.
While the manufacturing sector currently only contributes 9% to Africa’s gross domestic product (GDP), and represents less than 2% of global manufacturing, there has been a concerted effort by the African Union and individual countries to attract investment, which could unleash a manufacturing tsunami.
The African Union has put the manufacturing sector at the heart of its Agenda 2063, a strategic framework for the socio-economic transformation of the continent over the next 50 years. Agenda 2063 has the full support and agreement of all fifty five African countries.
In addition, the launch of the African Continental Free Trade Area (AfCFTA) would allow African-owned companies to enter new markets, expanding their customer bases and product types. AfCFTA is also likely to serve as an impetus for investment in much-needed cross-border infrastructure, creating employment and developing local experience in key projects. A larger market and a potentially large youth work force will spur investment. However, country specific policies will need to be developed to ensure capacity is build and the necessary support mechanisms are in place.
The African continent has massive untapped potential. Despite its rich supply of natural resources and its youthful population, it continues to lag behind most of the world in terms of economic development, a reality which many attribute to both colonialism and the failure of African states, post-colonialism to sufficiently invest in infrastructure development.
Currently, the integrated African market covers 1,2 billion people, with a combined GDP of over USD$ 3,5 trillion. It is expected that the agreement would help boost Africa’s industrial development, promote economic transformation and generate new jobs. This is based on the assumption that large markets are job-creating, as it supports more trade in goods, services and assets.
However, the benefits of the free trade agreement won’t be automatic, and as such would require continuous efforts by national, regional and continental bodies.
Viewed against the backdrop of uniting fifty-five countries to foster continental integration, the continent, and specifically the African Union, has made commendable progress in crafting its own path towards industrialization and intra-Africa trade. This is essential considering that trade between African countries stands at only 15% compared to Latin America at 19%, Asia at 51% and Europe at 72%.
How Africa will get there
By 2030, the World Bank projects that almost all the people who live in extreme poverty will live in sub-Saharan Africa. They provide two reasons for this. The first is that Africa’s population is growing rapidly, and the second is that Africa has not had the industrialization necessary to generate mass employment.
In addition lack of investment in infrastructure and political instability has made it difficult to provide the education and infrastructure that helps prepare countries to transition from subsistence farming to factory work. Western aid and international development agencies could not fill the gap. Subsequently, countries in Asia the world’s factories before Africa did.
However, this is likely to change. Rising labour costs in China, and the threat of US tariffs, are causing manufacturers to diversify their supply chains. As such, if manufacturers want to keep costs down, many will likley look to Africa.
This process is already well underway. In her book “The Next Factory of the World: How Chinese Investment Is Reshaping Africa,” Irene Yuan Sun — a development-aid worker turned McKinsey & Co researcher — describes the wave of private Chinese investment sweeping the African continent. This investment is often overlooked by the international press, which tends to focus on China government-backed infrastructure projects and loans. What Sun describes is something else — Chinese business people moving to Africa and building privately owned factories.
In 2017, Sun’s research team estimated that there are about 10 000 such factories on the continent, and the number is surely higher now. This foreign direct investment — and manufacturing more generally — is one reason African growth is taking off:
The descriptions Sun gives of Chinese businesses in Africa is not entirely a pretty one. However, she argues that this process is the only way that countries can build infrastructure, decrease unemployment and escape poverty.
She further argues that the programs of liberalisation and deregulation offered by Western countries in the 1990s under the Washington Consensus, failed to produce the desired results. She further highlights that while development aid from rich countries has done some real good in Africa, it hasn’t been sufficient to change the continent’s basic economic conditions.
Despite claims of neo-colonialism, Sun finds that Chinese factories overwhelmingly employ local African workers rather than imported Chinese laborers. In other words, there is every indication that the process that brought Europe and Asia out of poverty is starting to work in Africa.
African industrialization will complete the industrial transformation that started more than two centuries ago.