Many African countries are embracing industrialisation, which calls for new economic strategies. At least 26 African countries have industrialisation strategies in place in 2017. While past efforts to industrialize Africa were often unsuccessful, the current industrial revolution and today’s global environment offer new opportunities, along with challenges. Three strategies are essential for the continent to industrialize: promote a competitive private sector, target economic sectors with high-growth potential including non-manufacturing and better harness the potential of entrepreneurs.
The current industrial revolution is impacting Africa’s industrialisation in three major technologies: robotics, automation and artificial intelligence; additive manufacturing (e.g. 3D-printing) and the Industrial Internet and data analytics. This Fourth Industrial Revolution gives more importance to services and promotes industrialisation based on shifting resources into more sectors than manufacturing alone. It differs from previous industrial breakthroughs in that information and communications technology (ICT) tends to replace medium and low skilled workers and require more highly skilled workers.
Within this context, services offer great potential for growth. Global trade in services is growing even faster than trade in goods. Africa’s trade in services has expanded from about USD 140 billion in 2005 to more than USD 240 billion in 2015. Compared to manufacturing, the services sector offers numerous advantages:
- Trade in services can largely bypass logistical and customs barriers.
- Technological changes increasingly facilitate trade in services.
- Services complement manufacturing. For example, large manufacturing firms often offer support services.
- Services are compatible with greener, inclusive and more gender-friendly growth
Strategies targeting service growth require investing in several areas. These include physical infrastructure, especially in communication and transport, human capital (e.g. skills and education), entrepreneurship and trade connectivity. Traditional sectors other than services can also become more productive through applying new technologies and methods of production. This is the case of agriculture. New technologies open up possibilities for new sectors to emerge. Cape Town, Lagos and Nairobi are emerging as hubs for global start-ups, especially in sectors such as financial technology and renewable energies. These sectors are likely to grow thanks to Africa’s demography and urbanisation. New technologies, with appropriate policies, could also help reduce pressure on the environment for instance by promoting “green industrialisation”.
New technologies facilitate small-scale manufacturing. Additive manufacturing allows firms to cut down on production, by reducing the cost of customisation. It enables creative firms to compete thanks to their knowledge of local needs. New business models based on the collaborative economy allow small firms to take advantage of under-utilised resources such as computing power, transportation vehicles and office space. They permit small firms to become more competitive and improve the efficiency of environmental resource use. New communication technologies can help firms participate in global trade. Using Internet, companies can reach markets beyond their geographical location. According to the World Bank, “a 10-percent increase in internet use in the exporting country is found to increase the number of products traded between two countries by 0.4 percent”
New technologies also offer ways to fill Africa’s infrastructure gap. Digital technologies allow governments to reach citizens, particularly disadvantaged populations. Tax management and online payment services facilitate administration and transparency. Many governments already deliver certain public services through e-government systems. Rwanda and Uganda figure among the top low-income countries with administrative-government systems. Africa has already made a head start in several areas. Kenya and Nigeria are more advanced in mobile banking than many countries. Sub-Saharan Africa has over 222 million mobile money accounts, more than all other developing regions combined. In South Africa, the company Lonmin uses smart machinery in its largest platinum smelter. New technologies decrease the demand for low-cost labour in manufacturing and increase the need for skills. Ethiopia risks losing around 44% of current jobs across sectors to automation. In addition, technology can reduce the incentive for multinational companies to offshore production to countries with low-cost labour. Investment in technical skills and in science, technology, engineering and mathematics will be necessary to develop African robot engineers, industrial engineers, data analysts, cloud architects, software developers, security analysts and health workers.
However, most African countries are not yet equipped to transition to a Fourth Industrial Revolution economy. Even the most tech-savvy countries remain behind in adopting ICT technologies. In addition, management and technical skills are often lacking. African companies are concerned about the impact that the lack of relevant skills has on their organisations’ performance; these include creativity, innovation, and leadership and problem solving skills.
Overall, industry 4.0 offers great opportunities for Africa to lead the way and create completely new business models. A move of value propositions from products to more services and usage of smart technology could also make a real impact on a socio-economic level. It is ideal for manufacturers to plug into a networked economy and develop completely new offerings that enable faster, simpler service to customers. The world-leading mobile money services in African banking are a prime example that could serve as a successful blueprint for companies. The best known example of an innovative mobile money service that allows people without a bank account to transfer funds is M-Pesa, launched in Kenya in 2007. Money deposits, withdrawals, bill payments or microcredit provisions have become as easy with M-Pesa as sending a text message. A lot of today’s successful mobile money offerings across the world are very similar to or result from M-Pesa.