Friday, November 24, 2017

Will Africa Become the Next Manufacturing Destination?

The Washington-based Center for Global Development (CDG) published in October 2017 a working paper titled "Can Africa Be a Manufacturing Destination? Labor Costs in Comparative Perspective" by Alan Gelb, Christian J. Meyer, Vijaya Ramachandran, and Divyanshi Wadhwa.

The study concluded that compared with Bangladesh for any given level of GDP, labor is more costly for firms that are located in Sub-Saharan Africa. The results did not suggest a particularly bright future for labor-intensive manufacturing in Africa. This is an important conclusion as many African leaders are pushing hard to industrialize and are being supported by China in this effort.

On a labor cost basis, a few African countries may be potential candidates for manufacturing. Ethiopia stood out in this study. The Democratic Republic of the Congo and Malawi were also possible candidates. Ethiopia's labor cost is reasonable compared to other African countries as well as to Bangladesh, and appears similar to China in the 1980s. Nevertheless, certain factors could derail industrialization in Ethiopia. Political unrest could unsettle investment in the manufacturing sector if repeated in Ethiopia on the scale seen in 2015 and 2016.

Drawing on the CDG study, The Nation published on 27 October an analysis titled "Kenya Can't Imitate China's Economic Model, As Things Stand" by Kwame Owino, chief executive officer of the Nairobi-based think tank, Institute of Economic Affairs. Owino concludes that Kenya's struggle to expand manufacturing shows the difficulty lies in getting into regional and global value chains.