Africa’s industrialisation shortfall leading to devaluation in global market, analysts confirm

Onome Amuge

Africa, according to a report by the African Development Bank Group (AfDB), is one of the least industrialised regions of the world as its economy is mainly centered on the export of raw agricultural and mineral staples which are in most cases, processed into finished products by foreign industries.

Economic experts averred that most African countries have continually traded their natural resources majorly in unprocessed forms which to a large extent has limited diversification towards high processed and value-added commodities in global export trade. They also warned that Africa’s failure to process its raw commodities into finished products for export could prove costly to economic development as it is probably the most ideal development model that can actually create sustainable jobs, relevant export revenues and rapid wealth generation to a large range of its populace.

Recounting an instance of Africa’s disadvantaged position in the industrialisation sector, Rob Davies, erstwhile South African minister of trade & industry, bemoaned that the mineral used in the manufacture of the iPhone 6, mined from the rich coltan seams of the Democratic Republic of Congo, is sold to Chinese manufacturers for a paltry $1.6, about 16 per cent of the cost of the finished product, sold for $649 in the US. He added that as the value of raw materials depreciate, revenues generated by African countries suffer the brunt, making unprocessed goods an unsustainable means for generating future wealth in the continent.

Another report by the United Nations Economic Commission for Africa (ECA), disclosed that Africa exports 69% of the world’s raw cocoa beans but only 16% of the product is grounded in the continent, which is typically worth two to three times more per tonne compared to raw cocoa, The same scenario is also applicable to many of the continent’s agricultural and mineral commodities, leaving the continent at a disadvantaged position in global trading.

This, analysts explain, has become a familiar pattern for many African countries where the economy is still shaped by a colonial relationship in which they export commodities to be processed elsewhere. Dwelling on the issue, Emmanuel Ijewere, CEO, Best Food Global Limited, observed that despite being the highest cassava producer with over 20 per cent of global production, Nigeria’s export value of the agro-commodity is of little significance in the global market. “Indonesia produces less than 11 per cent of global output, but has through its industrialisation prowess, exported 80 per cent of the processed crop, generating millions of dollars annually while Nigeria on the other hand, is yet to add substantial value to its cassava as it does not possess the industry capacity,” he said.

Alan Kyerematen, former trade and industry minister of Ghana, stressed that industrialization is a major tenet of government policy in the continent and would only make sense if the most important commodities in Africa become the target for major programmes of industrialisation.

“The Most powerful nations globally are not countries with the highest possessions of raw commodities but countries with the most industrialised economies and production capacities,” he noted.

Challenges hindering Africa’s industrialisation drive

It has been argued by analysts and stakeholders in the manufacturing sector that the continent’s industrialisation development has been hampered by wide range of problems including high cost of capital, erratic power supply, lack of relevant skills, high prices of raw materials, infrastructural decay, poor customs and logistics, government policies and interferences. These, according to them, have forced many indigenous industries from functioning effectively with many of them eventually closing down.

 The African Development Bank group highlighted some factors militating Africa’s industrialisation growth to include; lack of investments in human capital and lack of appropriate skills needed to invest in industrialisation activities. It was also posited that the continent boasts only few scientists and engineers in sectors that drive African industrialisation transformation compared to counterparts in Asia, America,Australia and Europe.

According to the group, the share of students in science subjects such as engineering, manufacturing and construction in Africa ranges from as low as 3 per cent to 12.8 per cent compared with Germany, Austria, Mexico, and Malaysia, which are all above 20 per cent.

 Unfavourable business environment, inadequate financing for industrial development across many African communities and lack of access to affordable credit to local industries have also been blamed for the constraints in Africa’s industrialisation.

AfDB group also stated that long-term and equity financing is especially rare in Africa as almost 60 per cent of loans in the continent are short-term and less than two per cent of loans cover a period that is above ten years.

 Creating a pathway towards improved industrialisation

 In a report titled “Dynamic Industrial Policy in Africa”, the United Nations Economic Commission for Africa ((ECA) maintained that African countries could transform their economies through commodity-based industrialization.

ECA advised that the investment in human capital must be a priority for developing countries aspiring to transform the structure of their economies, adding that the business environment can be improved by establishing a single contact point between government and existing or new manufacturing firms. African countries were also encouraged to focus interventions on commodities where they have an advantage, and areas that are showing potential to build niches, as a way to build manufacturing capabilities.

 Karishma Banga, economist and senior research officer at the Overseas Development Institute (ODI), assured that for industrialisation to play an effective role in Africa, digitalisation is one factor that needs to be exploited to boost manufacturing and create more productive jobs. She noted that asides lowering the unit costs of production, information exchange and transactions, digital technologies can help African economies to develop new value chains, as well as strengthen existing ones.

“For digital transformation to take place, policies must be implemented to facilitate digital capabilities and manage inclusive digital transformation in manufacturing,” she stated.

Banga also encouraged policy makers across the continent to prioritise access to ICT goods and services, support innovation and research, update laws on data localisation, protection and intellectual property rights as well as consistent investments in science and technology. Rob Davies posited that African countries need to diversify their economies by replicating East Asia’s aggressive focus on manufactured exports rather than remain trapped in their colonially defined role as producers and exporters of raw agricultural or mineral products used in industrial production in Europe, America and other continents.

According to him, the actualisation of Africa’s industrial strength must involve three mutually interdependent dimensions: the integration of the physical, social and institutional infrastructure; the integration of production structures; and the integration of the African markets.

African Continental Free Trade Agreement (AfCFTA), he said, is a golden opportunity for economies on the continent to transform their supply chains and reverse the economic degeneration caused by the covid-19 pandemic. AfCFTA’s real prize, he continued, will be creating regional value chains that produce higher value goods and services that imprint their own ‘Made in Africa’ brand which if properly structured is expected to elevate the continent ’s manufacturing sector.

 “In order to unleash the potential of zero-tariff trade, African countries need to be given the same policy space as other early industrialists, and not pressured into accepting unfair trade rules,” he added.