Boost Africa’s Share of Global Manufacturing Output, CS Amina Mohamed Urges

OPENING REMARKS BY AMB. (DR.) AMINA C. MOHAMED, E.G.H., C.A.V, CABINET SECRETARY, MINISTRY OF FOREIGN AFFAIRS, REPUBLIC OF KENYA DURING THE INAUGURAL MANUFACTURING EAST AFRICA CONFERENCE, NAIROBI, APRIL 19, 2017

Ladies and Gentlemen,

I warmly welcome you all to Kenya and to this inaugural Manufacturing East Africa Conference and thank all the organizing partners for putting this Conference together here in Nairobi. This is not only a reflection of the strong ties between Kenya and South Africa, but also our commitment to explore opportunities for shared growth and prosperity.

The theme of this Conference, ‘Enhancing Manufacturing Competitiveness in Africa’ is timely and most appropriate. It addresses Africa’s most pressing needs – namely accelerating the pace of poverty reduction, narrowing income gaps by increasing labor productivity and generating more decent and productive jobs. These critical imperatives can only be achieved by strengthening Africa’s manufacturing base.

It is instructive that this Conference and our conversation this morning, is taking place during an exciting period dubbed, ‘The Third Industrial Revolution’ which is being driven by emerging technologies – among them digital connectivity, innovative value chains and business models as well as artificial intelligence. These rapidly evolving technologies could render traditional industrial patterns obsolete. The times therefore demand a great deal of creativity. This historic meeting assembles great minds to offer smart solutions to enhance Africa’s manufacturing competitiveness.

Ladies and Gentlemen,

Although we have witnessed major positive developments on many fronts, Africa’s share of global manufacturing output remains low. In 2014, according to UNIDO, Africa commanded a meager 1.5% share of the world’s total manufacturing output, compared with a 21.7% share for the Asia-Pacific region, 17.2% for East Asia and 22.4% for North America. These statistics represent the prevailing trend with the latest estimates – for the third quarter of 2016 – showing that manufacturing output growth decelerated in Africa, recording only a marginal rise of 0.5%.

The Asian economies, as we all recall, were in much the same position as Africa a few decades ago. Gradually, these economies diversified their economies and expanded their manufacturing sector which in-turn transformed them into the highly competitive global manufacturing hubs that they are today. This transformation enabled them to generate millions of jobs and to, uplift the livelihoods of their people remarkably.

In 1981, East Asia had the highest poverty rate with nearly 80% of its population living in absolute poverty. By 2005, that percentage had dropped to 18%. Today, the reality of products made in Taiwan, made in Korea, made in India and made in China – ranging from T-shirts and shoes, to watches and televisions – are all familiar in shops and supermarkets across the world.

The manufacturing transformation that occurred in these economies is not only possible to replicate, but capable of yielding even greater results for Africa.

Consider this; it took Germany 60 years to double its economy (GDP), the United Kingdom, 150 years, and the United States, 50 years. The UK and the US industrialised with a population of about 10 million each. India and China, the largest emerging economies took only 16 and 12 years respectively to double their economies[1] starting with a population of roughly, 1 billion people. In real terms, India and China experienced growth at an unprecedented rate, taking only a fraction of the time taken by advanced economies.

With these growth figures in mind, further consider the following; the 10 fastest growing countries are in sub-Saharan Africa. In the past 15 years, and with a population of 1.2 billion people, Africa has doubled its GDP from 2% to 5% and is about to triple it. With full actualisation of the Tripartite Free Trade Area (TFTA) which brings together the East African Community (EAC), Common Market for Eastern and Southern Africa (COMESA) and Southern Africa Development Cooperation (SADC), a mega market comprising of 26 countries with a population of 600 million and a GDP of USD 624 billion will transform our continent and afford us massive opportunities for trade and manufacturing setting the pace for a Continental Free Trade Area. We must be ready. That is why this Conference and every effort to strengthen, diversify and expand our manufacturing base, is monumental.

Ladies and Gentlemen,

The key to unlocking Africa’s immense potential lies in structural transformation: the shift from low to high productivity. The current terse structural transformation in Africa is attributable to several factors, including: the lack of a sufficient skills base, trade restrictions, difficulties in acquiring modern technologies and an under performing structural economic infrastructure in terms of energy, roads, rail, and ports. Manufacturing, as a core component of the process of industrialization is essential to deliver high productivity.

These constraints notwithstanding, it is increasingly acknowledged that Africa has the potential to become one of the world’s critical low-cost manufacturing hubs. With the appropriate mix of policies, the large pool of cheap labour, abundant raw materials and low-cost agricultural products, Africa is in an ideal position to be the most attractive and cost-effective region in which to create and market goods. In fact, McKinsey and Company estimates that with continued improvements to the business environment, manufacturing output could rise from $500 billion in 2015 to $930 billion by 2025 ̶ a significant 69% increase.

To realize this potential, we must focus on strengthening Africa’s position in regard to the top drivers of manufacturing competitiveness. According to the third quarter of UNIDO 2016 Report, talent remains the top driver of competitiveness followed by cost, productivity and supplier network.

As a priority, we must focus on nurturing the appropriate talents for manufacturing. This will involve developing a sufficient skills base particularly in science, technology and innovation. Moving into the future we must work out methodologies of acquiring and mastering advanced manufacturing technologies which will be key to unraveling future competitiveness.

Secondly, to be cost effective, Africa should focus her industrialization drive on areas where we have comparative advantage, especially in agriculture and the extractive industries. Agricultural products and extractive materials are readily and affordably available and can form the basis of future industrialization in Africa. Moreover, it will be easier for the continent to move up the ladder of value chains through these sectors, which will also pave the way for the development of industrial clusters and the growth of SMEs as backbones of our economies.

Thirdly, we must create a public policy environment favorable to manufacturing and also deliberately focus on building necessary industrial infrastructure. Appropriate industrial infrastructure should include industrial parks and special economic zones while a suitable environment should involve pursuing manufacturing supportive policies especially around the areas of technology transfer, science and innovation, energy and transport infrastructure.

The Governments of Kenya and the Republic of South Africa have exhibited admirable political will in eliminating the barriers hindering manufacturing and trade between the two countries. The recent Joint Trade Committee convened by both countries is a clear indicator of this commitment. This Conference is an even bigger boost to our mutual aspirations of national and regional economic prosperity.

Africa must accelerate the process of economic integration. Presently, trade restrictions remain higher in Africa than any other part of the world. This is what accounts for the low level of intra-Africa trade at only 12% compared to 60% in Europe, and 35% in Asia.

With these remarks, I wish you all very fruitful deliberations and welcome you to Kenya for business. Karibuni Sana.

Thank you

[1] http://www.thehindubusinessline.com/economy/india-china-took-less-time-to-double-its-economic-output-us/article3987209.ece