Africa remains challenging from a development perspective. Good governance, political stability and persistent economic growth are still generally elusive.
There have been growth spurts, democratization and moderate attempts at reforms – but the general mood amongst Africans is that more can be done.
It is analytically ignorant to speak of Africa as a homogeneous group. Clearly there are diverse localized facts and experiences within the continent.
Ethiopia is trying to emerge out of a fragile ethno-political conflict and it is also aiming to be an industrial powerhouse.
South Africa is suffering the after-effects of a decade of governance by a negligent, complacent and perhaps corrupt political class – which has morphed into sluggish economic performance and high unemployment.
Nigeria had a power transition from a political coalition that ruled for sixteen years to an opposition coalition promising change from what had been a period of mixed fortunes.
Despite these diverse political and economic environment; there are some commonalities.
Africa needs a growth miracle to deal with its rising, urbanizing, young and increasingly jobless population.
By “growth miracle” I mean the rapid income convergence with rich nations experienced by East Asian economies like South Korea, Taiwan and to a lesser extent, China.
A lot has changed in the global economic structure over the decades. Services like finance, transportation, real estate, insurance, healthcare now dominate economic activities and have dwarfed manufacturing.
This trend is real in Africa and the rest of the world. However, from a development perspective, this is considered problematic. The services sector can be quite intolerant of the features associated with development in a low-income country.
The first of these “pro-development” features is the ability that a sector or an industry has to employ unskilled workers.
Africa has not existed in permanent economic squalor in all areas and at all times. There have been growth spurts in the past and there will be in the future.
This growth has always been built on the demand (by high-income countries and lately China) for Africa’s export of primary agricultural produce and natural resources.
The challenge is that such exports are too prone to global factors like price volatility and demand shocks. But the benefit of some sub-sectors (textile and garment factories) of manufacturing is clear. These export sectors can easily absorb workers from low-productivity agricultural sector who do not have previous experience without incurring steep costs in training them.
Output from industrial firms like paper-mills or chemical plants can be easily traded and exported, unlike services like transportation or healthcare with outputs that are not easily measurable or transferable.
Manufacturing has been the most historically consistent sector of the economy that delivers rapid growth in industrialization, employment and income. Even more worrisome is that most African economies are transitioning away from manufacturing into services provision on a lower scale.
People are moving away from low-productivity agriculture, and are moving into equally low-productivity self-employment or informal micro-enterprises. This may be because higher-productivity factory jobs are scarce due to many country-specific problems like poor infrastructure and an unconducive policy environment.
Secondly, opportunities to move into higher-productivity services have become limited – and technology is fingered as the culprit.
For example, it is relatively easier for farmers moving into cities to become proficient in labour-intensive factory work like leather-making. It is not so easy for the same pool of workers to become proficient in computer programming.
To withstand the headwinds to progress, African economies must reboot manufacturing. Some economists believe that organized manufacturing can work for developing countries. You just need to remove some binding constraints.
Reforms can be incremental and do not have to come wholesale. But they need to be sustainable and consistent.
Policies like special economic zones, currency devaluations and general export promotion can be adopted to provide boosts for an industrial base.
While low-skill labour-intensive manufacturing is a natural entry point for developing countries to industrialize, it does not have to be the way to go if the climate is unsuitable for it.
Technology has enabled the construction of global value chains and countries can plug into different modules depending on their needs, priorities and conditions.
For example: Ethiopia is starting with low-skill manufacturing like textile and garment factories and Rwanda has chosen to enter at a more higher-skill level in the manufacture of smartphones.
Both approaches are interesting natural experiments and the outcomes should be keenly observed
Finally, there is a case to be made for a services-led growth path. For services to be a “growth escalator” however, the productivity and skill gap between African and global firms will have to close significantly. Sources of productivity growth like good management practices, will have to be unlocked.
The author is the co-founder of Strap Labs and a strategy consultant working on the political economy of developing countries
Article shortened for space – Ed.