Africa is never immune from the brunt of global crisis - either the subprime mortgage collapse or the current COVID-19 pandemic. With fragile economies tied to the apron strings of global macroeconomic systems, the continent continues to face huge uncertainty. With economies suckling endlessly from foreign nations, every global slump has dire effects on the continent. Technically, when it comes to how crises move across the world, a popular saying comes to mind: ‘whenever the big world nations sneeze, Africa catches a cold.’
So, what happens to the continent when the world catches a cold? This was what happened with COVID-19. The world caught a literal cold and Africa writhes in feverish pains. This should not be so. With over 600m under 35 years old, Africa has enough manpower to drive its growth, yet it still needs to face huge challenges around lack of productivity and weak connections to global trade. However, manpower is not enough to drive economic growth.
What are the manufacturing lessons for the continent as we head into an uncertain future? What lessons can we take as we prepare for future pandemics because they will come?
During the heat of the pandemic, we witnessed countries hijacking medical supplies from the airport tarmac in China, just to keep their sick populace alive. If there is a well-known insight explained over again, it is the immense dependence of global manufacturing on China. It points to the concentration of global supply chains in one country. The reality was clear: the world was in bedlam. No one was ready for a pandemic at the time it happened. Most developed countries did not even have the unit economies to produce medical equipment and supplies such as facemasks, and ventilators. During wars, you do not learn how to make a sword on the battlefield, you buy from those who know how to. It was natural that the world turned to the country that already had manufacturing expertise.
This meant one thing for Africa: she lost a big manufacturing opportunity. Africa also doesn't have such capacity for that scale of manufacturing currently. However, it does not have to be like this forever.
In 2020, China's share of global trade grew to 15% from 3% in 1995, a breakneck speed that shows countries can rewrite their stories within a relatively short period of time. Today, manufacturing contributes 26% to China's GDP, reflecting the huge space it occupies in its economy. Come down to Africa and the number dips: Manufacturing contributes only 8% to Africa's economy and less than 2% total global manufacturing. There are emerging bright lights with South Africa’s manufacturing sector contributing 13% to GDP and also Egypt’s reaching 23% to GDP but this is not the prevalent situation across Africa.
So, why do African countries score low when it comes to manufacturing? What does the continent need to do to wean itself from over-reliance on other world nations? How can it compete as an emerging workshop of the world?
China’s ascent to global dominance is inextricably linked to its economic power which cannot be disconnected from its manufacturing sector. However, this did not happen within a blink of an eye. A growing manufacturing industry eases the restrictions in trade and builds capabilities to do business. Without a skilled workforce, ease in raising of private capital, improved infrastructure and deliberate supportive policy mechanisms, we will keep looking at changing our fortunes in agriculture when it lies in value-chain manufacturing and expansion of services. Is the continent ready to do the painful hard work to make our manufacturing competitive?
For Africa to expand its share of global manufacturing, it has to lean on four critical planks: a strong policy environment, rethinking the public sector, investments in human capital, and infrastructure building.
The right policy is like the nourished earth before the seed is planted. As such, before Africa seeks foreign investments to reignite its manufacturing capacities, it needs to fully develop a strong policy environment that can attract investors. The continent needs to be in the right space to encourage its entrepreneurial spirit and also fix the gaps in quality governance that limit opportunities for citizens. Even after the seed is planted in the nourished earth, the nourishing needs to continue. The right policy environment does not take a one-law flash-in-the-pan approach, it is continuous.
The fundamental plank in building Africa’s manufacturing is to rethink public sector policies especially rule of law, protection of intellectual property, business registration and other metrics that ease flow and repatriation of capital to African countries. Most investors state weak state capacity and sub-optimal bureaucracy as key factors that limit investment in long-term vehicles such as manufacturing. Changing this paradigm means that African countries need to take their trade and investment desks more seriously; they also need to find the requisite professionals to run them. However, we are seeing new horizons such as Rwanda that has not only created functional policy environments but also eased the process of creating businesses.
