An awakening giant

An awakening giant
If Africa’s economies are to take off, Africans will have to start making a lot more things. They may well do so

The Economist
February 11, 2014

Workers at Pittards, a UK leather goods factory outside of Addis Ababa (BBC)

LESS than an hour’s drive outside Ethiopia’s capital, Addis Ababa, a farmer walks along a narrow path on a green valley floor after milking his cows. Muhammad Gettu is carrying two ten-litre cans to a local market, where he will sell them for less than half of what they would fetch at a dairy in the city. Sadly, he has no transport. A bicycle sturdy enough to survive unpaved tracks would be enough to double his revenues. At the moment none is easily available. But that may be about to change.

An affiliate of SRAM, the world’s second-largest cycle-components maker, based in Chicago, is aiming to invest in Ethiopia. Its Buffalo Bicycles look ungainly but have puncture-resistant tires, a heavy frame and a rear rack that can hold 100kg. They are designed and assembled in Africa, and a growing number of components are made there from scratch, creating more than 100 manufacturing jobs. About 150,000 Buffalo bikes are circulating on the continent, fighting puncture-prone competition from Asia.

F.K. Day, a SRAM founder, says he set up his first African workshop in South Africa and is looking at Addis Ababa and Mombasa in Kenya as possible next sites. Landlocked Ethiopia has only partially shed its Marxist heritage yet is attracting industrial companies. Huajian, a Chinese shoemaker (pictured above), has built an export factory not far from Mr Gettu’s farm.

Those who cast doubt on Africa’s rise often point to the continent’s lack of manufacturing. Few countries, they argue, have escaped poverty without putting a lot of workers through factory gates. Rick Rowden, a sceptical development pundit, says, “Apart from a few tax havens, there is no country that has attained a high standard of living on the basis of services alone.”

Yet a quiet boom in manufacturing in Africa is already taking place. Farming and services are still dominant, backed by the export of commodities, but new industries are emerging in a lot of African countries.

Thandika Mkandawire, a Malawi-born expert, and Dani Rodrik, a Princeton economist, argue that growth is bound to fizzle because of a dearth of factories. But they may be too pessimistic. Manufacturing’s share of GDP in sub-Saharan Africa has held steady at 10-14% in recent years. Industrial output in what is now the world’s fastest-growing continent is expanding as quickly as the rest of the economy. The evidence, big and small, is everywhere.

H&M, a multinational Swedish retail-clothing firm, and Primark, an Ireland-based one, source a lot of material from Ethiopia. General Electric, an American conglomerate, is building a $250m plant in Nigeria to make electrical gear. Madecasse, a New York-based chocolatier, is looking for new hires to add to its 650 workers in Madagascar already turning raw cocoa into expensively wrapped milky and nutty bars. Mobius Motors, a Kenyan firm started a few years ago by Joel Jackson, a Briton, is building a cheap, durable car for rough roads.

Domestically owned manufacturing is growing, too. Seemhale Telecoms of South Africa is planning to make cheap mobile phones for the African market. Angola says it is to build its own arms industry, with help from Brazil. African craftsmen are making inroads in fashion. Ali Lamu makes handbags from recycled dhow sails on the Kenyan coast and sells them on Western websites.

Many of these businesses are beneficiaries of growth outside the manufacturing sector. The spread of big retail shops encourages light industry. In Zambia a surprising number of goods in South African-owned supermarkets are made locally; it is often too expensive to transport bulky stuff across borders.

A construction boom is fostering access to high-voltage power. The spread of mobile telephony, including mobile banking, helps small suppliers struggling with overheads. IBM, an American computer giant with an eye on Africa, goes so far as to say that “software is the manufacturing of the future”. Consumers will still want to buy hardware, but growing local demand is creating a market for African app and software developers.

Make them learn

Underpinning all this is a big improvement in education. Charles Robertson, the chief economist of Renaissance Capital, a financial firm founded in Russia, has argued that for the first time in its history Africa now has the human capital to take part in a new industrial revolution. In the 1970s Western garment-makers built factories in places like Mexico and Turkey, where a quarter of children went to secondary school. Africa, then at 9%, has caught up.

Another spur for African manufacturing is investment by Chinese workers who stay behind after completing their contracts for work in mining and infrastructure projects. Many thousands of them have set up workshops to fill the gaps in local markets. The African Growth and Opportunity Act, signed by America’s Congress in 2000, has also boosted trade in African-made goods.

The World Bank has been suggesting for several years that Asian manufacturing jobs could migrate to Africa. Obiageli Ezekwesili, a vice-president of the bank, says that more than 80m jobs may leave China owing to wage pressures, not all to neighbouring countries with low costs; if African labour productivity continues to rise, many could go to Africa, especially if corruption and red tape, still major scourges of the continent, are curbed. In contrast to China, business in parts of Africa is becoming cheaper as infrastructure improves and trade barriers are lifted. The average cost of manufacturing in Uganda, for instance, has been falling.

Can cheetahs beat tigers?

This could mark a sea change. The rise of Asian manufacturers in the 1990s hit African firms hard; many were wiped out. Northern Nigeria, which once had a thriving garments industry, was unable to compete with low-cost imports. South Africa has similar problems; its manufacturing failed to grow last year despite the continental boom.

This is partly the fault of governments. Buoyed by commodity income, they have neglected industry’s needs, especially for roads and electricity. But that, too, may at last be changing. Wolfgang Fengler, a World Bank economist, says, “Africa is now in a good position to industrialise with the right mix of ingredients.” This includes favourable demography, urbanisation, an emerging middle class and strong services. “For this to happen,” he adds, “the continent will need to scale up its infrastructure investments and improve the business climate, and many [African] countries have started to tackle these challenges in recent years.”

Kenya is not about to become the next South Korea. African countries are likely to follow a more diverse path, benefiting from the growth of countless small and medium-sized businesses, as well as some big ones. For the next decade or so, services will still generate more jobs and wealth in Africa than manufacturing, which is fine. India has boomed for more than two decades on the back of services, while steadily building a manufacturing sector from a very low base. Do not bet against Africa doing the same.