How to think about manufacturing industrialization in Africa

The Industrial Revolution seems to represent a crucial stage in the growth process, paving the way for economic takeoff. This theory, notably defended by economist Walt Rostow in his 1961 essay “The Stages of Economic Growth” and supported by Kaldor in 1967, has proven to be highly accurate for European powers such as France, England, and Germany, writes Jean Clarys.

These countries experienced major developments thanks to their three main industrial revolutions: the one from the late 18th to early 19th century, the one from the late 19th century to early 20th century, and the most recent one between the end of the Cold War and the 1970s, respectively named the Thirty Glorious Years, Wirtschaftswunder, and the Golden Age of the Welfare State.

The Asian continent has also benefited from two major phases of industrialization to reach its current level of development. The first phase, between 1960 and 1980, mainly involved Japan and the “Four Asian Tigers,” namely South Korea, Singapore, Taiwan, and Hong Kong. The second phase of this “Asian Miracle,” which began in the 1990s and continues today, concerns China, Vietnam, and more recently Indonesia and the Philippines.

Today and increasingly in the future, Africa will face several gigantic challenges: climate change, good governance, infrastructure development, energy crisis, independence/sovereignty, security challenges, etc.

However, one of the main issues, which almost embodies the alpha and omega of all others, lies in an ongoing and upcoming demographic explosion, with a population expected to grow from 1 billion today to around 2.4 billion by 2050.

While the emergence and expansion of a manufacturing industry has allowed populations in many countries to see a significant improvement in their living conditions, I propose to reflect here on the opportunities, challenges, and strategies essential to understanding how to think about the industrialization of sub-Saharan Africa for the coming decade.

Manufacturing Industry: A Potential Driver of Structural Transformations in Africa

Africa is currently the least industrialized continent in the world. The share of manufacturing value added in the continent's GDP has stagnated for the past 10 years. In 2018, the most recent year for which data is available, this share was 10.5%, compared to more than 16% in the early 1980s.

The continent's contribution to global manufacturing value added does not exceed 1.8% and has even decreased since 2014. This weakness is particularly crippling when considering that, compared to other sectors, the manufacturing industry offers better opportunities to accumulate capital, exploit economies of scale, acquire new technologies, and foster technical progress.

Many African countries focus their economic development on exploiting raw materials to the detriment of the manufacturing industry, which remains the weak link in African economic fabrics. This comes at the expense of the role the manufacturing industry can play in structurally transforming the continent.

Some analysts believe that to enable beneficial industrialization for the continent, African leaders must analyze Africa's three previous industrial dynamics and find solutions to overcome them, as all three led to failures.

First, there was the phase of industrialization through import substitution from 1960 to 1980, which failed because the modernization of the agricultural sector was neglected along with the competitiveness of foreign manufacturing production.

To counteract this protectionist trend, donors developed large-scale Structural Adjustment Programs from 1980 onwards, focusing on economic liberalization. This led to a weakening of the state's role in favor of self-regulating markets, destabilizing African economies and endangering local actors.

Finally, since the late 1990s, international public aid has aimed to reduce poverty, address cumulative public finance and balance of payments deficits, and organize deflationary financial management. This dynamic has contributed to a loss of sovereignty for African leaders in their political choices and development paths.

This triple failure prompted the African Union to change strategy and place the development of the manufacturing industry at the heart of the Agenda 2063, with the main goals of job creation, poverty reduction, and sustained growth.

This decision is based on the idea that developing a powerful African manufacturing industry will enable a structural transformation of the continent's economic development process. This choice is based on several observations.

Firstly, the manufacturing sector is essential for innovation and the diffusion of technologies. It also has significant spillover effects on other economic sectors. Manufacturing companies are major consumers of banking, transport, insurance, and communication services; they stimulate demand for the agricultural sector.

The manufacturing sector also offers more job creation opportunities. Compared to primary products, the prices of manufactured goods are less volatile, and the demand for manufactured goods increases with income, suggesting that manufactured goods offer more opportunities for export market growth.

Numerous challenges pave the way to developing an African manufacturing powerhouse

While Africa's population is expected to reach 2.4 billion by 2050 and could double again by 2100, according to the World Bank, current policies will create “at most, 100 million new jobs over the next 20 years instead of the 450 million that Africa will need.”

Thus, while the African Union's Agenda 2063 focuses on developing the manufacturing industry on the continent, it is essential to understand the challenges faced by the continent in its industrialization process, beyond the flaws of the previously mentioned structural strategies, and the challenges this new strategy will face imminently. Indeed, structural transformation, which historically took the form of a transfer of resources from the primary sector to the secondary sector, then the tertiary sector, seems to have “skipped” the secondary sector in Africa.

Several reasons explain why Africa has bypassed industrialization. The main ones are the uncertainties of the business environment with failing public governance, the relative cost of labor compared to its qualifications, the lack of energy and transport infrastructure often linked to governance issues, and dysfunctional credit markets.

