Africa’s industrialisation is not an option, it is a necessity

Dr Velenkosini Matsebula is a Senior Lecturer in Development Finance at Stellenbosch Business School.

Africa’s industrialisation is not an option, it is a necessity
Africa's industrialisation is not an option, it is a necessity

Every year the 20th of November is yet another reminder of how far behind Africa’s industrialisation is to the rest of the world. As we mark the Africa Industrialisation Day, we are not only provided the opportunity to take stock of the continent’s remarkable progress over the past couple of decades, but to equally acknowledge the persistent challenges hindering progress and economic transformation and identify possible solutions.

The African continent is faced with persistent socioeconomic and developmental challenges. Industrialisation provides remedies to most if not all, as a key enabler for job opportunities, a proven driver for poverty reduction and financial inclusion. It increases economic productivity leading to a more robust formal financial sector. When industries thrive, stable jobs are created, allowing individuals access to formal financial services, such as transactional and savings accounts, credit facilities, investment, and insurance. This financial inclusion plays a crucial role for households and small businesses to better manage their risks, smoothen their daily consumption and invest in their futures.

Africa’s economic landscape is, however, characterised by a disproportionate focus on the primary sector (particularly agriculture and extractive industries) and tertiary sector (mainly the financial and services industries), leaving a vacuum within the secondary sector (manufacturing and industry). While these sectors are crucial, they often lack the capacity to ensure the broad-based economic development required to tattle the challenges faced by Africa.

The missing manufacturing and industry sectors are central to the African Inclusive Agenda. According to the African Development Bank, the African manufacturing sector only contributes about 11% to the continent’s gross domestic production (GDP), compared to the over 30% seen in other developing economies. Moreover, the continent only contributes a share of just 1.9% to Global manufacturing. This secondary sector deficiency contributes largely to keeping Africa underdeveloped, particularly since it is a vivid indication that the continent is heavily dependent on imported finished products, draining foreign exchange reserves, and suppressing local industries.

The missing secondary sectors are significant for Africa because of their potential for job creation. Industrialisation drives rapid employment generation, particularly for the youth, who constitute a significant portion of Africa’s population. By expanding manufacturing and industry, the youthful African workforce can be absorbed, unemployment reduced, and the energy and creativity of young people channelled towards productive activities.

For Africa to unleash its full potential, the following obstacles for industrialisation must be addressed:

Inadequate Infrastructure: According to the International Energy Agency (IEA)2023 World Energy Outlook, the number of African people without electricity reached 600 million by 2022, from 580 million in 2019. This crisis hinders the development of manufacturing industries that require reliable power supply. Other inadequate infrastructure that hampers industrial growth, includes transportation, and digital connectivity. To address this, there is a need for a deliberate investment in infrastructure development between governments, development partners and the private sector. Public-private partnerships can help bridge the financing gap. A focus on strategic investments in labour-intensive industries, such as agro-processing and light manufacturing is a good starting point.

Financial inclusion: Access to affordable finance is a major challenge for many African entrepreneurs, especially those in the informal sector. Stringent requirements such as collateral by financial institutions excludes a large portion of the population from formal financial services. Financial inclusion can be promoted by expanding access to affordable and tailored financial services, Developing microfinance institutions, and prioritising financial literacy. Moreover, leveraging digital transformation and technological innovations such as mobile banking and agent banking networks can play a crucial role in extending financial access to all corners of the continent.

Skills gap: The ability for African industries to compete in the global market is limited by the shortage of skilled workforce and lack of technical and vocational training programs. Sufficient investment should be channelled towards essential human capital and skills development programs to equip the labour force with the skills needed for modern industries. The private sector, as future employers, should be onboard to help align education with industry demands.

Regulatory barriers: Investment and ease of doing business in many African countries is discouraged by excessive bureaucracy, cumbersome regulations, and corruption. To create a conducive business environment for both domestic and foreign investors, Africa must make deliberate efforts to streamline regulations, reduce bureaucratic barriers, and combat corruption.

Regional integration and trade challenges: Trade barriers, lack of export-oriented infrastructure, and limited market information are one of the causes of African industries’ inability to access international markets. To create a conducive working environment, African countries should reduce trade barriers and expand intra-Africa trade. Such regional integration can create larger markets and boost industrial growth. Pan-African initiatives such as the African Continental Free Trade Area (AfCFTA) Agreement combined with national actions to reduce travel restrictions among Africans (i.e., Rwanda) are a step forward for Africa’s industrial growth.

This Africa Industrialisation Day is yet another reminder of the potential Africa holds. We are reminded that the missing secondary sectors are not just a problem but also part of the solution to Africa’s development challenges. Industrialisation does not just promote economic growth, it also translates to poverty reduction, financial inclusion, reduced inequalities, and improved living standards. Africans need to shift their focus, invest wisely, and harness the full potential of industrialization for the benefit of all.