The output of African workers and employees is still too low. This is a barrier to the manufacturing industries on the continent. However, productivity will be key for Africa. Five suggestions on how Africa can overcome this obstacle.
Economic growth in Africa is not so bad. And even if the IMF must currently release an important portion of Kenya’s debt, African economies resist quite well to the Covid-19-pandemic. The Achilles heel of the African growth story is, however, the low productivity. Output of African workers and employees is, in comparison with the rest of the world, still too low.
The consequence of this fact is that manufacturing in Africa is going down instead of going up. According to the British magazine The Economist, in 1975-2014 manufacturing’s share of GDP in sub-Saharan Africa fell from 19% to 11%.
Transforming natural resources
Many economists demand that Africa should not only extract and export raw materials. Rather, Africa should also process this. African countries will benefit more from the cocoa bean plantations, if the beans would be transformed in Africa into chocolate and breakfast drinks. It is more interesting from an economic point of view to sell cables to the world than just copper.
But it is too expensive to manufacture in Africa. This is due to the poor education system in many African countries. Kenya, on the opposite, attracted quite a lot of manufacturing as the level of basic education in the countries is relatively high. And there remain too many bottlenecks in African economies due to a bad infrastructure and an inefficient infrastructure.
The underdeveloped manufacturing sector also means that the government does not earn enough taxes from the companies in the country. That means that governments are too dependent on foreign credit to build the much-needed infrastructure in the country. And this, in turn, makes governments very vulnerable to external shocks and vulnerable to crises.
How to improve productivity
Therefore, improving productivity will be crucial for the economic development in Africa. We have five suggestions for improving in Africa productivity:
- Education: Financing elementary schools, vocational schools, technical colleges and universities will have a major impact on Africa.
- Industrial parks: The low industrial density is a crucial weakness of the African economy. Developing industrial parks all over the continent will allow to build clusters, centres of competence in food processing, in mechanical engineering, in car making and so.
- Political support: To bring the industrial sector back up, companies need political support. Governments should become steadier in their economic policies. They should work to remove red tape. The decision to create the African Continental Free Trade Area (AfCFTA) is a step in the right direction. Now it has to be turned into reality. This will bring tough decisions.
- Infrastructure: It goes without saying that Africa needs to improve its infrastructure. The point is how to finance these projects. In many cases, it is difficult to charge customers or taxpayer for using this infrastructure. But there are ways to finance new infrastructure projects. We at Africa Partners are specialized in it.
- Export industries: Africa needs international finance for developing its economy. Developing export activities will help to pay back international finance as they will bring hard currency into the country. And there is another side effect: Facing international competition makes a company better.
Productivity is key
However, now is a good opportunity to promote industry in Africa. The Covid-19-pandemic and the recent closure of the Suez Canal because of a transverse ship showed the world how fragile international supply chains are. Manufacturing in Africa is closer to European and most US production sites than manufacturing in Asia. And the transport route is much shorter.
By the way: Europe will have to produce more in Africa. With an aging population, the continent no longer has the skilled workers its businesses need. What could be more obvious than to produce more in Africa in the future?