Will the African market be the next manufacturing hub? African leaders call on Nigeria and African countries to strengthen manufacturing and regional supply chains.
Current Status of Africa's Manufacturing Industry and Market
Today, African countries such as Ethiopia have attracted heavy investment from the mainland, Japan, and the United States, and have become a new African star on the world's manufacturing map. In this process, due to the close economic and trade relations between the mainland and Africa. As early as 2009, the mainland has become the main trading partner of African countries and has become an experienced target for African countries to learn from and imitate in the process of economic development.
Manufacturers in advanced countries outsource production to developing countries in Asia and Latin America where labor is cheap. This has been the operating rule of transnational production chains for nearly half a century, which has successively promoted the economic development of Malaysia, Chile, China, and Vietnam. Now as mainland China gradually loses its advantage of low wages, this opportunity comes to Africa.
However, the development of new robotics technology may overturn the global value chain. The production and supply chain of the manufacturing industry has begun to introduce automation and intelligent systems, to make up for the gradual loss of low wage advantages, and technological upgrading will also drive competitiveness.
Are there opportunities and advantages for African manufacturing? Although all types of manufacturing industries have embraced automation, the OEM of products with low automation and labor-intensive, such as garments, leather, and footwear, is still a breakthrough in African manufacturing.
From a numerical point of view, from 2011 to 2015, the foreign direct investment (Greenfield FDI) of China, Hungary, Romania, Bulgaria, and other Eastern European countries declined from 2003 to 2007; but at the same time, Vietnam, Indonesia, Serbia, Ethiopia, Etc. is rising, indicating that FDI may still flow from mainland China to low- and middle-income countries in Asia and Africa in the future.
Second, the scale of the African market is growing, attracting manufacturing FDI. From 2011 to 2015, emerging countries with large markets such as India, Indonesia, Brazil, South Africa, Ethiopia, etc., their FDI grew compared to 2003-2007. That shows that Africa may still attract investment.
Third, Africa still has opportunities to cut into low-priced, low-quality market segments. In 2014, all manufactured products accounted for 43% of the intra-African continent's trade, almost double that of exports to countries outside Africa. Most of the manufacturing sectors experienced significant growth in intra-African trade between 2000 and 2014. That also means that the African manufacturing industry in the low-quality, the low-price market has the opportunity to export internationally.
However, with the development of artificial intelligence (AI) and automation, the threshold for success in export-oriented manufacturing has been raised, and Africa must also improve its competitiveness. Only by strengthening infrastructure, logistics, and understanding international trade regulations and restrictions, can there be opportunities Like Malaysia and Mainland China in the past, it is relying on export-oriented manufacturing to develop upward.
African leaders call on Nigeria and African countries to strengthen manufacturing and regional supply chain
Leaders in Africa, including African Union, Afrexim Bank, and UNECA, expressed their hope that Nigeria and other countries on the African continent can take active steps to shorten production and manufacturing gaps and establish domestic and regional value-added and supply chains. To assist African countries in coping with the COVID-19 outbreak, these organizations will assist African governments and institutions in shortening the procurement of medical equipment and supply gaps, and economic reconstruction in the later stages of the epidemic.
According to the African Union report, African leaders agree to the African Continental Free Trade Agreement (AfCFTA) related initiatives in the later stages of the epidemic, which will help build value and supply chains between African countries and regions. AU members should remove trade and protection measures as much as possible, create value and supply chains, and take necessary measures to assist national/regional medical and economic challenges.
African countries need to integrate procurement, intermediate processing, and manufacturing strategies and support border trade immediately. AU established the COVID-19 Fund and awarded the President of AU to the President of South Africa to coordinate international organizations to provide relevant support to fight against Wuhan pneumonia, and combine the African Export and Import Bank, AfroChampions Initiative, think tanks, research centers, and financial institutions to jointly discuss the later stage of COVID-19 Members make good use of AfCFTA's relevant trade and investment cooperation framework to strengthen the value and supply chain development of countries, regions, and the African continent, thereby assisting regional economic reconstruction and development.
The COVID-19 outbreak challenges global medical and social systems. The WTO expects that in 2020, global trade will decline by 32%, global GDP will disappear by 1% and economic losses will be US$1 trillion; ECA predicts that Africa's overall GDP will rise from 3.2% Decline to 1.8%, and bring an unexpected economic and financial crisis. In response to the COVID-19 epidemic, various countries have adopted measures such as closing cities, closing borders, and restricting the movement of people and goods. They have banned important business, economic, and social activities, and caused more than one million unemployment worldwide. Governments of various countries are doing their best to take relevant measures. Countermeasures to reduce economic losses.
Rising Africa Manfacturing Industry
The rapid population growth in Africa will promote the development of urbanization. In 2010, there were only three cities in Africa with populations exceeding 5 million, namely Cairo in Egypt, Lagos in Nigeria, and Kinshasa in Congo (DRC). By 2050, there will be 35 cities with a population of more than 5 million, of which the population of Kinshasa and Lagos is expected to exceed 30 million.
With the rapid growth of the population, there are emerging consumer classes. From 2010 to 2020, the African continent will add 122 million laborers. This scale of expansion will lay the foundation for the vigorous development of the economy, but to realize this potential, it is necessary to change the economic development strategy. At the current rate, Africa has not quickly created paid jobs to absorb its huge labor force. However, it is estimated that by 2035, Africa will become the world's largest labor market.
