Volume I: Light Manufacturing in Africa: Targeted Policies to Enhance Private Investment and Create Jobs
After stagnating for most of the past 45 years, economic performance in Sub-Saharan Africa is at a turning point. Between 2001 and 2010 the region’s gross domestic product great at an average of 5/2 percent a year and per capita income grew at 2 percent a year. However, experience elsewhere shows that this growth cannot be sustained without structural transformation.
PART I: SETTING THE STAGE
Chapter 1: Good Possibilities for Light Manufacturing in Sub-Saharan Africa
Sub-Saharan Africa’s potential in light manufacturing is huge because of its comparative advantages arising from low labor costs and abundant natural resources. These resources seem well suited for an expansion of manufacturing capacity that can replace imports and capture overseas markets.
PART II: WHAT CONSTRAINS LIGHT MANUFACTURING IN SUB-SAHARAN AFRICA?
African countries, given their limited resources, cannot afford to wait until all of the problems across all sectors and locations have been resolved. Instead, they should focus on reducing the constraints in sectors demonstrating good potential for competitiveness and employment growth. In Ethiopia, Tanzania, and Zambia and across subsectors and sizes, five main constraints impede the competitiveness of light manufacturing.
Chapter 2: Input Industries
The main input policy issues are import tariffs, price controls and exports bans on agricultural products, barriers to the import and distribution of high-yield seeds, difficulties to obtaining access to land and finance for commercial farming, livestock, and forestry, and disease control in the livestock sector.
Chapter 3: Industrial Land
Lack of access to industrial land can cripple efforts by both smaller and larger firms to take advantage of market opportunities and attain a competitive operational scale. Smaller firms need land to set up and expand a business, larger firms need it to expand their factories, and both can benefir from using land as collateral to obtain loans.
Chapter 4: Finance
Access to finance is an important constraint across all light manufacturing sectors, especially for small and medium enterprises. In Sub-Saharan Africa firms have to find significant up-front capital to buy land, build factory premises, and invest in machinery. The cost of finance and the requirement for collateral prevent them from getting loans to finance expansion.
Chapter 5: Trade Logistics
Poor trade logistics penalize firms that rely on imported inputs and doubly hit exporters. On average, they add roughly a 10% production cost penalty and cause long and uncertain delays, thereby wiping out their labor cost advantage in most light manufacturing sectors.
Chapter 6: Skills
Weak entrepreneurial and worker skills are a binding constraint on the ability to improve productivity for small and medium enterprises in several sectors and an important constraint for most firms. There is considerable heterogeneity in firm performance in Africa, reflecting partly the level of entrepreneurial and management skills and partly the lack of competitive pressure in many countries.
Chapter 7: Implementation
Policy interventions should begin with pilot case studies and be continually revised and updated as the situation evolves. Ideally, the size of government intervention to overcome constraints and information failures will be small, and the duration of such interventions will be brief, allowing them to be scaled back as initial success attracts rising flows of private resources into newly competitive sectors.
PART III. IDENTIFYING THE POTENTIAL AND EASING THE CONSTRAINTS
Chapter 8: Ethiopia as Exemplar
This case study exemplifies how the various analytical tools proposed by this report can help identify and resolve the most important constraints in Ethiopia. Ethiopia has the potential to become globally competitive in large segments of light manufacturing (apparel, leather products, and agribusiness) and if successful, could create millions of productive jobs.
Annex: The Study’s Objectives and Methods
This study aims to develop practical insights to help some African countries to become competitive in light manufacturing. It draws on five analytical tools: research based on the Enterprise Surveys, qualitative and quantitative surveys, a comparative value chain and feasibility analysis and a Kaizen study on the impact of managerial training for owners of small and medium enterprises.