Many African countries’ reliance on natural resources subjects them to the cruel swings in the global economy, thus, it is important to build a protective shield from such sinusoidal movements. If as a continent, we learn anything from the pandemic: it is how interwoven we all are. And it is important that we begin to take advantage of this connectedness for economic advancement. And the first step is this: the continent has to repurpose its public policy to attract and protect foreign investments.
Without adequate investment in human capital - managerial and technical fronts - Africa cannot rapidly expand its industrial base. The growth of the Asian market, especially its manufacturing sector, is linked with deliberate investment in intellectual capital which includes the improvement of basic education, Research and Development funding as well as quality of life. For instance, it is not enough to have Chinese workers build our infrastructure, transfer of knowledge is important for project sustainability. Africa needs to embrace technology transfers, especially in developed markets such as Europe and US where the unit economics might no longer favour certain manufacturing.
One of the ways to achieve this is tech know-how transfer is to build partnerships with global tertiary institutions to deepen technical capacity is an important resource in this process. Nigeria has the Petroleum Trust Development Fund which provides scholarships to its youth in global learning environments. Unfortunately, it has not been able to use the vehicles to fix the technical gaps in building the machinery that can power its industrial growth. Africa needs to know that its assets remain the ingenuity of its young population and needs to rapidly nurture this.
No matter how lofty the ideas for boosting our exports are, without investment in human capital, it will always come short. Nigeria’s huge gap in technical and adaptive skills makes it challenging for manufacturing entities to find the right personnel. A keener look into thriving economies shows that their foundations are built on people. They see each citizen as an asset that has to be invested in, not just a number boosting population size. We did not turn our own citizens into assets and lost the opportunity to understand that the unit of diversification lies in optimising human capital within societies that create opportunities to allow citizens to thrive.
Without quick investments in required infrastructure, Africa cannot get its unit economies for manufacturing right. Most economies in Africa produce less than 5,000MW, not enough to power a city in Europe let alone run a manufacturing-focused economy. Africa needs to find investments to build new ports, roads, rail and the entire outlay that will ease access to markets. This should have been done yesterday, and the next best time to power our infrastructure is now. This is because the population of the continent continues to expand, blowing up beyond available infrastructure. So, the building of infrastructure should be futuristic, with eyes on future population numbers.
In the manufacturing sector, these problems are the reason why the sector is in decline. Yet, we cannot expect an improvement without resolving the issues of multiple taxation, energy shortages, export challenges, among others. What Africa needs is an industrial strategy for the world and not a protectionist approach. This would require long-term thinking for at least five years, to aggregate more manufacturing entities into hubs and ease their path to either domestic or external markets.
Africa needs to do more to support entities interested in manufactured exports. This includes the entire competitive process of business registration, infrastructure for the movement of goods, quick port services and standardisation of agencies: the entire outlay capable of expanding Africa’s competitiveness. The African Continental Free Trade Area (AfCFTA) is the window to kickstart competitiveness in Africa but not only will such capacities be needed for intra-African trade, it will provide the necessary foundation for the continent to trade with the world.
Africans are all over the world. Our diaspora is a pathway we are yet to maximise on the road to economic greatness. The continent can leverage its diaspora and build them as a fortress of enterprise across the world. The chances of success are higher if the continent leverages on the diasporans’ capabilities especially to fill our current obvious gaps in education, healthcare and technical skills.
If there is a plan to lift its poor from poverty, Africa cannot shy away from its manufacturing story. If the continent sets these “manufacturing planks” right, it will not only power our economies, it will put us on a solid foundation should the world face another pandemic. More than this, it will prepare us to compete with other world manufacturing giants when the bedlam of resources goes off again. Whatever it is, for it may not be a virus, Africa will be ready.
This piece appeared first on Africa Economic Congress magazine