Africa’s Industrial Revolution: new technology and vibrant entrepreneurship

Manufacturing remains an essential element of development, and according to this column, Africa has a golden opportunity to industrialize. The convergence of two trends makes this possible: emerging technologies that are radically transforming the nature of manufacturing, and the resurgence of entrepreneurship across the continent.

The growth of the manufacturing sector is an essential feature of the development process – what Dani Rodrik calls the ‘manufacturing imperative’. With sub-Saharan Africa’s manufacturing contributing only around 11% of GDP and 6% of employment, the continent still needs to industrialize.

Despite claims that manufacturing is no longer important and that developing regions such as Africa could dispense altogether with trying to industrialize, I want to argue otherwise.

I also want to counter the pessimism in some quarters that Africa cannot industrialize – either because it lags too far behind, because manufacturing is too complex, because Africa does not have the ‘capabilities’ to industrialize, or that good governance is lacking.

I even want to argue against some well-intended but misguided advice that African countries should still promote traditional (but dated) types of manufacturing, just in order to ‘learn’ about manufacturing.

My central claim is that Africa faces a golden opportunity to industrialize. This is due to the convergence of two trends: one, the availability of new technologies that are radically transforming the nature of manufacturing; and two, the resurgence of start-up tech entrepreneurship across the continent.

Emerging technologies are disrupting manufacturing

Let me first outline what these emerging technologies are and how they are changing manufacturing. The most important from the point of view of manufacturing are robotics, 3D printing, the Industrial Internet of Things, advanced materials, digitization and big data analytics.

These technologies have, especially since around 2007, started to converge to turn manufacturing on its head, through the integration of the physical and the digital worlds, resulting in ‘products-as-services’.

Typical of the impact of technologies that exhibit exponential properties (such as digital platforms) is to make things cheaper and more accessible. Think of all the free functions on smartphones: GPS, videoconferencing, processing power, video player, video camera, etc. In 1985, these would have cost US$32 million.

In the case of manufacturing, this is democratizing and dematerializing production.

An example of the democratizing effect is reflected in the rise of the ‘maker‘ movement, which refers to the rising importance of small and micro-enterprises making use of 3D printing and online e-commerce platforms such as Etsy to design and deliver unique products to their customers – resulting in mass customization. In 2018, more than US$12 billion was spent globally on 3D printers and equipment, with spending projected to rise significantly in coming years.

3D printing is taking off in Africa. In 2014, Togolese entrepreneur Afate Gnikou won an international prize for manufacturing a prototype 3D printer from recycled electronic waste for less than US$100. Proving the benefits of converging technologies, he used ‘crowdfunding’ to raise capital.

Another of many examples is the 3DAgDev project, which uses 3D printing to provide women smallholder farmers in Africa with the technology to ‘design and develop their own labor-saving agricultural tools’ whereby ‘local tool manufacturers can copy plastic prototypes and develop their own modifications’.

The dematerialization of manufacturing is facilitated by growing digitization of manufacturing, including artificial intelligence and the increased use of advanced materials such an nanomaterials and carbon fiber composites.

Together with 3D printing, these technologies are leading to more consumption of non-physical product and less physical production. This is because less stock needs to be kept, products use fewer physical inputs, and they last longer and allow shared use, supporting the ‘shared economy’ (estimated to reach a value of US$335 billion by 2025).

The resurgence of tech start-ups is transforming the African business landscape

Ultimately, these new technologies are making manufacturing simpler. They allow countries and entrepreneurs to focus on the business side. It will be the demands of consumers that determine Africa’s industrialization. And here things are looking up: the middle class is rising; and the entrepreneurial start-up scene is booming like never before.

Take just two indicators: the growth in venture capital to tech start-ups in Africa, and the growth in the tech start-up ecosystem, as reflected in the number of start-up accelerators and incubators spreading across the continent.

First, as Figure 1 shows, between 2012 and 2018, there was a ten-fold increase in the amount of venture capital flowing into African tech start-ups.

Figure 1: Venture capital funding for African tech start-ups, US$ millions

Source: Based on data from Jake Bright

Second, the tech start-up ecosystem in Africa (labeled ‘Silicon Savannah’) has been developing rapidly since 2007, when M-Pesa was launched in Kenya. Today there more than 314 ‘tech hubs‘ and at least 60 specialized start-up tech accelerators on the continent.

Examples of the latter include iHub in Kenya, blueMoon Ethiopia, BongoHive in Zambia and Startpreneurs in Nigeria, an accelerator focusing on artificial intelligence, machine learning, virtual reality, blockchain and data science. The growthafrica accelerator working in Kenya, Uganda and Ethiopia reports that it has assisted 289 new entrepreneurs and created 25,000 jobs since 2002.

At the same time, more and more global tech giants are joining the local tech boom by investing in Africa’s tech entrepreneurs. Most recently, Google announced that it will establish an Artificial Intelligence Lab in Ghana.

These developments have coincided with fast growth in employment in manufacturing in Africa, as Figure 2 shows. Manufacturing employment growth was fastest in Ethiopia and Kenya, epicenters of the new start-up culture in Africa.

Indeed, over the past decade, African manufacturing has grown by an average of 3.5% per year, faster than in advanced economies. In terms of the exporting of manufactured products, Africa clocked an average annual growth of 7.4% between 2005-2014. Only Asia’s manufactured exports grew faster.

Figure 2: Employment in African manufacturing

Source: author’s compilation based on data from the Expanded Africa Sector Database (ASD) of Mensah and Szirmai (2018)

Policies to support Africa’s industrialization

To reap the most benefits from the convergence of new technology and resurgent entrepreneurship, African governments should focus on five essential generic strategic areas:

• Ensuring high-speed internet access.
• Expanding electricity provision.
• Fast-tracking skills development, particularly of entrepreneurs and managers.
• Investing in smart cities and their infrastructure.
• Promoting trade openness and global connectivity.

Africa is of course not one single entity but characterized by great heterogeneity between and within countries and regions. Just as countries will not make equal development progress, not all will make equal progress in developing their manufacturing sectors. But pursuing the benefits of the new technologies through the five generic strategic areas above will be worthwhile for all African countries – even those that may prefer to specialize in agriculture – given the urgent need to create jobs for a growing labor force.

Irrespective of a country’s level of development or immediate industrialization prospects, the new industrial revolution offers a change for a new, forward-looking narrative on Africa’s development. As such, it would be a mistake to argue that Africa should invest in traditional manufacturing sectors based on the idea that somehow this will give countries the experience to ‘learn’ how to industrialize. There is little opportunity in ‘old’ industries where useful learning can occur in the age of disruptive digital manufacturing.

In fact, it may only serve to lock countries into dead-end manufacturing sectors. Africa did not become a leader in ‘fintech’ (financial technology) by investing in traditional banks or waiting for governments to take the initiative. It did so by entrepreneurial initiative that leapfrogged and tailored new technology to the needs of its people.

Now that manufacturing is being democratized and dematerialized by new technology, it is up to the continent’s entrepreneurs to produce the goods that the young, growing and urban middle class of Africa is demanding.