African Manufacturing: What Can the Continent Learn from Asia?
Despite the continent's ambition to diversify economically, African manufacturing remains underdeveloped. What can African policymakers learn from Asia's experience?
When the Millennium Development Goals (MDGs) were adopted in 2000, Asia’s manufacturing value added as a proportion of the world’s US$5 trillion stood at 11 eleven percent, or eleven times that of Africa, which only represented 1 percent of the world total. As the total grew significantly to reach US$12 trillion at the global level in 2014, Asia’s share climbed to 39 percent. While other factors also contribute to explain Asia’s onward surge in international trade in manufactured goods, it is essential not to ignore the contribution of this fundamental in Asia’s economy. Meanwhile, Africa endured a difficult time, with its share reaching only 2 percent in 2014, an increase of only 1 percent since 2000. This low level of manufacturing value added, standing at US$225 billion in absolute terms, may be at the heart of the continent's marginalisation in international trade in manufactured goods and the African manufacturing sector’s lack of vitality to contribute effectively to poverty reduction, job creation, and inclusive development.
Table 1: Manufacturing value added as a proportion of the world total (in percent)
Exports of manufactured goods speak in favour of Asia, not Africa
Strong manufacturing value added must have made a remarkable contribution to Asia’s dominant influence in international trade in manufactured goods, and in turn to the region’s economic development and efforts to advance the MDGs. Although no empirical evidence is provided in this paper, it is most probable that Asia’s trade in manufactured goods, with a share of world exports swelling from 24 percent in 2000 to almost 40 percent in 2014, was one of the major driving forces behind the successful advancement of some of the MDGs in the region, in particular regarding poverty reduction. At this rate, it will not be surprising if Asia’s share in world exports of manufactured goods reaches 50 percent in the next decade or two.
Conversely, Africa’s performance has been very modest at best. In contrast with Asia, very few African countries export significant volumes of manufactured goods abroad. In 2015, only fifteen countries accounted for almost 91 percent of Africa’s US$90 billion of exports of manufactured products, meaning that close to 40 countries accounted for the remaining 9 percent. The fact that six countries – South Africa, Morocco, Tunisia, Egypt, Kenya, and Côte d’Ivoire – accounted for 80 percent of these exports is even more striking (Table 2). Clearly, most African countries are hardly participating in exports of manufactured goods. In 2015, Rwanda exported only US$68 million worth of these products, Djibouti only US$35 million, the Seychelles US$45 million, and Burundi US$20 million. In Asia, Cambodia, an LDC, exported US$10 billion worth of manufactured goods in 2015.
Table 2: Top African exporters of manufactured goods in 2015 (in thousands US$)
Africa’s ambition to diversify into manufacturing remains unfulfilled
In the last two decades, many African countries made public pronouncements presenting economic visions largely aimed at diversifying exports away from primary commodities and towards manufactured goods. However, most have proved to be nothing more than “paper tigers.” Africa’s exports of manufactured goods as a proportion of its total exports eroded from 26 percent in 1995 to 23 percent in 2015. During the same period, the share of manufactures in Asian exports increased from 74 to 77 percent (Figure 1).
The problems associated with an over-dependence on exports of primary commodities are well known. Due to falling global prices of commodities, all top African exporters of minerals and fuels experienced declining export revenue last year: Angola down from about US$60 billion in 2014 to US$34 billion in 2015, Equatorial Guinea from US$12 to US$6 billion, Nigeria from US$100 to US$51 billion, South Africa from US$50 to US$38 billion, and Zambia from US$8 to US$6 billion.
For the overwhelming majority of African economies, however, shares of manufactured goods in national exports remain too low to signal a genuine diversification process. The share only rose from 28 to 37 percent in Kenya, and from 44 to 45 percent in South Africa, while it stagnated at 3 percent in Nigeria. In Asia, diversification has taken a more serious step. Bangladesh, an LDC, increased from 87 to 93 percent the share of manufactures in its exports, and Thailand and Viet Nam also show impressive records. What these figures demonstrate is that while Asia has been able to drastically reduce its dependence on exports of primary commodities, the same cannot be said about Africa, where the dependence has increased. Notwithstanding, there are a few African countries like Mauritius and Tunisia that are achieving good results, with shares of manufactured goods in total exports reaching 63 and 77 percent respectively.
