Business
Africa on track to becoming world’s manufacturing hub
The out-going president of the African Development Bank (AfDB) Donald Kaberuka says time has come for Africa to become the world’s manufacturing hub and this can be done through industrial cooperation with China as the Asian giant phases out labor-intensive industries.
“The global manufacturing cycle started from Europe then to America, before moving to South East Asia and China. It is now coming to Africa,” Kaberuka told reporters Monday on the sidelines of the African Union (AU) summit held in Johannesburg, South Africa.
Kaberuka, who is stepping down from the helm of the AfDB this August after serving two consecutive 5-year terms, quoted a Chinese metaphor “building the nest to attract birds” to urge the African countries to put in place proper infrastructure and enabling policies to facilitate the transfer of manufacturing industries from China.
“This is the time for Africa to build the nest, the birds are waiting to come and breed,” he said.
He said low labor costs and an integrated, larger market through the creation of the Tripartite Free Trade Area (TFTA) would help Africa attract foreign investment to the manufacturing sector.
However, the bank chief stressed the need for the continent to put in place an enabling environment for investors to come in, such as adequate power and transport infrastructure.
He said Africa needed to address factors undermining its investment attraction capacity such as the high cost of doing business mainly due to insufficient energy supplies and a weak regulatory environment. The continent also needed to address the capacity of its maritime ports to ensure fast clearance of goods, he said.
“Sometimes boats bringing materials have to wait for a week or 2 weeks before discharging cargo. So old infrastructure is a limiting factor but of these, energy is the biggest limiting factor,” he said.
China built up its export-oriented economy based on proliferation of low-cost, labor-intensive factories over the past three decades. But this edge of low-cost is being eroded by the gradual rise of workers’ income and benefits as the economy continues to develop. Over-capacity at home in sectors like steel, cement, textile, and solar panel manufacture pushed Chinese companies to seek better business opportunities abroad.
China has also identified industrial cooperation as the top priority for its engagement with Africa this financial year. Chinese investment to the continent reached US$21.2 billion in 2012, a figure aimed to be raised to US$100 billion by 2020.
According to Kaberuka, the recently launched Tripartite Free Trade Area by Africa’s three regional economic blocs, was a “major turning point” in Africa’s quest to boost intra-African trade.
“This region coming together has already made huge progress on the issue of tariff reduction and tariff harmonization,” he said.
The Tripartite Free Trade Area encompassing 26 countries of the Common Market for East and Southern Africa (COMESA), East African Community (EAC) and the Southern African Development Community (SADC) was launched on June 10 with the aim of boosting intra-African trade.
The 26 countries, with a combined population of 625 million people, and Gross Domestic Product (GDP) of US$1.3 trillion, present close to 60 percent of the African Union’s GDP and population.
Kaberuka said while intra-Africa trade was generally put at 12 percent and true for the whole of Africa, the actual levels of intra-trade within the Tripartite Free Trade Area was about 20 percent.
But for the Tripartite Free Trade Area to become successful, Kaberuka said all non-tariff barriers must be removed while free movement of business people and bona fide travelers must be ensured.
“So for the free trade zone to become free, tariff agreement is important,” he said.
The AfDB president said the Tripartite Free Trade Area presented an immense investment opportunity for China to boost industrial cooperation with Africa.