June 11, 2013 by afroinvestguide
Currently, there is speculation about Africa becoming the next manufacturing hub of the world. African countries have key advantages when it comes to manufacturing, such as low labor costs, abundant resources, duty-free and quota-free access to U.S. and European Union markets for light manufacturing under the Africa Growth and Opportunity Act and the Cotonou Agreement. World Bank economists have stated that African nations can overcome their low productive levels by implementing appropriate supportive policies to take advantage of upcoming opportunities. Currently, China is the dominant force in light manufacturing and global export. However, the rising costs of land, regulatory compliance and labor in Chinese manufacturing centers have begun to erase the cost advantage of exporting from there. This trend is predicted to accelerate in the following years. This presents Sub-Saharan African countries with the opportunity to delve into light manufacturing, enhance private investment and create jobs (Dinh, 2012).
New evidence indicates that feasible, low-cost, highly focused policies aimed at private investment could put the Sub-Saharan African region on the path to becoming competitive in light manufacturing. These policy initiatives would facilitate progress on wider investment reforms and could foster industrialization and raise the market share of domestically produced goods in local markets for light manufacturers. As local production goes up, product will improve, and experience with technology, management and marketing will increase, which will assist them in capturing export opportunities. Policies in Sub-Saharan Africa that encourage foreign direct investment develop the manufacturing industry and expand exports at a higher rate. One example of this is Ethiopia’s recent initiative that exported and sold cut flowers in EU market, which pioneered a new industry and currently employs over 50,000 workers (Dinh, 2012).
There are significant issues facing the manufacturing sector in African countries, the most critical being lack of access to effective and efficient management and staff. Although, one recommendation for growing this industry encourages African countries to import managerial talent, this strategy is not proven effective, nor is it popular with local citizens. Instead, there is a focus on African countries implementing policies that promote job creation within the manufacturing industry. This will be done through a series of reforms that bring about tax incentives, macroeconomic stability, and technical expertise to increase efficiency of firms, trade preferences and knowledge of export markets. As China’s export cost advantage continues to decline, Sub-Saharan African countries have the opportunity to become competitive in light manufacturing. Growth in the manufacturing sector will lead to sustained job creation, higher incomes and lower levels of poverty throughout African countries.
Gregory Clark. Manufacturing Growth: What is the path to prosperity in Africa? University of California, Davis. 2011.
Hinh Dinh. Opinion: Could Africa be world’s next manufacturing hub? Marketplace Africa, CNN. 2012.