Figure 1: Proportion of manufactured goods in total exports (in percent)
Africa and Viet Nam: a striking contrast
More surprisingly, Africa has lost its global competitiveness in exports of manufactured goods to Viet Nam, a small developing country in Asia. World exports of manufactures grew from about US$4 trillion in 1995 to US$11 trillion in 2015. Between 1995 and 2012, Africa had a dominant annual average share of those exports in comparison to Viet Nam. However, the period 2013-2015 shows that the continent was overtaken by Viet Nam, which registered a 1.1 percent share compared with Africa’s 0.8 percent in 2015 (Figure 2).
This might be explained by one noticeable difference between Viet Nam and Africa. Starting prior to the birth of WTO, Viet Nam has devoted considerable efforts to developing its productivity and supply-side capacity, while also changing basic things like the mindset, in order to prepare itself to take advantage of WTO market access opportunities such as those generated by the abolishment of the Agreement in Textiles and Clothing (ATC) in 2005. When Viet Nam was welcoming this development, Africa was asking for an extended period to continue using quotas or delay liberalisation. Africa’s unpreparedness has meant a drastic loss of market share in exports of textiles and clothing, a topic that would require a discussion of its own. While the WTO will remain an important multilateral arena for global rule-making, it is important for Africa to understand that without a robust supply base, market access alone means nothing, as evidence from LDCs has shown.
Figure 2: Proportion of exports of manufactured goods in the world (in percent)
Without manufacturing, achieving the 2030 Agenda will be a real challenge for Africa
The 2030 Agenda ambitiously promises to transform our world. In Africa, where countries do not run trade surpluses in manufactured goods, realising the agenda’s aspiration will be very challenging. It is widely acknowledged that manufacturing is of tremendous importance for development, and historically, the sector has been the main driver of economic growth and structural transformation. During the MDG period, Asia recorded significant trade surpluses in manufactured goods, while Africa has not been able to build competitive manufactures and experienced growing trade deficits in the sector, a trend that is still ongoing. Asia’s trade surplus of around US$1 trillion in 2015 is not only huge, it also contrasts sharply with Africa’s own US$266 billion deficit (Table 3). In 2015, while Asia exported about US$4.6 trillion worth of manufactured goods and imported close to US$3.6 trillion, Africa’s exports reached only US$89 billion, about four times less than its imports which stood at US$354 billion. This trade deficit highlights the weakness of the African manufacturing sector. The continent is currently not able to benefit from the sector’s important potential in terms of socio-economic development and poverty reduction, in particular though the substantial export revenues it can generate. Clearly, current African exports of manufactured goods are not robust enough to contribute effectively to the continent’s overall achievement of the 2030 Agenda.
Table 3: Trade balance in manufactured goods in Asia and Africa (in thousands US$)
What approach should Africa adopt?
What should Africa do to build a stronger manufacturing sector? Rather than list a number of policy actions to which the continent is now accustomed, I would suggest that Africa spends more resources on learning from more successful developing countries like Bangladesh, Cambodia, China, Mauritius, Tunisia, Bangladesh, and Viet Nam. It is striking to note that there are only four African embassies in Viet Nam. One would expect countries like Rwanda, that are ambitious and want to modernise their economy, to have established an embassy there, with a view to acquiring knowledge and drawing lessons from the Vietnamese experience. Sometimes, technological advancement comes out of learning, as the Indian example of semi-conductors shows. The Indian diaspora who joined the Silicon Valley learnt, took that knowledge back to their country, and used it to bolster India’s growing trade in electronics.
Another point worth mentioning is that the key to Africa’s diversification does not necessarily lie in the multilateral trading system, but rather at the domestic level. It is mainly domestic factors that will enable the continent to stimulate domestic and foreign direct investment, strengthen human resource capabilities, and develop much-needed infrastructure, among other things. Of course, multilateralism has a role to play, but this role is complementary, as the example of Viet Nam shows. By negotiating and implementing global trade rules that can support Africa’s efforts to industrialise, the WTO can make a substantial contribution, but the continent’s development will largely come from inside. This point is important because there seems to be a strong belief among some African countries that the WTO is the answer to Africa’s massive economic problems: a belief that would make sense for a country like Viet Nam, with strong supply-side capacities.
The views expressed in this article are those of the author and do not in any way represent those of the institution with which he is affiliated.
Author: Edward Chisanga, Economic Affairs Officer, UNCTAD, Geneva.