Monday, October 16, 2017

Can Africa Industrialise?

In a bid to find out if African countries can “break into global manufacturing in a substantial way” Center for Global Development researchers used World Bank data to look at 5,500 firms in 29 countries. They compared labor and capital costs, and productivity and efficiency of manufacturing in sub-Saharan Africa with similar countries outside Africa. They did not have good news for most of the region.
They found factories in Africa were almost always more expensive to start and run. Looking at overall costs, small African firms were 39% more expensive than comparative firms elsewhere while medium and large firms were around 50% more expensive.
In a middle-income African country like South Africa: Labor costs were described as “very high” despite unemployment levels as high as 30%. A mix of structural factors, restrictive labor laws, and high minimum wages mean the continent’s most advanced economy, is “not likely to emerge as a strong competitor in labor-intensive industry in the foreseeable future.”
Stable, coastal countries like Senegal, Kenya, and Tanzania seem like strong candidates for a role in global manufacturing, yet they’re still too expensive. The labor cost per Kenyan worker is $2,118 compared with Bangladesh, where it’s $835. The capital cost per Kenyan worker is nearly $10,000, but is less than $1,100 per worker in Bangladesh. As a middle-income country, Kenya does have a higher GDP per capita ($1,116) versus Bangladesh ($853), but low income Senegal (GDP per capital $775) is still twice as expensive as Bangladesh in terms of labor and capital costs.
Ethiopia, may well be the exception and become a center for manufacturing with the best likelihood of being the “New China” as labor costs rise in the “world’s factory” and social issues such as child labor arise in some other Asian countries. Fashion brands like H&M, Guess, and J. Crew are already finding potential in Ethiopia, one of the few African countries whose labor costs ($909) are close to Bangladesh.
African manufacturing costs are so high mainly due to  lack of infrastructure such as transport networks and stable electricity in many poor African countries plus low levels of education will mean factory running costs and training the African worker are going to be more expensive than they need to be.

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