Africa: Tackling Some Big Economic Questions

From Conversable Economist:

“Economic development typically involves a group of transitions, like the shift from agriculture to manufacturing to services. The Winter 2022 issue of the Journal of Economic Perspectives (where I work as Managing Editor) includes five papers on aspects of development-related transitions in the nations of Africa. Here are some of the big questions:

Does Africa have a manufacturing path to economic development?

In “Labor Productivity Growth and Industrialization in Africa,” Margaret McMillan and Albert Zeufack investigate Africa’s manufacturing sector. As they point out, a shift from agriculture to low-skilled manufacturing to high-skilled manufacturing to services has been a standard pattern of economic development for countries around the world. However, there are concerns that this path may not work well in the 21st century, because automated production keeps getting cheaper and thus reducing the opportunities for low-skilled jobs.

Some of the signs for industrialization in Africa are encouraging. The most comprehensive information about manufacturing employment in Africa only covers 18 countries, but based on those data, manufacturing employment in Africa’s lowand middle-income countries increased from 6 million to more than 20 million from 2000 to 2018, raising the share of employment in manufacturing from 7.2 percent to 8.4 percent (Kruse et al. 2021). In comparison, the 1990s saw zero growth in Africa’s manufacturing employment. Manufacturing exports from African nations have also grown at an annual average of 9.5 percent per year (Signé 2018). However, while employment and value-added shares of manufacturing in Africa are rising, both remain very low in comparison to the rest of the world …

But when the authors dig into the data, they find that the growth in manufacturing employment in nations of Africa has been primarily happening in small firms with less than 10 employees. Conversely, the growth in productivity in manufacturing in Africa is primarily in large firms, which aren’t adding many jobs. Many of Africa’s large manufacturing firms are in one way or another involves in processing of natural resources, which has been becoming an ever-more automation-intensive process.

Thus, the broad challenge for Africa’s manufacturing sector is for the larger firms to build linkages backward and forward into other African-based manufacturing firms, and for at least some of the small firms to make productivity gains and grow in size, so that they can become an “in-between” sector of manufacturing. One promising change is the African Continental Free Trade Area, started in 2018, which may offer possibilities for African-based manufacturing firms to sell and compete within a larger and more unified market. In addition, there are still some industries like certain kinds of textile manufacturing where low-wage labor can offer a comparative advantage in global production.”

Continue reading here.

Posted by at 7:10 AM

Labels: Macro Demystified


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