New challenges specific to our time, related to the evolution of the global industry, international trade, and the ideological dynamics governing the world and the global financial system, also represent additional hurdles to overcome.

The first challenge is the continent's integration into global and regional value chains. Integrating Africa's manufacturing industry into these chains by exploiting current comparative advantages related to low-skilled tasks, fostering value creation, and aiming to move up the value chain towards highly skilled tasks, thereby increasing the intensity and speed of the industrialization process, would be the perfect path for African industry to seize the opportunities offered by global value chains.

Successfully creating regional value chains initially, enabling intra-African collaboration to further transform products that can then be exported internationally as processed or semi-processed products, rather than unprocessed agricultural products and raw materials, would significantly increase the value perceived by African actors.

Africa must therefore increase its upstream participation in global value chains. In agro-food value chains, for example, non-agricultural jobs created could generate up to eight times more income than agricultural jobs. This integration challenge will be particularly perilous in a context of transforming international trade with the advent of growing protectionism.

The second major challenge, which also represents an infinite field of opportunities, lies in the advent of the Fourth Industrial Revolution. IoT, Big Data, MaaS, Blockchain, additive manufacturing, digital twin, AI, robotics, automation, innovative materials, etc. The Fourth Industrial Revolution is underway and radically transforming factory operations. As Georgina Hutchinson, a researcher at the Tony Blair Institute, predicts, this revolution will initially lead to significant job losses on the continent.

Indeed, the cost of robots and 3D printers is lower than that of labor. According to a study by the London-based think tank Overseas Development Institute, by 2034, a Kenyan worker will indeed cost more than using a robot. However, according to Georgina Hutchinson, this additional challenge for Africa could represent a tremendous opportunity to catch up on industrialization. Unlike already industrialized states that must now rethink their old systems, African countries have a head start: they can directly move to the stage of the factory of the future.

Raymond Giplin, Chief Economist at the UNDP Regional Bureau for Africa, mentions the possibility that Africa may directly leap from the Second Industrial Revolution to the Fourth, skipping the Third. Finally, a third challenge, though of a completely different nature than the previous two but perhaps equally important, will be securing financing for manufacturing industrialization in a context where ESG criteria, compliance with which is almost a sine qua non for obtaining private and public funding, are conditioned on projects focused on sustainable development.

This earmarking of funds may come at the expense of creating a real manufacturing industry for consumer goods, generating jobs and progress for populations. Indeed, the objectives of developing the manufacturing industry and adhering to ecological and environmental principles of sustainable development seem difficult to reconcile today. This difficult reconciliation may not facilitate Africa's industrial transition.

Implementing national, regional, and international policies based on the continent's strengths

In its journey towards developing a 4.0 manufacturing industry integrated into global value chains, Africa will face enormous challenges. To overcome them, national, regional, and international policies must leverage the continent's opportunities, with solid structural factors that serve as levers for the industrial takeoff.

For instance, the continent has the highest urbanization rate globally, significant internal market growth due to a burgeoning middle class, and a demographic boom that, combined with substantial income growth, would create a substantial demand source in the medium and long term.

To overcome the enormous challenges and best use its strengths as growth levers, national, regional, and international policies must deploy clear and coordinated strategies. The main focus areas of these policies should be infrastructure, taxes and regulations, education and training, proactive development of a 4.0 industry, and raw material transformation.

One of the first areas to develop across the continent is creating infrastructure in electricity, water, and transport. According to estimates by the African Development Bank, $130 to $170 billion annually would be necessary for infrastructure development.

To enable the deployment of these gigantic projects, supportive policies for implementing legal regulatory, and institutional frameworks must be created. An inadequate regulatory framework often limits private sector participation in infrastructure financing. For instance, many pension funds in Africa are not allowed to invest in infrastructure projects, let alone outside their country. This restriction is a major obstacle, especially given the small size of national African economies and the cross-border nature of many infrastructure projects.

Additionally, massive investment in training policies is inevitable. In a globalized knowledge economy, marked by the continuous creation of new professions, new consumption models, new work organizations, and accelerating skill obsolescence, the educational system becomes a strategic issue for individuals, companies, and territories.

Interestingly, when training strategies are implemented by national or local authorities, virtuous circles develop in the targeted sectors. This is the case, for example, in Kenya, where to foster the development of the tech sector, the country has mandated basic coding education from primary school and promoted the creation of schools that train highly qualified developers and engineers, such as Andela and Moringa School. Today, Kenya is one of the leading tech startup ecosystems on the continent.

To avoid missing the Fourth Industrial Revolution, proactive policies must be implemented. Edward K. Brown, Director of the African Center for Economic Transformation, explained that "It is now that we need to create infrastructures capable of supporting industrial transformation.

