The good news is that attractive solutions are known. Translating growth into meaningful developments for African countries will require an aggressive industrialization agenda. Africa is not a desert when it comes to manufacturing and industrialization. Attempts to industrialize in the 1960s and 1970s by adopting an import-substitution model of industrialization had mixed results. While this led to some remarkable progress, it quickly showed the limits of state-led production rather than state-led facilitation. Manufacturing value addition as a percentage of the GDP has been declining since the introduction of liberal policies promoted by structural adjustment programs. However, since the overall economy has grown considerably, the value addition percentage hides the fact that the real production of manufactured goods has gone up significantly too. Yet the concentration of such industrial bases in a few countries and sectors demonstrates that an overall structural transformation is still missing in action.
The quest for industrialization is not over in Africa. Domestic manufacturing in Africa doubled between 2000 and 2010 according to the African Development Bank and continues to increase thanks to investments in the retail clothing manufacturing sector by the likes of H&M, Primark, and Levi’s; car manufacturing by the likes of Volkswagen, Mercedes, Renault, Peugeot, among others; Seemahale Telecoms in the mobile phone segment; and by the aviation and automobile parts sector in countries like Morocco and Tunisia. Local investors have also boosted the manufacturing sector on the continent notably in electronics (mobile phone, computers) by manufacturers such as Algeria’s Condor Electronics and the Mara Group in Rwanda; the pharmaceuticals sector—a sector valued at USD 65 billionFootnote 6 by 2020 , therefore, matching India’s pharmaceutical sector—with companies such as Algeria’s Saidal, Biofarm, and Merinal Laboratories, among others, which produce 47% of locally purchased medical products, South Africa’s Aspen and Adcock Ingram, Tunisia’s laboratories which managed to increase local production from 14% in 1990 to 45% in 2010. And the list goes on to include companies elsewhere on the continent in countries including Angola, Cameroon, Egypt, Ethiopia, Ghana, Kenya, Lesotho, Mauritius, Morocco, Nigeria, Tanzania, and Uganda.
Agro-processing, delocalization of low value-added manufacturing in Southeast Asia due to labor costs rise there, as well as commodity-based industrialization hold the key for a more radical transformation.
For African countries endowed with natural resources, focusing energies on exploiting and transforming the wealth of the country can be far more promising than trying to diversify away from commodities. Despite criticism of this model of industrialization, largely due to the argument that it is unlikely to promote linkages, experiences from other resource-rich countries such as Argentina, Malaysia, Thailand, Australia, Norway, and Scotland show that such model can deliver economic growth. Examples from within Africa itself demonstrate that such a model can be promising in terms of developing elements of an ecosystem that promotes innovation, value addition as well as quality employment.
Agriculture represents also an important vehicle for resource-based industrialization. Agriculture accounts for almost 65% of Africa’s employment and 75% of its domestic trade. In addition, the agri-food sector has already made some strides on the continent and has significant potential with estimates putting its value at USD 1 trillion by 2030.Footnote 7 The sector can generate significant productivity gains in rural areas with vibrant hubs of agri-business and linkages across value chains.
To fully reach this potential, it will be important to improve land productivity. Africa’s land productivity is stuck at 1.5 tons per hectare, while in countries like India, land productivity has grown from 0.95 tons/ha to 2.53 tons/ha over the past 50 years. This is despite the fact that agricultural land in Africa is three to six times higher than in countries like China and India, both of which have successfully managed to secure food for their “bottom billion” despite having much lower available agricultural land per capita, while Africa continues to be the world’s most food-insecure region.
Small-scale farmers will be important players in this transformation. But they need support and innovation. Most African farmers have not benefited from initiatives and programs aimed at improving farming techniques, farm equipment, seeds, fertilizers, post-harvest technology, and agricultural financing. But some interventions, although still too timid and sparse, stand out as possible routes to enable the integration of small-scale farmers in the quest for higher productivity in African countries. For example, the interventions of the government of Ghana to introduce mechanized farming systems and make block farming a reality for small-scale farmers have successfully turned the country into an established food basket. Egypt’s rice yield today stands at nine metric tons per hectare, making it the best rice output in the world. Water harvesting in Tanzania has been successfully scaled up in the lowlands, where seasonal rainfall can amount to as much as 600–900 mm, improving the Majaluba rain-fed rice farms. With the help of low-cost individual pump schemes, Nigerian farmers have turned to small-scale irrigation by using shallow groundwater recharged by rivers and lifting it with shadouf and calabash in the dry season to grow vegetables for city dwellers.
Transforming African economies through resource-based industrialization will not be easy. It will require innovation, skills, robust knowledge base of the industry structure and global value chains. It would also require African countries to be particularly attuned to the global trading landscape, including barriers and preferential policies. However, boosting intra-Africa trade remains imperative for creating the markets that are needed for successful industrialization.
The entry into force of the African Continental Free Trade Area (AfCFTA) in May 2019 is potentially an important game changer. From this year, Africa has the largest free trade area in the world by size—with its 1.2 billion person consumer market. The combined consumer and business spending is expected to hit USD 6.7 trillion within the next 10 years.Footnote 8 The Economic Commission for Africa expects AfCFTA intra-African trade (currently standing at 20%) to expand by 52% by cutting tariffs on 90% of goods traded across the continent to zero.
Admittedly, the transition will not be without consequences—at least for some time. Experiences in countries that have undergone such transformations show that there is a strong historical pattern of worsening income distribution between rural and urban economies during the initial stages of structural transformation. As the urban population in Africa is projected to double in size to eventually reach 2.3 billion people over the next 40 years, it is likely that such a pattern would be further accentuated. However, we also know from historical data that absolute poverty does not necessarily worsen during such episodes, therefore, reducing the risk that the strides made in fighting extreme poverty in Africa over the last two decades are unlikely to be reversed.