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  • on 21.05.2014
  • at 04:00 PM
  • by Kevin Hind

The Myth of de-industrialisation in sub-Saharan Africa 0

There is even evidence that a healthy manufacturing sector can help to bridge the gap in income levels between rich and poor countries. But the historical importance of manufacturing in economic growth has led some observers to be sceptical about the sustainability of Africa’s recent and rapid ‘boom’.

Rather than industrialising, many believe that the manufacturing sector in Africa has contracted and that the continent is actually de-industrialising.  Yet a careful scrutiny of the recent facts indicates this is not so.

It is easy to understand the confusion. First, there is precedent for such a trend. There was a period of de-industrialisation in Africa that coincided with the privatisation of large state owned factories. This began in the early 80s and did not fully play out until the mid to late 90s. The average growth rate for the continent during this period was negative and, in some cases, there was actually urban to rural migration. New evidence suggests that these days are over.

Second, a lot of manufacturing employment takes place in the informal sector. Consider the case of Kenya where – according to the Kenya National Bureau of Statistics (KNBS) – only 12 percent of the labour force is employed in the formal sector. Between 1990 and 2007, formal sector employment in manufacturing barely budged and its share of total employment fell from 2 to 1.6 percent. Based on these statistics, one might conclude that Kenya was experiencing de-industrialisation. But over this same period, manufacturing employment in the informal sector increased from a little over 300,000 to almost 1.6 million. Taken together, the share of employment in manufacturing actually grew from 5.5 percent to 11.5 percent. Kenya is not unique: the most recent statistics from Nigeria indicate that half of the 11 percent of the population engaged in manufacturing works in the informal sector.

Productivity is higher in formal than informal manufacturing. But an overemphasis on this gap misses some important points. One of the reasons that much of modern day manufacturing is so productive is because it demands high capital intensity. In many African economies, where jobs are sorely needed, capital intensive manufacturing might produce growth, but arguably it will not solve the more pressing employment problem. Furthermore, productivity in informal manufacturing is still significantly higher than productivity in subsistence agriculture. What ultimately matters is productivity growth, and we simply do not have the information to judge whether or not it is growing in informal manufacturing because, so far, nobody has been able to measure value added in the formal and informal sectors separately.

A third reason for the confusion around belief that ‘Africa’ is de-industrialising is the tendency of researchers to lump all of Sub-Saharan Africa (SSA) together. This is a problem because Mauritius and South Africa are clearly outliers. The share of employment in manufacturing in Mauritius fell from 32 percent in 1990 to 19 percent in 2010, but this decline has been matched by an increase in employment in much higher productivity services. South Africa, meanwhile, which has been far more industrialised than the rest of SSA, faces unique challenges stemming from the legacy of apartheid. By contrast, in the rest of the sub-Saharan region – sometimes referred to as developing Africa – the share of employment in manufacturing increased by a little over 2 percentage points between 2000 and 2010.

continue reading on This is Africa

By Margaret McMillanThis is Africa 

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