Africa can build manufacturing competitiveness to create jobs
Rising wages in China offer window of opportunity for Africa
New WB book uses enterprise level analysis to provide a 'how to' guide
May 2, 2012 – Last September, the Ethiopian Government invited Huajian Group to invest in their country, in an effort to implement their recently adopted “Growth and Transformation” plan. For Huajian Group, a well-known footwear company which employs 25,000 workers in China, the task was simple: build a shoe factory in the Eastern Industrial Zone near Addis Ababa. However, the challenge was to complete this task in three months time, ahead of the 2012 African Union Summit. Huajian took up the challenge.
“I am very proud to say that on Jan 5 (2012), two production lines, all brand new machines, and 600 workers started producing shoes with the label of ‘made in Ethiopia’ for the US market,” said Helen Hai, Vice President and General Manager of Overseas Investment, Huajian Group.
This exemplifies the potential of African countries in becoming leaders in the manufacturing sector, especially light manufacturing, and in creating millions of productive jobs. However, the path to growth requires responsive Government policies and private sector led industrialization.
This was the focus of an “All about Jobs: From Asia to Africa” session held on April 21 at the World Bank’s HQ. The event was attended by policy makers, African ministers, entrepreneurs, and World Bank experts. Drawing from the East-Asian industrial growth experience, the panel discussed practical ways of spurring growth and job creation in Africa.
“In 2009, Africa’s unemployment rate was almost double that of Asia, i.e. some 9% in Africa and 5% in Asia, and its underemployment rate was 31% compared to 19 % global average,” said Obiageli Ezekwesili, Vice President, World Bank Africa Region.
Growth alone is not sufficient to generate jobs. In the past decade, GDP growth in Africa averaged 5.2 percent per year. However, this has been based on commodity exports and has not been accompanied by structural transformation.
“Modern economic growth is a process of continuous structural changes in technology, in industries, and in socio-economic institutions. And that is the way to create jobs, generate growth, and reduce poverty. All the successful countries have demonstrated that,” said Justin Yifu Lin, Sr. Vice President and Chief Economist, World Bank.
Each country, regardless of its level of development, can succeed if it develops industries that are consistent with its comparative advantage, determined by its endowment structure. What is required is to identify what a country has and what it can do well. Armed with this information, governments can then prioritize their limited resources to facilitate the development of industries that are essential for growth. The required infrastructure improvements are often industry-specific.
“In Uganda, the private sector accounts for 80 percent of GDP - they are the growth creators. So, the Government’s role is to be an accelerator or a multiplier of that growth,” said Hon. Maria Kiwanuka, Minister of Finance, Uganda.
The time is ripe now for Africa to delve in to manufacturing and seize almost 85 million potential jobs, as real wages are rising in China and the country’s enterprises are looking abroad to relocate. China’s shedding of manufacturing jobs alone will be enough to more than double manufacturing employment in low- income and African countries. Thus, it will be highly beneficial for African Economies to carefully identify sectors that are consistent with their comparative advantages and promote them.
In this context, 'light manufacturing industries' provide the much needed launch pad for Africa to jump-start its long-delayed structural transformation process. Lower wages and abundant materials provide a unique opportunity for African economies, such as Ethiopia and Tanzania, to establish labor-intensive manufacturing sector and make way for advanced industrial production.
Empirical evidence and surveys from Ethiopia, Tanzania, Zambia, Vietnam, and China - compiled in the recently published “Light Manufacturing in Africa” book - find that Africa has the potential to create millions of productive jobs but faces six major constraints. These constraints are access to input cost & quality, industrial land, finance and, lack of trade logistics, entrepreneurial skills, and worker skills.
“The binding constraints vary by country, by subs-sector, and by firm size. Policies addressing these constraints need to be very specific and targeted.” said Hinh T. Dinh, lead author of the book and World Bank Lead Economist.
As a region, Sub-Saharan Africa has had limited structural transformation in 40 years, but things are gradually changing now. In Uganda, which is moving into a second phase of shared growth, light manufacturing is viewed as a part of a value addition process which includes agro processing and productivity. As a part of accelerating inclusive growth and jobs creation, Togo is focusing on improving policies and physical environment for businesses.
The session ended on an optimistic note, with several participants noting that Africa has the ability to grow at 8-12 percent if it can train young people and seize the opportunity offered by rising wage rates in China.