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Light Manufacturing in Africa: About the Report

Untitled Document
Steel Workers in Africa

The Four Key Areas Covered in the Book

1. Why light manufacturing in Africa?

While light manufacturing is not the only alternative to low-productivity agriculture, it has been historically, and still is, an important source of growth and productive employment in economies abundantly endowed with less-skilled labor and a comparative advantage in labor-intensive sectors.

For Ethiopia and many other nations of Sub-Saharan Africa, the light manufacturing sector offers an attractive choice for making optimal use of its abundant labor and natural resources to create better-paying jobs fairly rapidly for its vast pool of less-skilled labor in agriculture and the informal sector. This is also evident in East Asian and South Asian countries, where light industries continue to employ vast numbers of unskilled workers, especially in India.

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2. Can African countries compete?

Just as rising costs of labor and land diminished the comparative advantage of light industry in Taiwan, China, and Hong Kong SAR, China, during the 1970s, opening the door to rapid expansion of China’s production of labor-intensive export goods beginning in the 1980s, the rapid cost escalation now facing China’s export-oriented light manufacturing sector creates opportunities that could jump-start Sub-Saharan Africa’s structural transformation in the near future because it is well endowed with inexpensive, low-skilled labor, a key ingredient in the initial industrialization of a long list of Asian economies.

Sub-Saharan Africa’s potential competitiveness in light manufacturing is based on two advantages. The first is a labor cost advantage. In Ethiopia, for example, labor productivity in some well-managed firms can approach levels in China and Vietnam. At the same time, Ethiopia’s wages are only a quarter of China’s and a half of Vietnam’s, and its overall labor costs are lower still. Sub-Saharan Africa’s second advantage is an abundance of natural resources that supply raw materials such as skins for the footwear industry, hard and soft timber for the furniture industry, and land for the agribusiness industry.

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3. How can African countries compete?

Using new evidence, this report shows that feasible, low-cost, sharply focused policy initiatives aimed at enhancing private investment could launch Sub-Saharan Africa on a path to becoming competitive in light manufacturing. In Sub-Saharan Africa, as in China and Vietnam (which also experienced accelerated growth), policies that encourage foreign direct investment can speed industrial development and export expansion. The impact of isolated successes can be multiplied, as demonstrated by Ethiopia’s recent foray into selling cut flowers in EU markets: a single pioneering firm opened the door to an industry that now employs 50,000 workers. The strategies proposed in this report could initiate a process with the potential to create millions of productive jobs.

 

4. Focusing on specific constraints.

Based on the study finding that the key constraints to manufacturing growth vary by country, subsector, and by firm size, the book suggests that policy makers need to first identify what the binding constraints in specific sub-sectors are in order to design effective policies to remove them. Second, once they have identified the constraints, these constraints are most likely few in number, and can be easily resolved, which could lead to further reform momentum.

This approach is in contrast with traditional studies of Africa’s growth potential which inevitably come up with a long list of constraints including infrastructure, education, corruption, red tape, and so on. The findings here point to a smaller, more specific, and sometimes new set of key constraints. Narrowing the analysis can make the reform agenda more manageable and policy measures more effective within the financial and human resource constraints of most African countries.

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