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Opinion & Analysis

Manufacturing in Africa is growing faster than forecast

Last week the Overseas Development Institute (ODI) published an interesting paper on export-based manufacturing potential in Sub-Saharan Africa (SSA).

The report states that contrary to the common view, production, employment, trade and foreign direct investment in the manufacturing sectors has actually increased over the past decade.

Between 2005 and 2014, manufacturing production more than doubled from $73 billion to $157 billion, growing 3.5 per cent annually in real terms.

Some are higher with Uganda’s manufacturing growing by five per cent over 2010-2014, Zambia’s by six per cent over 2008-2012 and Tanzania’s by more than seven per cent in the last decade.

Further, SSA countries are increasingly exporting to each other (20 per cent of total trade in 2005, 34 per cent in 2014), and there is a great deal of foreign direct investment (FDI) into manufacturing among and between African countries.

The report states that there are exceptional opportunities in garments and textiles, agro-processing/horticulture, automobiles and consumer goods.

However, the share of manufacturing in total employment fell from 10 per cent in 1991 to 8.5 per cent in 2013. This is important to note because although manufacturing is growing, the employment creation ability of the sector seems more muted now.

Perhaps factors such as the growing role of technology in manufacturing is important over the past decade.

The report is very sober in noting the reality the whole of Africa’s share in global manufacturing exports remains less than one per cent, having fallen marginally since 2010.

Yet the good news is that between 2005 and 2014 exports grew at an average annual rate of 10 per cent or higher in the product groups analysed.

In terms of insights on Kenya, the share of manufacturing exports is higher than Ethiopian and Rwandan. Further, the intra-African trade share of Kenya was high at 67.5 per cent in 2013.

But, as the report notes, this figure ought to be considered in the reality that the coastal countries with large ports, such as Kenya, facilitate regional import and export pushing trade numbers.

Top manufactures from Kenya include apparel, clothing and accessories, perfume, cosmetics and cleansers, iron and steel and inorganic chemicals.

Promising sectors

But compared to the peers, Kenya has a lower share of domestic value-added (DVA) content of gross exports as a share of total exported value added with DVA standing at a lower than average 62 per cent.

The most promising sectors in manufacturing in Kenya detailed in the report, in terms of revealed comparative advantage, include automatic typewriters and word-processing machines, self-adhesive paper and paperboard, hair-nets, safety pins of iron or steel, carbonates, flat-rolled products of iron or non-alloy steel, and leather.

As ODI’s Dirk Willem te Velde states, industrial development is crucial for human development and leads to wealth creation, economy-wide productivity change, greater incomes, significant job creation and resilience throughout the economy.

As a development economist, there are two points of interest for me in terms of informally assessing the development potential of manufacturing.

First, is the extent to which manufacturing can absorb low-skilled labour given that Kenya’s population’s average years of schooling is 6.5 years.

The second is the employment creation potential of manufacturing. For too long Africa has supported the jobless growth phenomena where the economy is growing but formal job creation is lacklustre.

The report provides some insight on these issues by looking at Tanzania where the highest low-skilled employment potential is in agricultural products, good news given the importance of agriculture to countries such as Kenya and Tanzania.

In terms of employment potential, for Tanzania, agriculture comes out on top again. Agricultural products such as high-value vegetables and fruits, processed grains, processed meat, wood products and leather have high employment potential.

The good news: it is possible for agriculture to absorb low-skilled labour and have high employment potential.

This should provide impetus for Kenya to replicate the agro-processing to leap-frog development. But remember high wages are a constraint for the sector. Labour costs in SSA are generally higher (relative to GDP per capita) than in low-and middle-income Asia and Latin America.

Ms Were is a development economist; email: anzetsew@gmail.com

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