African industrialisation stuck in a vicious circle

Published: October 10, 2016

Attempts to build manufacturing bases in Africa have proceeded slowly during the commodity boom; now they may founder at the time they are needed most.

Industrialisation has long been seen as the endgame for African development economists. The rapid growth of the Tiger Economies in Asia was secured by their ability to capture the manufacturing industries from more economically developed countries. Lower labour costs, combined with rapidly improving infrastructure, allowed them to build large industrial bases making everything from textiles to cars and electronics.

From there, those economies were able to move further up the value chain, innovating, developing their own technologies and brands, in some cases then offshoring manufacturing again.

With a few exceptions, Sub-Saharan African economies have not managed to break into global manufacturing supply chains. Hamstrung by high energy costs, unreliable infrastructure and unstable politics, few have been able to demonstrate that they can be genuinely competitive on cost, which remains the critical factor for many investors.

Building out a manufacturing base also helped Asian economies break out of their dependence on primary commodity exports, which had made them heavily exposed to the vagaries of the international market, and concentrated into a few sectors.

African governments have known for decades that they need to diversify, but over the post-2000 years of boom, which was driven largely by high commodity prices, they did not prioritise investments in other productive sectors. Now that the commodity super-cycle is on the downswing, commodity exporting countries’ economic concentration has been exposed.

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