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New Technology, Entrepreneurship and the Revival of Manufacturing in Africa: Opportunities for Youth and Women?

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New Technology, Entrepreneurship and the Revival of Manufacturing in Africa: Opportunities for Youth and Women? New Technology, Entrepreneurship and the Revival of Manufacturing in Africa: Opportunities for Youth and Women? by Wim Naudé 2019 Report commissioned by the “Building economic complexity in Africa: Laying the foundation for expanding economic opportunities for women and youth in Africa” project. *Disclaimer: This work was carried out with the aid of a grant from the International Development Research Centre, Ottawa, Canada. The views expressed herein are those of their respective authors and do not necessarily represent those of IDRC or its Board of Governors, the Development Policy Research Unit, University of Cape Town, or any associated organisation/s. New Technology, Entrepreneurship and the Revival of Manufacturing in Africa: Opportunities for Youth and Women? Wim Naudé Maastricht University, The Netherlands and RWTH Aachen University, Germany email: [email protected] 19 April 2019 Abstract. The digitization of the economy and advances in smart materials are transforming the nature of manufacturing. This is often described as features of the “Fourth Industrial Revolution” or Industry 4.0. For African economies, not yet having industrialized, this is of great importance, especially given the challenge of youth job creation and the need for gender equality. A combination of Industry 4.0 technologies and a resurgence in tech-entrepreneurship will have four broad impacts on manufacturing in Africa (i) the sector will continue to grow significantly in terms of value added; (ii) net job creation will be positive; (iii) it will stimulate technological and complex skills development, as well as (iv) investment in supportive infrastructure. The opportunities that these impacts will have for youth and women are outlined in the following report. Youth and women stand to benefit because of the ability of manufacturing to provide quality, high-productivity jobs in urban areas, to stimulate the development of human capital, including gender equality, and to provide, through new technologies that “democratizes” production for small businesses, new opportunities for both male and female entrepreneurs. The author also identifies policy support measures, to help realize these outcomes. Key words: Technology, Industrialization, Sub-Saharan Africa, Innovation, Development, Labour Markets JEL Classification Codes: O14, O25, O33, O38, O55, J24 Acknowledgements: I am grateful to Toughedah Jacobs, Francois Steenkamp and Christopher Rooney for discussions and suggestions in the conceptualization of this research and on earlier versions of this paper. The usual disclaimer applies. 2 TABLE OF CONTENTS 1. Introduction ........................................................................................................................................ 4 2. Demographics and Development: The Challenge ......................................................................... 6 2.1 Demographic distinctions: fast, young, and rural ........................................................................ 6 2.2 Implications for labor markets: (youth) jobs, gender, cities ............................................... 6 3. The New Technologies that are Transforming the Nature of Manufacturing ........................ 10 4. Relevance for Africa ......................................................................................................................... 14 4.1 Relevance for Manufacturing in General ................................................................................... 14 4.2 Relevance for Youth and Women ......................................................................................... 16 5. The Resurgence of Tech-Entrepreneurship in Africa ................................................................. 24 6. How New Technologies and Vibrant Entrepreneurship will Impact on African Manufacturing ........................................................................................................................................... 27 6.1 Manufacturing growth will be boosted ................................................................................. 28 6.2 Net job creation will be positive ............................................................................................ 32 6.3 Technological and complex skills development will be stimulated .................................. 33 6.4 Investment in supportive infrastructure will accelerate ...................................................... 36 7. Summary and Concluding Remarks ............................................................................................... 42 8. Appendix ............................................................................................................................................ 48 References .................................................................................................................................................. 57 3 1. Introduction Industrialization, and in particular the development of the manufacturing sector, remains a high priority for African countries. One of the main reasons for this is the need for sustainable creation of quality jobs for a growing labor force – population growth in Africa has been amongst the fastest in the world. Between 2010 and 2020 an estimated additional 170 million labourers will enter Africa’s labor force (Fox et al., 2013). More of these will search for jobs in cities, as rural- urban migration continues unabated. The number of people in cities in Africa is expected to triple by 2050 (Freire et al., 2014). Of these, a substantial share will be young people: already in 2017 approximately 43% of the continent’s population was younger than 15 years of age, making it the world’s youngest continent. When countries in Europe, North America and East Asia (most recently China) experienced similar demographic pressures in the past, the growth and development of their industrial sectors1, specifically manufacturing, enabled them to create jobs and welfare at the same time. It allowed the structural transformation of their economies from agriculturally-dominated, rural-based economies to modern industrial economies. Until the present, most African countries have however not yet industrialized. Even where some limited industrialization has occurred, it has recently been concluded that (premature) de- industrialization has set in (Rodrik, 2015; Timmer et al. 2014). Some have even questioned whether Africa can ever industrialize (Page, 2012). Others have concluded that manufacturing is not as important anymore and that developing countries (such as those in Africa) should not even try to industrialize, but be content to by-pass the typical patterns of structural adjustment by rather focusing on services (IMF, 2018). For instance Newfarmer et al. (2018) argue that African economies should promote not manufacturing per se, but rather activities that have the “characteristics of manufacturing”. Hallward-Driemeier and Nayyar (2018) conclude that, in general for developing countries, manufacturing will be less important in the future and also more difficult or complex to steer through government policies. There is thus a prominent narrative that Africa should pursue “structural adjustment without industrialization” (Gollin, 2018). This paper advances an alternative narrative, one that is more optimistic about the prospects for manufacturing in Africa. Moreover, it is argued in this paper that the revitalization of manufacturing in Africa is already underway, facilitated by new technologies (due to digitization 1 As per the ILO definition, industrial sectors consist of manufacturing, construction, mining and quarrying and electricity, gas and water supply. 4 and smart materials) and a more vibrant entrepreneurship scene. Africa’s growing middle class is providing a supportive base for the continent’s first generation of indigenous tech-entrepreneurs. For youth2 and for women, often marginalized groups, the new pathways of industrialization opened up by new technology and more vibrant entrepreneurship offer promising opportunities. This is because of the ability of manufacturing to provide quality, high-productivity jobs in urban areas, to stimulate the development of human capital, including gender equality, and to provide, through new technologies that “democratizes” production for small businesses, new opportunities for both male and female entrepreneurs. The current generation of African youth may be especially ready to take up this challenge, as they form a central portion of what has been called the world’s “digital natives” who have, compared to the older generation, been more exposed to modern digital technology (Moran, 2016). As Azoulay et al. (2018:2) put it: “among the advantages of youth in technology and innovation, young people are sometimes argued to be cognitively sharper, less distracted by family or other responsibilities, and more capable of transformative ideas”. In this perspective, Africa’s large youth population is one of its major assets, and its hope for the future. The rest of this report is structured as follows. Section 2 motivates the need for industrialization, given the demographic and development challenges that African countries face, and the implications of these challenges for labor markets. Section 33 describes the new technologies that are driving what has been called the new industrial revolution, or “fourth industrial revolution”. Then, in section 4, the relevance of these technologies for African development are pointed
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