Chapter 6
Manufacturing
Many African countries, in their attempts to diversify their economies, have turned to manufacturing to improve economic growth. With its advantage of an abundance of natural resources, the continent is focusing on turning its raw materials into manufactured goods to boost exports and reduce reliance on imports.
Without a doubt, manufacturing could be the engine for rapid economic growth and development in Africa. Growth in this sector has been witnessed in most developed countries and emerging Asian champions such as China, Vietnam and India. Africa’s advantage is that it has an abundance of natural resources that can be converted into products through manufacturing, boosting economic activity. Furthermore, rising wages in China and improvements in policies make certain African nations attractive investment destinations for manufacturing.
Though Figure 6.1 shows that manufacturing value add (MVA) as a percentage of GDP has been declining over time, this trend does not necessarily mean the manufacturing sector has not been growing in the past years. In fact, real production grew by 41% in SSA between 2007 and 2017. The drop in nominal terms is largely due to increased productivity levels translating into faster production and hence lower relative prices — resulting in a smaller value add. According to the Industrial Development Report by UNIDO, globally, the quantity of manufactured goods rose faster than that of any other goods and services in the economy, and the same trend is evident in Africa.
Figure 6.1: MVA (% of GDP and in constant prices)
Note: MVA is the net output of a sector after adding up all outputs and subtracting intermediate inputs.
Source: World Development IndicatorsFor Africa to realise its full potential, it needs to address some of the challenges it faces, i.e. human capital, infrastructure gaps, policy and regulation failures. For instance, the lack of a skilled workforce hinders investment in more specialised forms of production. And inadequate energy infrastructure, which often results in frequent power outages in many countries across the continent, reduces manufacturing output.
Imports of manufactured goods still outweigh exports
Africa’s economic growth has not been sustainable and inclusive because it is driven by exports of unprocessed commodities with insignificant value added. Since 2007, manufactured imports in Africa have remained relatively high — between 70% and 80% of total imports. Positively, the dependence has fallen from 80% in 2007 to 72% in 2017 but remains a stark reminder of Africa’s inability to effectively diversify..
Manufactured imports in Africa are still largely dominated by machinery and vehicles, which account for more than 30% of total manufactured products brought into the continent (Figure 6.2). This highlights the need, and opportunity, for the development of the automotive industry in Africa. Egypt seems to have realised the gap and is now aiming to grow its automotive industry by 10% annually by 2030. To expand its market share in the region, Mercedes-Benz announced at the beginning of 2019 that it plans to open a motor vehicle assembly plant in the country. Although no specific timeline has been set, the firm believes Egypt is an attractive and competitive location for production and supporting logistics. This comes after the inauguration of Kia in early December 2018 (assembling specifically the Sorento Sport). Furthermore, the opportunity for investment lies in producing supplies required for the final product. Egypt’s current local components only account for 17% of the finished
goods. Morocco, for example, has adopted the model of producing components locally, boosting its value chain in the automotive industry.
Figure 6.2: Africa manufactured imports (% share of total exports)
Source: EurostatAlthough the share of total manufactured exports from Africa remains a fragment of what is imported, there have been some significant strides made in changing this dynamic. The share of total exported goods has increased from a low of 18.7% in 2012 to 35.7% in 2017 (Figure 6.3). At a regional level, Southern Africa ranks first, with North Africa lagging by a slight margin (Figure 6.4).
Figure 6.3: Africa manufactured exports (% share of total exports)
Source: EurostatFigure 6.4: Average manufactured exports of total exports per region (2008 to 2017)
Source: World Development IndicatorsPositively, the share of manufactured imports has, over time, declined in some regions i.e. East, Central and North Africa (Figure 6.5). The decrease suggests a shift from the reliance on imports to more self-sufficient and export-driven economies.
Figure 6.5: Average manufactured imports by region (% share of total imports)
Source: World Development IndicatorsPotential silver bullets for manufacturing growth
Effective Special Economic Zones
Special Economic Zones (SEZs) have become an integral part of the growth and development plans of African governments. The SEZs are developed with the aim of attracting investment by offering favourable benefits to investors, such as reduced customs duties and value-added tax; simplification and centralisation of administrative procedures; reduced factor costs for electricity and telecommunication services; preferential interest rates offered by local banks; and reduced freight rates. Many SEZs, such as those in Kenya, Ethiopia and Zimbabwe, focus mainly on apparel, textile, and agro-processing.
