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TitleLight manufacturing in Africa : targeted policies to enhance private investment and create jobs
LanguageEnglish
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Total Pages184
Table of Contents
                            Contents
Foreword
Acknowledgments
Abbreviations and Acronyms
Overview
	Light Manufacturing in Africa: Targeted Policies to Enhance Private Investment and Create Jobs
	Potential for Light Manufacturing: Creating Millions of Productive Jobs
	Case Study: Ethiopia
	African Competitiveness in Light Manufacturing and Possible Solutions from Asia
	References
Part 1 Setting the Stage
	1 Good Possibilities for Light Manufacturing in Sub-Saharan Africa
		Structural Transformation
		Light Manufacturing, Including Agribusiness, as a Possible Driver of Africa’s Structural Transformation
		Does Sub-Saharan Africa Have a Comparative Advantage in Light Manufacturing?
		Africa’s Performance in Light Manufacturing
		Strategy for a Competitive Light Manufacturing Sector in Sub-Saharan Africa
		Past Policy Prescriptions: An Intimidating “To Do” List
		A Selective and Practical Approach: Resolve the Most Critical Constraints in the Most Promising Subsectors
		Notes
		References
Part 2 What Constrains Light Manufacturing in Sub-Saharan Africa?
	Main Constraints in Ethiopia, Tanzania, and Zambia
	Note
	References
	2 Input Industries
		Effects of Input Costs on Competitiveness
		Why Are Input Costs Higher?
		Possible Solutions from Asia
		Policy Recommendations
		References
	3 Industrial Land
		Effects of Industrial Land on Competitiveness
		Marketing of Goods: Land for Warehousing, Showrooms, and Trading Inputs and Outputs
		A Possible Solution from Asia
		Policy Recommendations for Africa
		Notes
		References
	4 Finance
		Access to Finance and Firm Performance
		The Availability and Cost of Finance
		Why Is the Cost of Formal Finance So High and the Availability So Constricted?
		Possible Solutions from Asia
		Notes
		References
	5 Trade Logistics
		Why Are Trade Logistics So Important to Competitiveness in Light Manufacturing?
		Trade Logistics Performance
		Factors Leading to Poor Trade Logistics in Africa
		Possible Solutions from Asia
		References
	6 Skills
		Entrepreneurial Skills
		Worker Skills
		Possible Solutions from Asia
		Notes
		References
	7 Implementation
		Competition
		Public-Private Partnerships
		High-Level Government Commitment
		The Role of Development Partners
		Governance and the Political Economy of Reforms
Part 3 Identifying the Potential and Easing the Constraints
	8 Ethiopia as Exemplar
		Apparel: Solving Trade Logistics Issues
		Leather Products: Dealing with Shortages of Quality Leather
		Wood Products: Providing Technical Training and Developing Sustainable Wood Plantations
		Metal Products: Reducing the Cost of Steel and Providing Technical Training
		Agribusiness: Reforming Key Agricultural Input and Output Markets and Facilitating Access to Land and Finance
		Synthesis across the Five Subsectors in Light Manufacturing
		Implementing Reform
		Political Economy Issues
		Notes
		References
Annex The Study’s Objectives and Methods
	Industry and Country Focus
	Methodology
	Enterprise Survey Studies
	Qualitative Survey
	Quantitative Survey
	Comparative Value Chain and Feasibility Analysis
	Kaizen Training
	Note
	References
Index
Boxes
	3.1 Why Have Industrial Parks Failed in Africa?
	6.1 Ethiopia’s Success in Farming Roses
	8.1 Analytical Tools
	8.2 The Role of FDI in Chinese Manufacturing and Apparel Industries
Figures
	1.1 Employment in Agriculture and Income in Select Countries, 2008
	1.2 Economic Structure in Select Sub-Saharan African Countries, Various Years, 1960–2010
	1.3 Share of Sub-Saharan Africa in Global Production and Exports, 1980 and 2005
	1.4 Labor Productivity per Worker in Select Countries, 2005
	1.5 Top Five Exports from Select Economies in Sub-Saharan Africa and Asia, 1980 and 2009
	1.6 Labor Productivity and Average Wage Rates in Manufacturing in China, 1979–2009
	II.1 Sources of Excess Production Costs of Medium Firms in Africa: Average across Ethiopia, Tanzania, and Zambia as a Percentage of Chinese Production Cost
	2.1 Impact of Higher Input Costs on Total Production Costs in Relation to China
	4.1 Collateral Requirements in the Five Countries
	4.2 Gross Domestic Savings as a Percentage of GDP in the Five Countries, 1985–2009
	5.1 Impact of Poor Trade Logistics on Total Production Costs, by Sector
	5.2 Logistics Performance Index and Annual Labor Costs per Worker in Apparel Production in Select Countries, 2010
	6.1 Level of Education of Firm Owners in the Five Countries
	8.1 Costs to Produce a Polo Shirt in Ethiopia Compared with Costs in China
	8.2 Costs to Produce Leather Shoes in Ethiopia Compared with Costs in China
Tables
	1 Constraints in Ethiopia, by Importance, Size of Firm, and Sector
	2 Proposed Policy Measures in Ethiopia
	1.1 Monthly Wages in the Light Manufacturing Sectors of Five Countries, by Skill Level
	1.2 Labor Productivity in the Light Manufacturing Sectors of Five Countries
	1.3 Level of Industrialization, by Region, 1960s–2000s
	1.4 Share of Manufactures in Total Exports in Select Countries in Africa and Asia, 1990–94 and 2005–09
	1.5 Top 10 Non-Oil Exports of China, 1980–84 and 2004–08
	2.1 Wheat Prices in the Five Countries, 2010 Average
	2.2 Pine Lumber Prices in the Five Countries
	4.1 Percentage of Firms That Could Borrow to Purchase Additional Machinery, Equipment, or Vehicles in the Five Countries, by Source
	4.2 Source of Funding for the Purchase of Machinery, Equipment, or Vehicles in the Five Countries
	4.3 Source of Funding for Innovation in the Five Countries
	4.4 Percentage of Firms That Have Borrowed in the Five Countries, by Source, 2006–10
	5.1 Time and Cost of Trading across Borders in the Five Countries
	5.2 Four Main Factors That Impair Trade Logistics in the Five Countries
	6.1 Firm Size and Assistance Received at Start of Business
	6.2 Labor Efficiency in the Five Countries
	8.1 Benchmarking the Cost of Consumables per Chair in the Five Countries
	8.2 Attributes of Local and Cross-Breed Cows
	8.3 Constraints in Ethiopia, by Importance, Size of Firm, and Sector
	8.4 Domestic Resource Cost Ratios in Ethiopia
	8.5 Estimated Fiscal Costs and Political Economy Feasibility of the Proposed Measures
                        
