Why is manufacturing still not driving East African economies?
East Africa isn’t without its economic success stories. Ethiopia and Rwanda are two of the region’s most exciting economies and Tanzania could be lining itself up as a rising force in the region. However, they – and the more established economies like Kenya and Uganda – share something in common: manufacturing plays a relatively small role in economic development.
While many developing countries rely primarily on agriculture, many East African countries rely almost entirely upon it. At the opposite end of the scale, manufacturing currently accounts for 10 percent of GDP in the East African Union.
China’s rise to a global powerhouse was in no small part thanks to it becoming the world’s largest manufacturer. Meanwhile, India’s rapid manufacturing expansion helped it grow faster than China in 2015 – for the first time since 1990. Head southeast towards Vietnam and manufacturing accounts for more than 27% of GPD in the rising Asian country.
Economic experts all point towards manufacturing driving economic growth by encouraging domestic and foreign investment, creating jobs for locals and reducing reliance on imports.
So why is manufacturing still not driving East African economies?
Manufacturing challenges in East Africa
According to the 2016 Global Manufacturing Competitiveness Index (Deloitte), global CEOs say the top drivers of manufacturing competitiveness are:
- Cost competitiveness
- Workforce productivity
- Supplier network
- Legal and regulatory system
Meanwhile, Deloitte’s report for African manufacturing competitiveness reveals talent is ranked as the fifth most important driver – below workforce productivity, supplier network and local market attractiveness.
Then you have the concerns key members of Africa’s manufacturing sectors have. According to Mike Vincent, the Deloitte Africa Advisory leader for the Manufacturing, Automotive and Construction sectors, they are as follows:
- Government corruption
- Exchange rate fluctuations
- Cost inefficiencies
None of those concerns sound particularly surprising or unique from many of the world’s developing regions/countries. However, there are unique challenges facing East Africa’s manufacturing prospects.
Africa’s unique position
The pattern of developing countries turning to manufacturing for stable growth has worked well for many nations, but the global landscape is changing. The impact of technology and the increased extent of overpopulation and mass unemployment brings new challenges to the tried and tested formula.
For example, productivity is mentioned as one of the major factors holding back manufacturing competitiveness in the region. The most efficient solution would be to invest in the latest technology to boost productivity and cut the cost of production.
But what about all those people manufacturing supposedly employs? One of the key benefits to this sector for countries like India and China over the years was the number of jobs it created and wages it paid, which would subsequently go back into the economy.
Africa needs to find the right balance between global competitiveness and local benefit. It’s not that Africa won’t be able to do this, but simply relying on the same approach developing regions have taken in the past won’t be enough.
The future of manufacturing in East Africa
The future of manufacturing in East Africa may not be clear, but one thing is obvious: everyone involved wants to make it a key contributor to economic development in the region.
At last month’s East African Manufacturing Business Summit and Exhibition (EAMBS), experts from around the world met in the Rwandan capital, Kigali, to put their ideas forward.
Lilian Awinja, executive director of East African Business Council (EABC), emphasised the need for innovation to solve the region’s unique challenges.
“Innovations are now shaping the business environment,” she said. “We need to add value to products produced in EAC. Our regional industries can now begin to raise manufacturing output and increase its share of global trade and production.”
Meanwhile, Mukhisa Kituyi, secretary-general of United Nations Conference on Trade and Development (UNCTAD), said East Africa needs to start by restricting the importation of cheap products from overseas.
“We should reduce the importation of cheap products from developed economies that may benefit local consumers but induce long-term challenges,” he said. “East African economies should create a conducive business environment for doing business and encourage development of locally made products.”
He also suggests manufacturers take advantage of the opportunities presented by eCommerce and other digital platforms.
Working towards sustainable manufacturing
From a distance, it might seem odd that East Africa is taking so long to turn manufacturing into a driving force of its economies. But when you look at the environmental price countries like China, Inda and Vietnam are paying, the importance of sustainable manufacturing becomes painfully apparent.
Vietnam’s agriculture sector is still its biggest contributor to GDP, but it’s struggling due to unreliable weather, among other things. The pull of city life means fewer people stay in the country to learn the trade and increased pressure on farmers cause all kinds of problems with food safety. The need to produce more for less hurts quality and the use of dangerous chemicals in food production has become widespread. And then you have the pollution caused by a manufacturing sector that has grown too quickly to be considered anything close to sustainable.
This doesn’t only apply to Vietnam either. Many developing countries find the rise of one industry hurts others in multiple ways – not to mentioned the public caught up in the rising prices, pollution, toxic food and unsustainable growth of city life.
If East Africa can take its time and innovate a less damaging transition towards manufacturing, all the better.
Featured image: By Mixabest – Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=23247713