Some examples of traction on the SEZ front:
Kenya is at the forefront, with 61 SEZs already legally established. Investors have benefited in SEZs where power interruptions are significantly less frequent and almost 20% of manufacturing employment is located in export-processing zones. The government has also committed to investing in three more SEZs that will focus on textiles. Moreover, Kenya has included deferment on VAT and duty-free imports for firms investing in local SEZs.
Nigeria expects the implementation of SEZs to double manufacturing production by 2025. The government has established a company called Nigeria SEZ Investment with the objective of financing industrial parks in SEZs. The initiative has already seen two Chinese groups, the AfDB, the African Finance Corporation as well as Afreximbank showing interest.
In Tanzania, investments directed towards SEZs reached US$1.3bn in 2018, 21% of which came from India. Investments in Tanzania’s SEZs vary from garment manufacturing to high-tech industries.
However, in most African countries, SEZs have been ineffective due to challenges such as coordinating key actors, access to utility services, infrastructure financing and the creation of linkages.
Figure 6.6: Number of SEZs under development and in operation
Source: ILOTable 6.1 SEZs in cooperation with China
| Nigeria | |
|---|---|
| Name: | lekki Free Zone |
| Location: | Ibeju-Lekki (60km east of Lagos) |
| Size: | 3,000 ha |
| Main focus: | Light manufacturing, textiles, logistics and warehousing |
| Number of companies: | 21 |
| Number of jobs: | 551 |
| Nigeria | |
|---|---|
| Name: | Ogun Guangdong Free Trade Zone |
| Location: | Igbesa, Ogun State, (30km north of Lagos) |
| Size: | 250 ha |
| Main focus: | Light manufacturing, logistics, warehousing and pharmaceuticals |
| Number of companies: | 16 |
| Number of jobs: | 4,250 |
| Zambia | |
|---|---|
| Name: | Zambia and China Economic and Trade Cooperation Zone |
| Location: | Chambishi (about 380km north of Lusaka) |
| Size: | 1,158 ha |
| Main focus: | Copper mining and smelting, mining, equipment and services, construction, vehicles and materials, chemicals, logistics and banking |
| Number of companies: | 38 |
| Number of jobs: | 8,735 |
| Zambia | |
|---|---|
| Name: | Zambia China Economic and Trade Cooperation Zone |
| Location: | Lusaka |
| Size: | 520 ha |
| Main focus: | Agriculture, pharmaceuticals, construction, vehicles and materials, logistics |
| Number of companies: | 10 |
| Number of jobs: | 125 |
| Egypt | |
|---|---|
| Name: | Suez Economic and Trade Cooperation Zone |
| Location: | Ain Sokhna, Suez city (120km south of Cairo) |
| Size: | 600 ha |
| Main focus: | Textiles, garments, automobile assembly and electronics |
| Number of companies: | 58 |
| Number of jobs: | 2,000 |
| Ethiopia | |
|---|---|
| Name: | Eastern Industrial Zone |
| Location: | Dukem (35km south east of Addis Ababa) |
| Size: | 200 ha |
| Main focus: | Leather and leather products, textiles and garments, construction materials |
| Number of companies: | 27 |
| Number of jobs: | 4,500 |
| Mauritius | |
|---|---|
| Name: | JinFei Economic and Trade Cooperation Zone |
| Location: | Riche Terre (3km north of Port Louis) |
| Size: | 352 ha |
| Main focus: | Steel production, real estate, hospitality, logistical and commercial services |
| Number of companies: | n/a |
| Number of jobs: | n/a |
Source: ILO
Intra-regional trade
When comparing continental intra-regional trade, Africa lags far behind Asia and Europe, which record 59% and 69% of their respective total trades. Africa’s intra-regional trade is only 17%. Of this 17%, manufactured goods only make up a small share of traded goods — signalling opportunities for rapid growth and development in the manufacturing sector across the region (Figure 6.7).
Figure 6.7: Intra- and extra-regional trade and manufacturing exports (%)
Source: UNCTAD, Foresight AfricaThe recent launch of the African Continental Free Trade Agreement (AfCFTA) could be the key to unlocking growth in the manufacturing industry on the continent, and it could solve some of the challenges hindering GDP growth and the effectiveness of SEZs in some countries. The agreement currently has 52 African countries as signatories. The objective is to create a single continental market for goods and services, with free movement of business persons and investments, and eventually an Africa-wide customs union. It aims to unify the existing trade agreements in Africa. However, the agreement is a work in progress and for its full potential to be realised might take up to ten or even 20 years. All members are obligated to reduce tariffs and address non-tariff barriers, with the aim to eventually have free trade on 90% of all trade between the parties.
