Online Reporter
Jonathan Munemo
THE prolonged disruption of shipping through the Strait of Hormuz has exposed how vulnerable Africa’s economies are to geopolitical shocks.
Fuel prices have remained elevated, squeezing economies that depend heavily on petroleum imports from the Middle East.
These include Ethiopia, Kenya, Mozambique, South Africa, Tanzania and Uganda.
This vulnerability also puts at risk the continent’s push to escape poverty through what economists call structural transformation: moving workers from low-productivity activities such as subsistence farming into more productive jobs in manufacturing and modern services.
The continent never fully participated in the export-manufacturing wave that transformed East Asia from the 1960s onwards.
And now Africa’s industrialisation ambitions have become even more difficult to realise as geopolitical rivalry, fragmented supply chains and artificial intelligence reshape the global economy. As an economist who has written about how weaponisation of global trade affects African economies, I believe structural transformation still matters.
But it must be reinvented around four priorities:
- Larger markets;
- Reliable electricity;
- Africa’s comparative advantages; and
- Agriculture
Why the old model worked
Japan, South Korea, Taiwan, China and Vietnam all industrialised in broadly the same way. They expanded exports of labour-intensive manufactured goods such as garments, footwear, furniture and electronic gadgets.
These industries created millions of jobs for workers with limited formal education while gradually building technological capabilities, productive firms and efficient logistics networks.
What made this possible was a relatively stable global trading system. Trade barriers generally fell, demand for manufactured goods expanded, and richer countries steadily moved out of low-wage industries as incomes increased.
Governments could focus on becoming more competitive because the rules of international trade were comparatively predictable.
Africa never fully benefitted from that opportunity. Manufacturing accounts for only about 10 percent of gross domestic product (GDP) in Sub-Saharan Africa, compared with around 22 percent in East Asia and the Pacific.
The continent’s share of global manufacturing has fallen from roughly 3 percent in the 1970s to less than 2 percent today.
The continent struggled to establish internationally competitive manufacturing even when the global trading environment was relatively open.
Among the factors holding it back were:
- Unreliable electricity;
- High transport and logistics costs;
- Small and fragmented domestic markets;
- Weak industrial capabilities;
- Limited access to finance; and
- Unpredictable policy
As a result, many economies remained dependent on commodity exports while importing most manufactured goods.
These longstanding constraints have not disappeared. Instead, Africa now faces a double challenge. It must overcome the structural barriers that prevented the traditional manufacturing-led development model from taking off in the past, and also adapt to a global economy that has changed dramatically.
This challenge does not make structural transformation impossible. It simply means the old way of doing it will not work.
Four changes have rewritten the rules.
The first change is that trade itself has become a geopolitical tool. Countries use export controls, financial sanctions and control over strategic technologies to pursue national security goals. The disruption in the Strait of Hormuz illustrates this.
The second is that manufacturing cannot create jobs on the scale it once did.
Automation has reduced demand for the low-skill factory jobs that once absorbed millions of workers. This matters because by 2030 Sub-Saharan Africa is expected to account for roughly half of all new entrants to the global labour force; that is around 15 million young people each year.
Creating productive employment will require growth across manufacturing, modern services and higher-value agriculture rather than relying on factories alone.
Third, China has remained competitive in labour-intensive manufacturing. Rising wages led many economists to expect the production of clothing, textiles and footwear to relocate to lower-income countries.
Instead, China still dominates. This makes it much harder for African producers to enter sectors that earlier industrialisers used as entry points.
The fourth change is artificial intelligence (AI). AI is becoming a general-purpose technology that can help economies move labour and capital into more productive activities.
For example: AI-powered tools can help farmers make better decisions about weather, pests, input use and market prices. Businesses can use AI to reduce costs, improve quality and participate in regional and global value chains.
How governments should respond
The African continent still needs millions of better-paying jobs and much higher productivity to reduce poverty and raise living standards.
What has changed is the route to achieving those goals. First, pursue economic security collectively rather than nationally.
Structural transformation requires firms to invest in new industries. But they are less likely to do so if export markets are uncertain or supply chains are easily disrupted. A larger integrated market can reduce those risks. Acting together also gives African countries greater bargaining power as the United States, China and Gulf states compete to invest in the continent’s digital and physical infrastructure.
Full implementation of the African Continental Free Trade Area is more urgent than ever.
Second, invest in electricity.
It is the foundation of both industrialisation and the digital economy. Manufacturing, digital services and AI-enabled industries cannot grow without reliable power. Yet electricity remains one of the biggest constraints.
In Sub-Saharan Africa, 78 percent of businesses experience routine power outages.
As a result, they lose an average 8,4 percent of annual sales, compared with a global average of 5,2 percent.
In Nigeria, 86 percent of businesses own or share a generator. In Kenya, it is 65 percent; in South Africa 63 percent. This dependence on diesel generators increases reliance on imported fuel: a vulnerable spot.
Third, compete where Africa has genuine comparative advantages: industries linked to natural resources and growing domestic markets.
Examples include:
- Processing critical minerals;
- Agro-processing;
- Construction materials; and
- Pharmaceutical manufacturing
Finally, recognise that agriculture is central to structural transformation, not separate from it. Around half of Sub-Saharan Africa’s workforce is employed in farming.
Higher farm productivity raises rural incomes, releases labour for productive activities and creates demand for manufacturing and services. AI can accelerate this process by helping farmers. Countries that successfully connect these new realities to the longstanding goal of shifting workers and resources into higher-productivity activities will be best positioned to achieve sustained and inclusive growth. — theconversation.com
Jonathan Munemo is a professor of Economics at Salisbury University.
