Manufacturing more than doubles in sub-Saharan Africa, says new research challenging the prevailing view that sub-Saharan Africa's manufacturing sector is in decline

Manufacturing production in sub-Saharan Africa has more than doubled during the last decade, dispelling the myth the sector is in long-term decline, a new report by the Overseas Development Institute has found. The report ‘Developing export-based manufacturing in sub-Saharan Africa’ found while the share of manufacturing in GDP had fallen from 19% in 1975 to 11% in 2014, it had still grown faster than the global average at a rate of 3.5% annually, from $73 billion in 2005 to $157 billion in 2014.

At the same time, manufacturing exports doubled from $50 billion in 2005 to more than $100 billion in 2014, while many countries have also seen an increase in Foreign Direct Investment (FDI).

The report argues strong growth in many parts of the continent, rising wages in China and policy improvements have provided the region with a unique opportunity to attract investment in manufacturing. The report analyses quantitative and qualitative accounts of the manufacturing sectors and policy context in nine African countries (Ethiopia, Ghana, Kenya, Mozambique, Nigeria, Rwanda, Tanzania, Uganda and Zambia) as well as the average of sub-Saharan Africa (including South Africa).

A Unique Opportunity to Attract Investment

Dirk Willem te Velde, Director of Supporting Economic Transformation at ODI, said: ‘The common perception is that manufacturing in sub-Saharan Africa is in decline, in part because its share of GDP has fallen. But when we look at the figures for the overall value of manufacturing production in the region, we see it has been growing fast over the past two decades.

‘Given the much stronger decline in commodity exports, manufacturing exports is also making countries more resilient to the current slowdown. With strong growth in  parts of Africa, rising wages in China and improvements in policy, many African countries now have a unique opportunity to attract investment in higher value-added, export-led manufacturing.’

Using figures for manufacturing production (in constant prices), value of exports and share of GDP are based on ODI analysis of data from World Development Indicators from The World Bank, the report finds SSA countries are increasingly exporting manufactures to each other, with 34% of total SSA manufacturing exports in 2014, from 20% in 2005, although countries in Asia have also become much more important destinations.

The report also suggests a number of promising manufacturing sub-sectors, with Africa’s share in global exports of fertilisers and inorganic chemicals rising to more than 5% and more than 4% for leather.

The analysis includes a Manufacturing FDI Potential Index, which ranks nine country case studies based on their potential to attract FDI. Manufacturing FDI rose in nine African countries considered between 2003-2006 and 2010-2014, with the exception of Nigeria. Researchers highlighted Ethiopia, Kenya, Mozambique and Zambia as four countries which are particularly well-positioned to attract FDI in manufacturing.

The report also suggests a number of promising manufacturing sub-sectors, with Africa’s share in global exports of fertilisers and inorganic chemicals rising to more than 5% and more than 4% for leather.

The evidence shows that African manufacturing is growing in real terms

Let’s first consider the data, which overwhelmingly point to an upturn in manufacturing production, exports and FDI in Africa over the last decade.

Between 2005 and 2014, manufacturing production more than doubled from $73 billion to $157 billion, growing 3.5% annually in real terms. Some countries show particularly strong annual growth: Uganda’s manufacturing grew by 5% over 2010-2014; Zambia’s by 6% over 2008-2012; and Tanzania’s by more than 7% in the last decade.

The food and beverages sector increased faster than average, partly because of the importance of growing domestic demand. The textiles and clothing sector did less well, unable to withstand competition from Asian imports – but this is now changing due to increased Chinese investment in labour-intensive garment manufacturing, for example in Ethiopia or Rwanda, and to growing regional markets.

Manufacturing exports are increasingly regional, and help Africa withstand economic shocks

Overall, sub-Saharan African manufacturing exports (including re-exports) doubled between 2005 and 2014 to more than $100 billon. Asian countries have become more important destinations. African countries are also increasingly exporting manufactures to each other, from 20% of total manufacturing trade in 2005 to 34% in 2014.

And while the global economic slowdown led to a 30% decline in the value of non-manufacturing African exports to the EU, US, Japan and China in 2015, manufacturing exports – especially to China – held up much more positively. This is important: manufacturing offers African countries a chance to increase resilience to economic shocks.

What can African countries do?

Ethiopia, Kenya, Nigeria, Rwanda and Tanzania are already relatively well positioned to attract manufacturing FDI. Our new Manufacturing FDI Potential Index highlights Ethiopia’s competitive labour costs, Rwanda’s investment climate, Tanzania’s transit location, relative production complexity in Kenya and Zambia, and the size of market in Nigeria as factors conducive for manufacturing investors.

Well performing special economic zones in Ethiopia and Rwanda show that governments can succeed in attracting manufacturing FDI if they really set their minds to it. Industrial development isn’t just crucial for human development; it’s a priority area for the implementation of the Sustainable Development Goals in Africa. Industrialisation leads to wealth creation, economy-wide productivity change, greater incomes, significant job creation and resilience throughout the economy.

The conditions for an African manufacturing take-off are present. It’s time to recognise this potential and support a smart approach to industrialisation in the region.

Dr Dirk Willem te Velde is Senior Research Fellow and Director of the Supporting Economic Transformation programme at ODI.

Top image: Volkswagen South Africa (mediaclubsouthafrica.com)