Africa’s largest and fastest-growing players
Largest manufacturing players in Africa
Figure 6.8 compares the market size and the competitiveness of the ten largest manufacturing countries in Africa. The market size in this case refers to the relative size of the manufacturing market in US dollar terms — the threshold for the size of the manufacturing market is drawn at about US$10bn in annual output. Competitiveness is based on the average scores across three indicators: transport infrastructure, quality of electricity supply, and pay and productivity.
Figure 6.8: Top ten manufacturing sectors in Africa (with commentary on selected countries)
Source: BrookingsFastest-growing manufacturing sectors in Africa
Over the past decade, most African countries except The Gambia, Sierra Leone, Lesotho, Somalia and Tunisia have had a positive growth rate in the manufacturing sector, ranging from 0.1% (Mozambique) to 14.6% (South Sudan). Fitch Solutions’ forecasted gross value add (GVA) growth from 2019 to 2025 suggests that on average Zimbabwe will take the top spot with an estimated growth of 19.6%, while Rwanda’s growth average is expected to almost double from 8.4% to 16% in 2025. GVA refers to the value of production less the value of any intermediate inputs. In Zimbabwe, key infrastructure projects such as improving road networks, construction of rail lines and the improvement of eight regional airports are expected to boost manufacturing. Rwanda has developed policies and strategies such as the National Industrial Policy and the National Export Strategy that is aimed at accelerating industrial and export manufacturing growth.
Table 6.2: Top 15 manufacturing GVA growth
| Current average (2009 to 2018) (%) | Forecasted average (2019 to 2025) (%) | |
|---|---|---|
| South Sudan | 14.6 | 18.0 |
| Liberia | 14.0 | 13.0 |
| Eritrea | 13.9 | 14.9 |
| Zimbabwe | 13.6 | 19.6 |
| Ethiopia | 12.3 | 10.9 |
| São Tomé and Príncipe | 10.7 | 10.4 |
| Niger | 10.0 | 10.8 |
| Nigeria | 9.4 | 13.0 |
| Rwanda | 8.4 | 16.0 |
| Tanzania | 7.9 | 10.0 |
| Kenya | 7.7 | 8.8 |
| Guinea | 7.6 | 8.9 |
| Burkina Faso | 7.4 | 3.8 |
| Chad | 7.3 | 5.4 |
| Angola | 7.3 | 5.4 |
A bright future for Africa’s manufacturing sector
The focus of FDI projects in Africa has shifted from the dominant extractive industry to more consumer-facing industries like retail, financial services, and technology, media and telecommunications over the past few years. According to EY, manufacturing (among infrastructure and power generation) received the most attention in 2017, and we expect this trend to continue over the next few years.
The number of greenfield manufacturing projects has been fluctuating in Africa, with the highest and lowest value of announced projects recorded in 2008 and 2015 respectively. Most manufacturing FDI is directed towards industries that deal with natural resources. Investment in lower-skill industries, i.e. clothing and textile, only accounts for a small share of total greenfield projects.
Figure 6.9: Value of announced FDI greenfield projects in manufacturing and share of manufacturing in all sectors
Source: UNCTAD, fDi MarketsAccording to the analysis by Supporting Economic Transformation, Ethiopia, Kenya, Mozambique, Nigeria and Zambia are five promising countries well positioned to attract manufacturing FDI. Kenya, for instance, enjoys the proximity and preferential access to a growing regional market — the EAC. Ethiopia and Nigeria have the advantage of large domestic market sizes. Mozambique and Zambia offer lower average costs of electricity in relation to Asian and Latin American comparators, thus making them attractive destinations for investment in energy-intensive manufacturing processes.
The continent’s ray of hope for growth
Africa’s manufacturing sector has great potential for development and growth. Brookings’ Foresight Africa report states that if the current growth trajectory continues, Africa’s manufacturing revenue output can grow by US$143bn by 2025. Moreover, there is a great opportunity for this number to rise by an additional US$290bn over the same period if industries shift away from China to lower-cost regions, and when the growth in industries like tourism, agro-processing and ICT-based services indirectly support the manufacturing sector (the acceleration case in Figure 6.10). A significant increase is expected in chemicals and automotive industries as well as in processing.
Figure 6.10: Africa manufacturing revenue output (US$bn)
Source: Brookings, IHS World Industry Service, UNCTAD World Trade Data, McKinsey Global Institute, AfDBFigure 6.11: Extrapolation of current trajectory vs. acceleration case by key sectors
Source: Brookings, IHS World Industry Services, UNCTAD World Trade Data, McKinsey Global Institute analysis, AfDBVideo: Manufacturing sector overview
