Oil is not enough: Africa needs industrial development

When industrial development arrives in Sekondi-Takoradi, there will be a trained workforce ready for employment. Photo by Christiane Badgley

This morning I came across an article in the GuardianAfrica must build industrial sector urgently, warns UN agency, and the timing could not be better. I’m in Guangzhou, China, marketplace for the world, and if you ever needed a reminder that manufacturing is what creates jobs and wealth and leads to real economic development, come here and look around.

Guangzhou attracts people from all over the world who come here to buy goods to ship back to their home countries for sale. You can find everything here and have anything made here, but a huge section of the trading caters to lower income countries (i.e. low-cost Chinese products and brands aimed specifically at developing countries).

Africans from all across the continent are here doing business in the tens of thousands. Many come and go, buying goods in Ghangzhou, shipping them back home to sell. Others have set up residency here to run wholesale-retail operations, sourcing and shipping companies, logistics companies and even factories. Everything, with the exception of the restaurants and bars that cater to the Africans doing business here, revolves around getting the Chinese manufactured products to Africa for sale.

China makes the goods. Africa buys and sells the goods. The Chinese have their economic miracle: jobs, construction, infrastructure, commerce, etc.  The African entrepreneurs who come here to buy goods for their businesses back home can do quite well and they certainly create some jobs in their communities. But the bottom line is that this business does not transform African economies. Africans have access to Chinese goods, but the buck stops there.

How do you get then from a “Buyam-Sellam” based economy to a manufacturing based economy that can transform a nation?  This is the question that is in my head constantly here as I talk to business people from Ghana, Nigerian, Guinea Conakry, Cameroon, Mali, Mauritania, Togo, Benin, etc.

I have met several people who run factories in the Guangzhou region. They grew their businesses to the point that it made sense to invest in setting up manufacturing operations. I ask each person the same question: Why don’t you set up a factory back home, where there are so many people who need jobs? Every single person has answered that if conditions permitted, they would move their business to their home country.  Everyone singles out the home government as the main obstacle to getting any industrial project off the ground at home.

Nigerians talk about electricity. The country is rich, swimming in oil money, with millionaires all around. But there’s no electricity. You can’t run a factory without electricity and for those who try, they soon find that the exorbitant cost of running a manufacturing operation on generators removes any competitive advantage they may have.  Electricity. When will Nigeria make this a priority?

Cameroonians talk about the inhospitable business climate: complicated bureaucracy, high taxes, bribes at every level, high costs (duty and bribes) of importing machinery into the country, bad infrastructure, etc. The Cameroonian government is well aware of this; many foreign governments cite Cameroon’s difficult business environment as an obstacle to foreign investment.

Africa needs to produce more of the goods it currently imports from China. Africa also needs to process more of its agricultural production and transform the primary goods that are now exported and transformed elsewhere. With a growing middle class, there are now more opportunities for African businesses to sell finished goods at home.

Are governments taking the steps necessary for industrial development?  Here’s the article from the Guardian, timely and relevant:

Africa must build industrial sector urgently, warns UN agency

Phillip Inman, economics correspondent, Monday 11 July 2011

African governments have only a few years to build up an industrial sector or risk failing growing numbers of young people unable to find a job, a UN agency warned today.

Governments must shift the emphasis from agriculture and mining to manufacturing and commercial enterprises that can absorb large numbers of young workers.

Unctad, the United Nations trade and development agency, warned that without a series of reforms to promote local businesses, the share of jobs in manufacturing will continue a decade-long decline.

Charles Gore, chief author of the report, Economic Development in Africa, said: “Africa is losing ground in labour-intensive manufacturing – which is generally the entry-level step in industrial development, and is a category especially important in Africa, where jobs are needed in rapidly growing cities.”

He said countries that failed to attract large numbers of high-productivity jobs could be faced with an uprising of dissatisfied young people akin to the “Arab spring” or an exodus of workers to areas with better prospects for growth.

African countries would need to “box clever” to encourage homegrown entrepreneurs after a series of World Trade Organisation agreements prevented them adopting protectionist policies used by rich nations during their own early development.

He said inaction could also allow foreign entrepreneurs from Europe, the US and China to displace local businesses, while a reliance on agriculture and mining was likely to lead to further years of grinding poverty for workers in precarious jobs blighted by low productivity.

The report spells out the difficulties African countries face after a decade when the share of jobs in manufacturing has fallen.

More than half of African countries have seen declines in manufacturing as a share of total output, with many of them falling back on staple exports to benefit from booms in commodity prices.

“The share of labour-intensive manufacturing activities in manufacturing value-added (MVA) fell from 23% in 2000 to 20% in 2008,” the report said.

In a report last year Unctad called on the world’s developed nations to promote growth in Africa and other developing areas by making technology more easily available, offering advice on climate change and taking steps to stabilise global commodity prices.

The latest report comes as many developed nations, including the UK, are pushing hard for a further liberalising of trade rules by the World Trade Organisation.

Critics of the Doha round of talks, which have dragged on for more than 10 years, argue liberalisation is favoured by rich nations that have the resources and business muscle to exploit African markets, knowing African businesses lack the capability to do the same in Europe, the US or China.

Gore said Chinese entrepreneurs were already gaining a strong foothold in many African markets, adding to the urgency for governments to support local businesses. Only Egypt, Tunisia and South Africa could claim to have developed industrial sectors, he added.

Despite its oil riches, Nigeria languishes in the bottom half of the continent’s manufacturing nations and is falling down the table along with Botswana, Zimbabwe, Algeria and Kenya. Central African Republic, Burundi and Rwanda have yet to start industrialising along with the sub-Saharan nations Mali, Niger and Chad, said the report.

Gore said it was encouraging that many governments understood the need to adopt sophisticated strategies that built on indigenous expertise and skills to increase growth and spread wealth beyond current elites.


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