Promoting Manufacturing in Africa

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Yaw Ansu, Margaret McMillan, John Page and Dirk Willem te Velde, March 2016

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Industrialisation, particularly the expansion and increased sophistication of manufacturing production and exports, and also the expansion of manufacturing employment, remains an essential part of Africa’s economic transformation. Unfortunately, manufacturing as a share of gross domestic product has declined over the past few decades in most African countries, even though in absolute terms it is growing.

Although African countries face difficult challenges in breaking into world manufacturing markets, new developments work in their favour. These include rising wages in China and a rebalancing in Asia away from export-led towards domestic and regional consumption-led growth; Africa’s growing regional markets; falling transport costs; greater access to abundant natural resources; improved firm productivity and access to global value chains; and better general economic policy environments. But governments should not stand aloof; to seize these new opportunities they will have to formulate and implement coherent industrial development strategies. The key elements of such strategies must include:

  • continued improvements in the basics, including sound macroeconomic management, stronger general investment climate and support for the private sector and development of public infrastructure and relevant skills
  • an export push, including regional trade and integration
  • agglomeration through building and running efficient special economic zones (SEZs) and industrial parks
  • active foreign direct investment (FDI) promotion and building linkages with local firms
  • supporting productivity enhancement of local small and medium enterprises (SMEs) and their access to technology and long-term finance to help them venture into production of new or technologically more sophisticated products
  • improved coherence and implementation coordination within government and
  • strengthened consultation and collaboration between government and the private sector

Key issues

Separate panels at the African Transformation Forum were dedicated to several of the elements of the strategy above (e.g. panels on public infrastructure, skills development, regional trade and integration, public–private consultation mechanisms). For this panel, the key issues participants may wish to consider are as follows:

  • How do countries raise their focus and commitment to manufacturing and develop a coherent strategy to promote it? In what visible forms should this be expressed?
  • What key measures can countries take to improve their FDI promotion efforts and link the FDI firms to domestic suppliers?
  • How can the performance of SEZs and industrial parks be improved? Should the private sector’s role in developing and managing SEZs and industrial parks be increased? How can public–private collaboration be increased in this area?
  • How best can the state support access of local SMEs to technology?

How do we increase access of SMEs to long-term finance? In particular, how can development banks (and similar institutions) be made more market- and performance-oriented? What are the changes needed in their governance? What is the scope for public–private sector collaboration in improving SME access to long-term finance for manufacturing?

This paper was produced in collaboration with the African Center for Economic Transformation (ACET), as a background paper for the African Transformation Forum (ATF) in Kigali, Rwanda on 14-15 March 2016.

Photo credit: Simone D. McCourtie, World Bank

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