There is something new that is starting to move to Africa: factories. There is currently a global perspective that China and generally Asia are considered as the ‘the world’s factories.’ However, this global manufacturing map is changing fast, raising questions and focusing now on Africa. Companies around the world are starting to look for the next China, or the next Asia, and this continent with 54 countries and more than 1.2 billion people is starting to get a lot of attention.
Since a few years ago, several manufacturing companies have started looking at the African continent instead of the Asian. As soon as a couple of companies manage to be efficient in producing a certain product, their profits attract other manufacturers of the same product and end up entering the same market.
In fact, according to a study conducted by the United Nations, sub-Saharan Africa will have the highest growth in working-age population anywhere over the next 20 years. By 2035, the working-age population in the region is expected to be as large as China’s today, representing almost a billion people (Berg, 2015). Many companies are seeing this as an opportunity, especially for apparel industries.
Over the past 15 years, Chinese factories have been driven out of China by rising costs, and many have landed in Africa. (Yuan, 2017). With this in mind, Africa is no longer defined by poverty, but by the optimism and promise that these new investments are creating not only among the locals but on international eyes.
Nonetheless, we still need to acknowledge that even though Africa shouldn’t be considered as a pitiful, hopeless place, we can’t ignore the fact that currently more than half a billion of the poorest population on a global scale still live here.
So why are companies starting to move to Africa?
Clearly, the free-trade agreements with the US and the EU play a very important role when it comes to costs of transporting and commercializing goods. As mentioned above as costs have been rising in China (Hourly manufacturing wages have increased by 12% each year, since 2001, and manufacturing wages nearly tripled from 2004 to 2014) (HBR, 2017), manufacturers have started migrating to find some of the cheapest labour costs in Africa.
For example, in Lesotho, Chinese clothing factories make yoga pants for Kohl’s, jeans for Levi’s, and athletic wear for Reebok. Almost all of Lesotho’s production is trucked out and packed onto container ships bound for American consumers (Yuan, 2017). This not only creates jobs for the local population but also improves the industrialization process of this country, making it more attractive for foreign investment and having a direct positive impact on the country’s GDP.
It is true that there are currently many brands, especially clothing, that are still manufacturing their products in China. However, many of these companies are being pulled into Africa. China’s generation under the one-child policy has shrunk the country’s labour pool, causing shortages in its coastal manufacturing hubs (HBR, 2017).
Unfortunately, having a significant portion of the population still living under poverty lines, high rates of illiteracy, but young and fit for manufacturing work, makes Africa a great candidate for the next manufacturing centre of the world.
What are the positives?
As we can expect, having all this investment and migration of companies to this area does have a positive impact on the African economy. According to an analysis of 148 countries executed by Harvard Business Review, through manufacturing more complicated and harder to produce items, the GDP of the country. This is considered as the start in this manufacturing ‘boom’. Who knows? Maybe in a few years we’ll see Africa manufacturing computers and essential technology products for the world. Economists know that in the long run, the only way to create higher standards of living is to become more productive (HBR, 2017).
Exports for many African countries represent an important portion of the country’s GDP and therefore improve the economy. For example, in Ethiopia: T-shirts accounted for 46 percent of the country’s exports to the EU and trousers 31 percent. As much as 60 percent of exports are sent to Germany and 10 percent to the United States. Ethiopia’s wages for garment workers are among the lowest globally, at below $60 per month (McKinsey, 2015).
More examples of brands that were based in China and that are now entering the African markets are several shoe companies. Huajian and Hazan are two examples, that operate in Ethiopia and Nigeria, respectively, while textile firms such as Jiangsu Lianfa are entering Kenya, Uganda and Tanzania (Young, 2016).
Generally, this rise in industrialisation and focus on African markets as option to manufacture products, has allowed large number of people, who were previously subsistence farmers to participate in the global economy. As we have seen in previous industrial revolutions globally, this should lead to urbanisation and growth for many African markets. The transfer of knowledge and skills will at some point in time allow Africans to start their own industries (Chua, 2018).
And the negatives?
Even though we see a lot of positive impacts this rise in manufacturing is creating. In fact, it can be nor appealing at all. According to an American researcher who studied the effects of industrialization in several African countries (Sun, 2017) some of the Chinese factory bosses she met in Africa were truly unsavoury, racist, and many wouldn’t hesitate to pay a bribe.
There is also a clear environmental damage when production increases in these countries which also relate to the poor working conditions that exist behind inexpensive clothes.
But checking and controlling these companies isn’t an easy task. In fact, Human Rights Watch doesn’t even have an office in Ethiopia. According to a study conducted by Bloomberg, in 2009 nongovernmental advocacy groups were all but banned when a law took effect saying such organizations can operate only if they source 90 percent of their funding from inside the country (Donnahue, 2018).
So, is this Industrialization boom a good thing for Africa or not? It will clearly allow Africa to have an option in improving the life standards of its population throughout the different socioeconomic sectors. It is probable that Africa will follow in the footsteps of Japan, South Korea, Taiwan, and China: to build factories that employ its booming population and to refashion its institutions to meet the demands of modern capitalism (HBR, 2017).
It is vital however that for Africa to experience a sustainable growth, all the key players in the manufacturing industry should collaborate between each other. Actually, the Government, plays a pivotal role in the economic growth of this continent, as usually it will be them who decide when to invest in infrastructure, support local entrepreneurs, diversify free-trade agreements, and build market-oriented educational institutions. Moreover, the suppliers will need to improve their overall performance and managerial training to comply with the increasing demand, as well as have bigger factories, and have solid partnerships with the other stakeholders. Finally, is it extremely important that all parties will need make every effort to ensure social and environmental compliance is followed and respected.
Maybe, today it is a little too soon to be calling Africa the next world's factory, but research and increasing industrial migration os showing that it truly has the potential.
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· Berg, A. (2015), ‘East Africa: The next hub for apparel sourcing?’ Mckinsey & Company. Available at: https://www.mckinsey.com/industries/retail/our-insights/east-africa-the-next-hub-for-apparel-sourcing. (Accessed 02 February 2019).
· Chua, Y. (2018), ‘Africa the next China?’. The Lowdown. Available at: https://thelowdown.momentum.asia/africa-the-next-china-is-it-an-overstatement/. (Accessed 02 February 2019).
· Donnahue, B., Y. (2018), ‘China is turning Ethiopia into a Giant Fast-Fashion Factory’. Stitch Diary. Available at: https://www.bloomberg.com/news/features/2018-03-02/china-is-turning-ethiopia-into-a-giant-fast-fashion-factory. (Accessed 02 February 2019).
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