African Manufacturing: A Budding Enterprise?

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ADDIS ABABA, Ethiopia — African nations have long lagged behind the traditional Asian manufacturing powers. The United States Industrial Development Organization reports that Africa only produces 1.5 percent of the world’s total manufacturing output. In addition, fewer than one in 10 African workers are landing manufacturing jobs in today’s economic environment, as reported by the African Progress Panel.

However, a number of encouraging developments appear to be reversing this historical trend and providing evidence for a more optimistic future. Statistically speaking, African manufacturing output has nearly doubled since 2003. In addition, the continent has recently landed a number of large foreign investments from international firms. Retail giant H&M has recently begun to produce clothes in South Africa, citing the potential for future expansion in the continent.

“I think that there is great potential in Sub-Saharan Africa when it comes to production,” CEO Karl-Johan Persson told the International Business Times. “We have started producing on a small scale in Ethiopia and we will see how it goes. It seems very interesting.”

Domestic African manufacturing production is beginning to emerge as well. The South African telecommunications company Seemhale has begun to develop mobile phones in mass scale in hopes of cracking the current monopoly held by foreign producers. Angola has also announced an intention to supply its own arms industry from domestic factories.

A combination of factors explains the recent growth of the continent’s manufacturing sector. First, the labor costs of many Asian countries, including China, have sharply increased, causing manufacturing companies to look elsewhere. With high unemployment rates among younger populations and a plethora of natural resources, firms like Huajian Group believe Africa has vast potential for cheap, high-quality output. The Chinese shoe maker recently built two large production lines in Ethiopia, capitalizing on the nation’s abundance of high-quality leather and creating over 500 domestic jobs.

In addition, improvements in infrastructure, transportation and communication has made many Sub-Saharan countries more business friendly. Political legislation has helped as well — the Africa Growth Opportunity Act and Cotonou Agreement have reduced trade barriers and removed quotas from business transactions involving manufactured goods with U.S. and European Union markets.

Still, economists doubt Africa’s manufacturing sector can overcome Asia’s output any time soon, as tremendous sunk costs have made potential relocation efforts financially impossible for many companies already based in Asia. In addition, red-tape and corruption continues to scare many corporations away from investing in African nations. Yet, the sector’s growth is an encouraging sign, and many economists believe these smaller successes will inspire greater confidence from the business community in the Continent.

Sources: BBC News, CNN, The Economist, IB Times
Photo: African Fashion Guide

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