Many countries in Africa are facing a common problem, which is to realize the diversification of work types to ensure the continued prosperity and stability of their citizens and make Africa a major economy in the world. However, based on current trends, it will take half a century for the African continent to reach the same share of stable, paid jobs.
The report jointly issued by the Commission of the African Union and the United Nations Economic Commission for Africa stated that if African countries want to realize the demographic dividend, they need to promote the demographic transition, on the one hand, that is, from a country with a high birth rate and high death rate to a country with a low birth rate and low death rate. ; On the other hand, it is necessary to expand investment in the fields of health care and public education to improve the national health level and cultivate a highly-skilled labor force. African countries also need to implement supporting economic policy measures that help release the demographic dividend to attract investment in their labor-intensive industries and promote trade upgrades. The core of everything is still paid work. If there is no stable source of salary, millions of laborers will be forced to turn to self-sufficient work to make ends meet, which will waste a huge population potential.
To change this situation, African leaders must accelerate the pace of job creation to consolidate economic growth and continue to expand Africa's emerging consumer class. But this is not easy.
Important issues of the African economic landscape
Africa is booming
In the past ten years, China's average annual GDP growth rate was about 7.92%, which was due to the improvement of political stability and the promotion of economic reforms. The region with the second-fastest economic growth rate in the world is Africa. Since 2000, 31 million African families have joined the world consumer class. Since 2000, the contribution of the African consumer goods industry to GDP has reached 45%. The great potential of the FMCG industry in Africa benefits from the rapid growth of the African middle class. Statistics show that the average GDP of households on the African continent has doubled in the past 15 years. There are more than 85 million middle-class households with an annual income of more than US$5,000, compared with 4.6 million and 2.4 million in 2000 and 1990, respectively.
Africa now has considerable discretionary spending. And contrary to conventional wisdom, Africa’s growth mainly comes from domestic spending and non-commodity industries, not from resource prosperity.
Africa is expected to have the most labor force in the world
By 2035, Africa will have more labor force than any other country in the world, even larger than economic powers like India and China. This provides an opportunity for the African continent to reap the demographic dividend and use its young and growing workers to promote economic growth.
This varies from country to country. Nigeria and Ethiopia are the most populous countries in Africa. Together, they will increase their labor force by 30 million. By 2020, their labor force will increase by about 35%, while South Africa is expected to increase its labor force by 2 million, a growth rate of only 13%.
With the increase in the African labor force, the number of children and elderly (retirees) that each labor needs to support will drop from the highest level in the world today to a level equivalent to that of the United States and Europe in 2035. This is one aspect of the demographic dividend. As fewer and fewer people need to be raised and supported, African families will begin to enjoy greater discretionary spending, which will further promote economic growth. Africa's demographic dividend has further emerged.
The education level of the African labor force has reached a historical peak
Today, 40% of Africans have secondary or tertiary education, and this proportion is rising rapidly. It is expected that by 2020, the proportion of the labor force with a secondary or higher education degree will increase by nearly half. Although the education rate is higher than expected, this is still an area where African countries need to make further progress to maintain their economic competitiveness. Although 33% of the African labor force received some secondary education, the equivalent education ratio of the labor force in India is 39%; in China, this ratio is close to 70%.
With the economic development of the African continent, this will become an increasingly important factor. For example, employers in South Africa did point out in the survey that it is difficult to hire workers with professional skills. Throughout the European continent, correct education and practical training programs can provide the next generation of workforce with some necessary soft skills, not only basic literacy and arithmetic but also punctuality, communication skills, and reliability.
Africa still lacks stable job opportunities
Currently, only 28% of Africans have stable paid jobs. To benefit from a positive demographic structure and educational progress, Africa needs to quickly create more jobs. Although Africa has created 37 million stable paid jobs in the past decade, its workforce has increased by 91 million. As a result, 9% of the labor force is unemployed, and nearly two-thirds of the African labor force make a living through subsistence-only activities and low-income self-employment work. The poverty rate may be decreasing, but it remains high.
Youth unemployment is also a major challenge. In Egypt, one of the bright spots of the Arab Spring was that the unemployment rate for adults was moderate, but the youth unemployment rate was as high as 25%. For social and political stability, Africa needs to accelerate the creation of stable employment opportunities, which is the way to achieve lasting prosperity and expand the consumer class.
Through reforms, Africa can achieve large-scale employment growth
The experience of other emerging economies shows that Africa can greatly accelerate the creation of stable employment opportunities. When they were at a stage of development similar to that of Africa today, the employment rate in Thailand, South Korea, and Brazil was twice or three times that of Africa. If current trends and policies continue, by 2020, Africa will create 54 million more stable jobs and increase the proportion of stable employment in Africa to 32% of the labor force. However, if Africa matches the level of efforts made by Thailand, South Korea, and Brazil, it can create 72 million new stable jobs — increasing the proportion of Africans in stable employment to 36%.
This will lift millions of Africans out of poverty and enter the consumer class. Africa's most developed economies: South Africa, Morocco, and Egypt are creating more paid jobs than the number of new laborers, thereby reducing unemployment and disadvantaged employment. In particular, three industries can create jobs in Africa, while agriculture, manufacturing, retail, and hotel industries have strong stamina.
The industrial revolution in Africa is no longer an out-of-reach idea. Of the ten fastest-growing countries in the world in the next ten years, eight will come from the African continent, and African manufacturing is continuing to grow.