The government has identified the manufacturing sector as one of its top priority initiative under the thematic National wide growth plan dubbed, ‘The Big Four Agenda’. According to the Kenya National Bureau of Statistics, in 2017, the manufacturing sector contributed 8.4% to the country’s gross domestic product (GDP). The government hopes that by 2020, the contribution of the sector to GDP will be at 15%.
This is from the projection of boosting fish processing, leather and textile sub-sectors. The government has allocated resources with the focus of developing basic infrastructure and consequently influencing the growth of select industries within the special economic zones (SEZs). The plan has also been reflected in the 2018 proposed budget plan by the Treasury. This includes interventions such as resource mobilization. For instance, the government has allocated KES. 400 Million for the leather industrial park development and another KES 400 million for textile development.
Are these interventions going to propel the sector towards a positive growth trajectory?
“Special economic zones cannot work in isolation; they have to be integrated into the broader general economic structure. Long-term sustainable growth can only be achieved through productivity improvement,” remarked Professor Robert Mudida, Director Strathmore Institute of Public Policy and Governance, during the Seminar on Manufacturing and the 4th Industrial Revolution, held at Strathmore Business School in partnership with Kenya Business Guide and Institute for Security Studies on 21st June 2018.
Manufacturing and the 4th Industrial Revolution in Africa
The report by Jakki Cilliers dubbed, Made in Africa; Manufacturing and the Fourth Industrial Revolution – April 2018, investigates Africa’s manufacturing future, by modeling the potential impact of the Fourth Industrial Revolution, with a time horizon to 2040. Africa has a large and fast-growing population. Because of this, the continent will only be able to grow fast enough to improve livelihoods by moving labor much more rapidly into more productive sectors, in particular, manufacturing.
There is a widening gap between income levels in Africa and the rest of the world. The reason for this is the continent’s growth in low – productive sectors and the contribution that these sectors make to gross domestic product. “Whereas the population growth has rapidly increased throughout the years and is expected to continue to do so, Africa’s income levels have remained arguably constant, and insignificant to the global economy. Although some countries economic growth is set to increase gradually, and that Africa’s growth is currently at a steady trajectory of 4%, this is still completely inadequate to improve the livelihoods of its people given its large and fast-growing population,” remarked Jakki.
Countries grow wealthy and prosperous through the structural transformation of their economies – by moving capital, labor, and technology from lower-to higher-productivity sectors. Manufacturing is the most productive sector, the Asian experience shows. A growth-inducing structural transformation from low-productivity manufacturing led to rapid income growth, unprecedented levels of poverty alleviation and improved livelihoods. In addition, the growth in manufacturing, rapid transformation of its agricultural sector assisted Asia in alleviating poverty.
Services vs. Manufacturing
The experience of Sub-Sahara Africa has not followed this trajectory. Rather, a shift has occurred from low-productivity agriculture to slightly more productive employment in services, generally consisting of wholesale and retail trade in the informal sector.
The size of the manufacturing sector ranges from 5%in South Sudan to 29% in Tunisia (the second largest and 40% in Swaziland, the last due to the location of clothing manufacturers to benefit from access to the US market under the African Growth and Opportunity Act. On average, the contribution of manufacturing to African economies has followed a steady decline since independence; and has never achieved the average manufacturing peak share of 20 – 35%.
In no African country does ICT contribute more than 5% of GDP. Over the last two decades, ICT has overtaken agriculture as the third – largest contributor to GDP by value globally and it has become particularly important in high-income economies. Whereas ICT sector is responsible for only 1% of the value value-add to GDP in low-income countries (and agriculture 30%), it contributes almost 8% to GDP in high- income countries (whereas agriculture only contributes 2% of added value in high-income countries).
Despite its relatively small contribution to added value, in many instances, ICT is a growth multiplier, particularly at higher-income levels because it facilitates knowledge exchanges, including the effective functioning of regional and multinational value chains that include goods and services.
With a small (and declining) industrial sector, the African continent is struggling to achieve higher productivity in other sectors such as agriculture, which is larger (as a proportion of GDP) when compared to that in the rest of the world.
The fourth industrial revolution builds on the Digital Revolution, representing new ways in which technology becomes embedded within societies and even the human body. It is generally assumed to be about the future impact of technologies such as robotics, additive manufacturing (3D printing), blockchain software technology and big data.
In Africa, there are many industrial disadvantages such as labor costs which are too high to compensate, Initial conditions don’t exist for instance basic infrastructure and human capital, financial depth and high barriers to entry.
The fourth industrial Revolution is allowing developing countries to leapfrog through some of these challenges and reap good results. Manufacturing is evolving which includes shifts of the average levels of production, less capital intensive, technological advancements and innovation to the sector, as well as the biggest opportunities for the 4th industrial revolution which put a threat to routine labor.
Although manufacturing poses great opportunities especially in emerging economies, focus on manufacturing requires a huge effort, governing elite committed to economic growth as well as sufficient government capacity to formulate and implement policy.
In conclusion, goods produced and consumed in the region rather than the global market, presents Africa with opportunities for industrialization, while fostering regional trade.