Africa will become the world's manufacturing hub - AfDB chief - CNBC Africa

Africa will become the world's manufacturing hub - AfDB chief

Special Report

by Imara 0

The chief of the African Development Bank, Donald Kaberuka. Photo: WEF

The chief of the African Development Bank (AfDB) Donald Kaberuka says the 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 labour-intensive industries, reports AllAfrica.

"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 Xinhua on Monday on the side-lines of the African Union (AU) summit held in Johannesburg, South Africa. Kaberuka, who is to retire from the helm of the AfDB this August after serving two consecutive five-year terms, quoted a Chinese metaphor "building the nest to attract birds" to urge African countries to put in place proper infrastructure and enabling policies to facilitate the transfer of manufacturing industries from China.

He said low labour 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 regional 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 foreign investment attraction capacity such as the high cost of doing business mainly due to insufficient energy supplies and a weak regulatory environment.

China built up its export-oriented economy based on the proliferation of low-cost, labour 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. Overcapacity at home in sectors like steel, cement, textile, and solar panel manufacture pushed Chinese companies to seek better business opportunities abroad. The government has also identified industrial cooperation as the top priority for its engagement with Africa this year. Chinese investment to the continent reached USD 21.2bn in 2012, a figure aimed to be raised to USD 100bn by 2020.

Turning to the recently launched TFTA by Africa's three regional economic blocs, Kaberuka said the TFTA was a "major turning point" in Africa's quest to boost intra-Africa trade. "This region coming together has already made huge progress on the issue of tariff reduction and tariff harmonisation," he said. The TFTA 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 10 June with the aim of boosting intra-Africa trade. The 26 countries, with a combined population of 625 million people, and GDP of USD 1.3tn, present close to 60% of the AU’s GDP and population. Kaberuka said while intra-Africa trade was generally put at 12% and true for the whole of Africa, the actual levels of intra-trade within the TFTA was about 20%.

But for the TFTA to become successful, Kaberuka said all non- tariff barriers must be removed while free movement of business people and bona fide travellers must be ensured. "So for the free trade zone to become free, tariff agreement is important," he said. The AfDB president said the TFTA presented an immense investment opportunity for China to boost industrial cooperation with Africa. "For Chinese companies coming to this region, they have access to a whole bigger market from Cape Town to Alexander and that's a huge advantage it offers to Chinese manufactures," he said.

Kaberuka also hailed cooperation in the financial sector where he noted that the AfDB and the Chinese were cooperating in co- financing of infrastructure development projects on the continent. One such project that had been co-financed by the USD 2bn Africa Growing Together Chinese Fund being managed by AfDB was the Sharm-el-Sheik International Airport in Egypt, he said.

Chinese investment in Africa could see a considerable increase with the boost in intra–Africa trade over the long term. The transfer of manufacturing capacity from China could help African industry leap frog and become more competitive with the rest of the world. In order to reach that level of competitiveness some aspects of African trade need to be looked at e.g. the high cost of doing business and the free movement of goods and people.

*This article first appeared on Imara's website

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