22 January 2016
Helen Hai (CEO, Made in Africa Initiative, UNIDO Goodwill Ambassador)
Africa can become the next manufacturing hub for global markets. The Made in Africa Initiative aims to help the continent capture the window of opportunity for industrialisation arising from the pending relocation of light manufacturing from China and other emerging market economies. By capturing this opportunity, Africa will achieve sustainable, dynamic and inclusive growth. What Africa needs now are success stories, to provide the aspiration, confidence and experience necessary for it to realise its potential in terms of industrialisation and shared prosperity. The Made in Africa Initiative hopes to create such successes in African countries.
Window of opportunity
Modern economic growth, highlighted by the continuous rise in a country’s per capita income, is a process of ever-increasing labour productivity. Making this process possible are continuous structural transformations in technologies and industries – to reduce the factor costs of production and increase output values – and in infrastructure and institutions – to reduce transaction costs and risks. Why have African countries failed to prosper? Because they have not transformed their economic structures from agriculture and mining to modern industry.
High-income developed countries in Europe and North America all started off transforming their humble, pre-modern agrarian economies by developing light manufacturing. The few economies in East Asia catching up to the developed countries after World War II jumpstarted their industrialisation by entering light manufacturing thanks to rising wages in higher-income countries. Consider the relocations from the US to Japan in the 1950s, from Japan to the four Asian Tigers in the 1960s and from the four Asian Tigers to China in the 1980s.
China is now at a stage, like that of Japan in the 1960s and the four Asian Tigers in the 1980s, to begin relocating its light manufacturing to other countries because of its rapidly rising labour costs. Growth in China and in other emerging market economies, such as India and Brazil, will again provide opportunities to other developing countries to jumpstart their industrialisation.
Africa is potentially an attractive destination for the relocation of light manufacturing from China and other emerging market economies. It has an abundant supply of young labour. It is close to European and US markets. And it faces zero tariffs on its exports, thanks to the US Africa Growth Opportunity Act and the EU’s Everything But Arms policy.
The Made in Africa Initiative intends to help Africa exploit this window of opportunity to become the world’s next manufacturing hub and to achieve dynamic, sustainable and inclusive growth.
What challenges must African countries overcome?
To capture this opportunity, African countries must overcome major challenges.
- They lack technological knowhow about how to produce high-quality goods at a competitive price in the global market by using their abundant labour and resources.
- International buyers lack confidence in the ability of their manufacturers to deliver goods on time and with the consistent quality specified in contracts.
- They lack the infrastructure and business environment to reduce the transaction costs in reaching international markets.
A pragmatic approach towards attracting manufacturing firms
How can an African country best overcome these challenges? First, the government must adopt an active investment promotion strategy to attract existing export-oriented light manufacturing firms that have the technological knowhow and confidence of international buyers in China and other emerging market economies. Second, the government must use its limited resources and implementation capacity strategically to establish industrial parks and special economic zones with adequate infrastructure and a good business environment that helps investors reduce their transaction costs.
The immediate success of Huajian Shoe Factory in Ethiopia’s Eastern Industrial Park in 2012 and the inflow of foreign direct investment in light manufacturing into the new industrial park near Addis Ababa in 2013 show such an approach can work in Africa.
Building on success to formulate a new mission for the Made in Africa initiative
The Made in Africa Initiative will help African countries generate quick successes in export-oriented light manufacturing through the following four-pillar strategy:
- Bridging the gap in information
- Help export-oriented light manufacturing enterprises in China and other emerging market economies understand Africa’s advantages and set up production in Africa.
- Engage with policy-makers, development agencies, businesses communities and other key stakeholders – globally, regionally and nationally – to share the vision and the approach for capturing Africa’s window of opportunity to industrialise.
- Advocating triangle collaboration and connecting the dots
- Advocate win-win cooperation among prospective investors, international retailers in Europe and the US and African countries, with comparative advantages in abundant supplies of labour and raw materials.
- Work with international organisations and world leaders in the global supply chain to connect the dots of triangle collaboration (manufacturing capability, global retail market and African comparative advantages).
- Supporting African countries to identify their comparative advantages and develop their own development approach
- Provide intellectual support to African countries to identify their sectors of comparative advantage.
- Share successes and failures of past industrialisation efforts and support African countries in developing an approach to development that is green, inclusive, sustainable and environmentally friendly.
- Working with government to build quick key success examples
- Work with national leaders to develop a pragmatic approach to generating quick successes in industrial development.
- Bring prospective investors who have the manufacturing knowhow to visit the country, facilitate early-stage investment negotiations with the government and ensure successful investments and implementation to turn the country’s opportunities into reality.
- Identify policy constraints through the first movers’ operations, and advise the government on further reforms to attract more international and domestic manufacturing investment.
You can download her presentation here.
Photo credit: Quartz Africa: Michiel Hulshof and Daan Roggeveen