First and foremost, those that promote widespread Internet access." It is no coincidence that the African countries that have benefited most from the tech startup dynamics are those where leaders have implemented favorable policies, such as tax incentives for startups and investments in digital infrastructure to support innovation. For example, Rwanda launched the "Smart Rwanda Master Plan" in 2020 to promote digital transformation.

To implement these different policy strategies, the national level seems to be the most suitable. It is at this level that countries can develop comparative advantages as acceleration levers towards industrialization.

Many African countries have adopted industrial strategies focused on developing specific sectors.

Gabon, for example, through its national industrialization strategy, aims to invest $21 billion in the coming years to support growth poles outside oil, particularly agro-industry. Some countries are already reaping the benefits of these policies.

Ghana has adopted a clear strategy for industrialization, focusing on improving business conditions and developing special economic zones (SEZs) for export. According to an African Development Bank report, between 2017 and 2019, Ghana's industrial sector recorded an average annual growth of over 10%, a key factor in the country's growth.

In Uganda, thanks to significant investments in manufacturing, the industrial sector, which represented 20% of GDP, has risen to nearly 30% in 2024. In Ethiopia, about 80% of recent foreign direct investment was directed towards manufacturing industries within industrial parks.

This has led to accelerated growth, significant progress in employment, and increased exports of horticultural products, textiles, and garments (exports in this sector have multiplied tenfold since the early 2000s). Beyond national policies, regional integration strategies must also be deployed to allow African populations to benefit fully from the continent's industrialization.

Historically, regions that are more integrated experience faster growth and show greater resilience during global economic slowdowns. Regional integration enables better political cooperation, increased intra-regional trade, the emergence of competitive global value chains oriented towards international markets, and accelerated job creation.

Regional integration is therefore one of the main priorities of the African Union's Agenda 2063. The African Continental Free Trade Area (AfCFTA), a flagship initiative of the Agenda 2063, offers an unprecedented opportunity to unlock African economies, intensify intra-African trade, and promote economic diversification. It represents a crucial step towards integrating Africa into global value chains through regional value chains, catalyzing the continent's industrialization.

This proactive political stance must also be supported by international institutions, which seems to be the case, as evidenced by the implementation of the Third Industrial Development Decade for Africa (IDDA3). While the industry was long viewed negatively by international institutions due to its significant environmental footprint, the trend has largely reversed in recent years.

Industrialization objectives are now embedded in the Sustainable Development Goals, particularly SDG 9 “Industry, Innovation, and Infrastructure.” This cooperation between the UN and the African Union has led to increased funding levels for African industrial projects.

In Ethiopia, for example, four new agro-industrial parks were established in 2020, with over $600 million allocated by various partners to increase government resources for industrial sector expansion.

Beyond these multilateral cooperations, other forms of partnerships must also be considered. Public-Private Partnerships (PPPs) can contribute to the continent's industrialization. Mr. Lisinge, Director of the Private Sector Development and Finance Division at the UN Economic Commission for Africa (UNECA), stated that “To bridge the infrastructure gap, PPPs are essential for infrastructure development in Africa.”

Finally, this cooperation must also be seen in the relationships between local businesses and multinationals. For the African industrial ecosystem to develop rapidly, cooperation between local industries and multinational companies enables technology transfers and structural and cyclical transformations.

When local companies diversify and accumulate technology, they produce competitive goods and increase the private investment-to-GDP ratio. For instance, across the Atlantic, economists from the London School of Economics and Political Science demonstrated in 2007 that in the United States, technology brought by foreign firms contributes to a 10% increase in the productivity of local businesses.

Conclusion

Economists, civil society, and national, regional, and international authorities now share the belief that the rise of an African manufacturing power is the most secure and quickest solution to allow African populations to achieve a higher standard of living and African nations to attain genuine sovereignty.

However, according to the UN Economic Commission for Africa, from 1980 to 2013, the industry's share in the continent's economy fell from 12% to 11%, remaining at the lowest level among all developing regions.

Fortunately, in recent years, the trend has been reversing thanks to a shared awareness among national, regional, and international authorities.

At the same time, there is an emerging reflection on the solutions to implement to support the manufacturing industrialization of economies across sub-Saharan Africa.

The multilateral nature of proactive policies for developing essential infrastructures, strengthening legal and institutional frameworks, massive investment in training and skill development, adaptation to the Fourth Industrial Revolution, regional integration facilitating the insertion of African industries into the international value chain, as well as public-private cooperation and cooperation between local and multinational companies, will enable the rise of the African industrial revolution.

This industrial revolution is a prerequisite for the continent's structural transformation, potentially leading to widespread improvement in living standards, poverty reduction, the emergence of a new way of life, women's empowerment, lower birth rates, and reduced informal employment in African economies.

If these strategies are deployed in the coming decades, we could witness the most significant structural and systemic transformation Africa has experienced since the end of the colonial era.

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