Expanding the manufacturing sector is often considered key to achieving inclusive and sustained development. And for good reason: for over two centuries, industrialization in the West and, more recently, in East Asia has fostered rapid technological advancement and rising income levels. Among the widely recognized benefits of manufacturing1 is its capacity to gainfully employ large amounts of low-skilled workers, which is crucial for reducing poverty.
At a time when the COVID-19 pandemic has wreaked havoc in the global economy, with Sub-Saharan Africa reporting a 2.6 per cent decline in GDP in 20202, inclusive recovery for the millions who have been driven into poverty will hinge on the manufacturing sector. Fortunately, large parts of the developing world — including Sub-Saharan Africa — experienced an unexpected but very welcome renaissance of manufacturing just before the outbreak of the pandemic.
Until the 2000s, Sub-Saharan Africa had in fact been de-industrializing: the mood was gloomy, as the little manufacturing activity that had existed was slowly waning, and with it, the traditional route to development and poverty reduction. In northern Nigeria’s largest city, Kano, for example, textile factories, leather tanneries and ceramics plants were visibly falling into disrepair.3 There were reports of empty industrial parks in Ethiopia4, while South Africa’s footwear industry collapsed.5
But recently, this trend had begun to reverse across the region. We have documented this in new research based on an in-depth investigation of national data from 51 countries, including 18 in Sub-Saharan Africa, such as South Africa, Ethiopia, Nigeria, Kenya and Mauritius.6 These 18 countries account for nearly three-quarters of the region’s GDP7 and are therefore representative of the overall picture.
The figure above illustrates how this manufacturing renaissance has influenced the share of manufacturing employment in three of the countries included in our study, namely Nigeria, Ghana and Rwanda. Manufacturing in Ghana and Nigeria began to expand from around 2010 onwards, while in Rwanda, it had been gradually increasing as a share of employment since the 2000s. Rwanda’s path of industrialization has included the opening of its first car assembly plant by Volkswagen in 2018.8
We observe the same general trends across the region although industrial capacity continued to decline in some countries.9 As shown in the figures below, the average percentage of manufacturing employment in the African countries included in our study remained stagnant at 7.2 per cent between 1990 and 2010 but had increased to 8.3 per cent by 2018. This is still low in comparison with Developing Asia and Latin America, but a clear trend is nonetheless perceptible.
Despite this encouraging trend, another striking development the above figures reveal is that manufacturing as a share of real value added (GDP) in Sub-Saharan Africa actually decreased. What this tells us is that productivity growth in manufacturing was lower than in the economy as a whole. In fact, manufacturing productivity in the region barely improved at all throughout the 2010s.
Putting these industrialization trends into the development context of the countries in these regions provides valuable insights. The above figure presents regional trends in manufacturing employment that account for differences in income level and demographics. What is particularly noteworthy is that all patterns are confirmed. On average, Developing Asia (14 economies) and Sub-Saharan Africa achieved significantly higher shares of manufacturing employment in the 2010s than comparable countries in the 1990s. By contrast, Latin America and Advanced Asia have experienced ‘employment de-industrialization’ over the last two decades.
These broad regional trends, however, are explained by the large heterogeneity among the regions and are sensitive to the sample of countries considered. The figure below shows that some countries in each region continued industrializing even when the region on the whole was de-industrializing. In Latin America, for example, manufacturing expanded in Bolivia while in Advanced Asia it rose in China, Taiwan Province. The figure also presents examples of de-industrialization reversals in Argentina, Bangladesh and Ghana for the period 2000 to 2010.
Our analysis provides a full picture of country-specific trends in manufacturing employment for all 51 countries since the 1990s. This allows us to identify the countries behind the manufacturing renaissance. In Sub-Saharan Africa, they are Burkina Faso, Cameroon, Kenya, Lesotho, Mozambique and Senegal. In Developing Asia, the frontrunners are Cambodia, Indonesia, Sri Lanka, Thailand and Viet Nam. Moreover, a strong development of the manufacturing sector is observed in Bolivia and Turkey.
This heterogeneity across space (regions) and time is important for interpreting the broader regional trends. Our findings demonstrate that industrialization is in fact possible in every continent and decade. Broader regional findings, therefore, cannot be generalized for all countries within a given region. But this also raises questions about the mechanisms behind these industrialization patterns.
The role of small manufacturing firms
As noted earlier, manufacturing employment in Sub-Saharan Africa expanded while its productivity remained constant. We explore the nature of the manufacturing renaissance to find an explanation for this particular pattern.
On the one hand, we must distinguish between small and large firms. Large modern firms tend to be more productive than smaller ones, partly because they benefit from economies of scale, producing more goods at lower input costs. It seems that smaller firms have primarily been responsible for Sub-Saharan Africa’s industrial resurgence, hiring workers to produce relatively simple goods such as processed food, clothing and wood products to meet the rising demand from domestic consumers.10 This differs from East Asia’s manufacturing experience, which was driven by exports. In search of lower wages some manufacturing activities have been relocated from China to countries such as Ethiopia.11 It is debatable, however, to what extent the arrival of the “flying geese” of low-cost manufacturing production has actually driven the overall trend in Sub-Saharan Africa towards increased industrialization.
On the other hand, recent manufacturing growth in Sub-Saharan Africa has mainly served domestic, not export markets, implying that this growth is not dependent on demand from other countries. Within the context of the current global economic crisis, this was reflected in the fact that commodity exports from Sub-Saharan Africa were hit harder than manufacturing exports – further vividly illustrated by the collapse of oil prices in 2020 (which have since bounced back).12 The recently created African Continental Free Trade Area might boost regional trade in manufactured goods in the years to come. Overall, the manufacturing renaissance in the region appears to be relatively resilient.
Arthur Lewis, a Nobel Prize-winning economist, noted in 1979 that “the expansion of small scale activity in the modern sector is an important part of the development process […], meeting genuine market needs, and providing a lot of employment in the process.”13 Sub-Saharan Africa has reached this early stage of industrialization that is based on small manufacturing firms producing labour-intensive goods to expand the domestic market. The large amounts of low-skilled workers released from the increasingly productive agricultural sector are consequently being absorbed.
The way forward
The future of this manufacturing renaissance depends on the capacity of Sub-Saharan African countries to expand manufacturing production beyond their domestic markets. International trade promotes productivity growth by unlocking the potential to both exploit economies of scale and to take advantage of low wage levels. Finally, participation in global value chains promotes knowledge spillovers and the adoption of new technologies; yet for Sub-Saharan Africa, the focus for now should be on labour-intensive, not skill-intensive activities. There is some promising recent evidence on highly productive and internationally competitive manufacturing firms in Tanzania and Ethiopia, indicating that Sub-Saharan Africa is indeed able to achieve industrial development. Governments must therefore create an enabling environment for businesses to absorb Africa’s young labour force in the development process.
Disclaimer: The views expressed in this article are those of the authors based on their experience and on prior research and do not necessarily reflect the views of UNIDO (read more).
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