- The cost associated with policy instability and unpredictability is often passed down to consumers
- In 2020, the manufacturing industry in Africa experienced reduced demand and depressed production capacity
The biggest challenge that the manufacturing industry faces in Africa is unpredictable business environments.
This is according to the Chief Executive Officer of Kenya Association of Manufacturers Phyllis Wakianga who says the sector is faced with unpredictable fiscal and regulatory policies that discourage the industry from scaling up their businesses.
She adds that the situation also leads to investors seeking more suitable, predictable and secure markets to relocate their businesses.
“Unfortunately, the cost associated with policy instability and unpredictability is often passed down to consumers, whose spending power has been crippled by the ongoing pandemic,” he says in an exclusive interview.
Wakianga also reveals that such instability is a blow to manufacturers, who are struggling to reduce costs, in a highly uncertain business environment, which has increased the cost of doing business.
The Chief Executive highlighted other major challenges to include the high cost of power, liquidity challenges, illicit trade, inefficient transport and logistics system and regulatory overreach.
Overview of the Manufacturing Industry in Africa
Data by the Association indicates that global manufacturing output contracted by 6.0% in the first quarter of 2020 and 11.1% in the second quarter.
The contraction of manufacturing output in the second quarter of 2020 occurred in all regions, except for China which registered a 3.2% growth in output.
Last year, at the onset of the pandemic, the manufacturing industry in Africa experienced reduced demand and depressed production capacity.
The industry also reported a significant drop in global demand for exports.
Additionally, manufacturers faced cash flow constraints, logistics challenges and in many cases, downsized their workforce.
“With most countries in the Western continents imposing a ban on international travel, African countries had limited access to international markets for locally produced goods. As a result, this industry incurred a significant drop in revenue and profits, affecting African countries’ ability to import essential inputs for domestic production,” she points out.
The CEO adds that this year, the challenges remain with their impact being felt more, since measures put in place to cushion businesses from the impact of the pandemic, have since been rolled back.
“In as much as some countries are gradually putting in place economic stimulus plans to cushion themselves from the adverse effects of the pandemic, the majority of African countries still lack the capacity to achieve this,” she adds.
On the bright side, however, African industries became innovative, as countries were forced to locally source for critical essential supplies, to be used in the fight against COVID-19.
In Kenya, KAM’s Automotive Sector developed the first-ever locally manufactured ventilator.
A large number of manufacturers have also moved to e-commerce, to enable them to reach more markets, and to overcome disruptions caused by shocks arising out of the virus.
To achieve double-digit growth rates, Wakianga urges governments to put in place measures to promote economic recovery, backed by industrialization.
“As a continent, let us use the pandemic as a stepping stone towards becoming more industrialized.”
Going forward, the CEO says that whilst the manufacturing sector has faced headwinds to its development and realizing its full potential, it has recorded noteworthy growth.
She however notes that the slow pace of industrial growth has seen the continent miss opportunities for economic transformation, and consequently, job and wealth creation which are key for poverty alleviation.
On the bright side, the CEO says that leaders today are becoming more cognizant of the fact that manufacturing is a key pillar, in enabling Africa to achieve its development goals.
For instance, it is a key component of Africa’s Agenda 2063, on the Africa We Want.
“Recently, we have seen leaders developing innovative ways to attract investments.”
She also referenced Kenya, which has Special Economic Zones (SEZs) and Export Processing Zones (EPZs). Wakianga adds that the continent is also rapidly expanding its infrastructure – from transport, to power, adding that this is expected to increase investments in manufacturing, as well as increase intra and inter-continental trade
“In the next 5-10 years, I see an industrialized Africa, with a highly automated manufacturing sector,” she said.
The volume of trade within the continent is set to increase, with the Africa Continental Free Trade Area (AfCFTA) coming into force.
However, for this to be achieved, the continent still needs to put in more effort, to enable it to reach its full manufacturing potential, and increase its competitiveness and productivity.
“We must resolve the challenges that deter our growth – from political instability, policy unpredictability, inefficient transport and logistics systems and barriers to trade,” she said.
The CEO spoke ahead of the sixth edition of Global Business Forum Africa 2021, which will run between October 14 and 16 at the Dubai Exhibition Center, Expo 2020 Dubai.
According to the event’s organizers, heads of state, plus more than 30 ministers, high-ranking government officials and prominent influential business leaders from Africa have confirmed their participation for the edition of the event.
CNBC indicates that the Dubai Chamber is organizing GBF Africa 2021 in partnership with Expo 2020 Dubai under the theme “Transformation Through Trade”.
According to the publication, the forum aims to build bridges between UAE and African business communities and explore untapped trade and investment potential.
African Businesses Looking to Dubai
The Forum is expected to bring the trade and investment community back together to explore bilateral trade opportunities between Dubai and Sub-Saharan Africa.
According to a report by Modern Diplomacy, the Forum facilitates international revenue flows by engaging leading decision-makers on the global investment scene.
“Influential stakeholders participate in constructive dialogue at the highest level, focusing on key economic developments and investment opportunities emerging across the continent.”
The forum aims to build bridges between UAE and African business communities and explore untapped trade and investment potential, among other key objectives.
It comes at a time amid a new trend of businesses from Africa increasingly looking at Dubai as a gateway for them to expand into markets across the GCC, Asia, and Europe.
“Dubai remains a major hub for African companies that want to do business with our part of the world, and expand their footprint abroad,” Dubai Chamber of Commerce and Industry’s Director of International Offices Omar Khan told The Entrepreneur.
“African companies that are keen on entering the UAE market can capitalize on the competitive advantages that the country offers, such as its strategic geographic location, world-class infrastructure, excellent logistics facilities, 100% foreign ownership, long-term residency, attractive free zones, and a business-friendly environment,” he said.