Document Text Contents
Page 1

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AFRICA DEVELOPMENT FORUM

Light Manufacturing
in Africa

Targeted Policies to Enhance
Private Investment and Create Jobs

Hinh T. Dinh, Vincent Palmade,
Vandana Chandra, and Frances Cossar

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Page 92

72 LIGHT MANUFACTURING IN AFRICA

develop industrial parks to spur local growth and increase tax revenues (Li and
Zhou 2005). The parks have enabled many small and medium Chinese enter-
prises to grow from family operations focused on domestic markets into global
powerhouses. But not all Chinese industrial parks have been successful; the
better ones were built on existing or potential industrial strengths—in other
words, on local comparative advantage.

China’s successful industrial parks provide enterprises with security, good
basic infrastructure (roads, energy, water, sewers), streamlined government
regulations (through government service centers), and affordable industrial
land. They also provide technical training, low-cost standardized factory shells,
and free and decent housing for workers next to the plants. By helping small
Chinese enterprises to grow into medium and large enterprises, the country
has avoided a shortage of medium fi rms—the “missing middle”—evident in
most Sub-Saharan countries. China’s parks focus on specifi c industries, such as
leather and textiles in Nanchang, furniture in Ji’an, and electronics in Ganzhou
(for further examples, see Zeng 2008; Sonobe and Otsuka 2006; Sonobe, Hu,
and Otsuka 2002).

More advanced industrial parks offer market analysis, accounting, import
and export information, and management advice and help fi rms to recruit and
train workers. For example, parks near the Yangtze River delta place a strong
emphasis on helping fi rms to get business licenses and hire workers. Parks may
also have facilities to address environmental challenges.

The plug-and-play industrial parks have greatly reduced start-up costs and
risks for small and medium enterprises that have suffi cient scale, capital, and
growth prospects to take advantage of larger facilities at a phase in their devel-
opment when they are unable to obtain bank loans. They have also facilitated
industrial clusters, generating substantial spillovers as well as economies of scale
and scope for Chinese industries. The clusters are facilitated further by govern-
ment support for input and output markets.

In a nutshell, Chinese governments, especially at the local level and particu-
larly in the central and southeastern coastal provinces, have taken the initia-
tive and moved energetically to foster the development of small and medium
enterprises by providing public goods and market information about suppliers
and buyers rather than large-scale subsidies. Gradual reforms have pushed the
cost of energy and utilities in the direction of market prices; fi rms that fail to
pay their bills cannot expect to have continued access to electricity and other
utilities. Competition is intense among fi rms in light manufacturing (and in
many other sectors of China’s economy). China’s economic reforms have vastly
reduced opportunities for failing fi rms, especially small and medium opera-
tions, to receive government bailouts. China now has several hundred million
migrant workers, with the largest fl ow of migrants from west to east. China’s
coastal cities have become magnets for millions of migrant workers, many of

Page 93

INDUSTRIAL LAND 73

whom live and work in various types of special zones and industrial parks. The
design and operation of these zones and parks facilitates employers’ access to
large numbers of workers and contributes to the migrants’ efforts to achieve
their own goals of upward mobility through hard work and diligent saving.
Many Chinese migrants remit substantial funds to their original homes to
support parents, spouses, and children left behind, to build new housing, and
sometimes to support future business plans.

In Africa, by contrast, workers spend the bulk of their incomes on housing,
food, and transport and achieve much lower savings rates than their Chinese
counterparts. Reforming legal and administrative provisions that limit access
to land, especially industrial plots connected to utilities and convenient trans-
portation, will encourage the growth of manufacturing enterprises that can
raise the productivity, and hence the wages, of large numbers of workers. In this
way, growing numbers of low-income Africans can begin to access the sort of
benefi ts that have improved the lives and prospects of many millions of Chinese
workers during the past several decades of reform.

Policy Recommendations for Africa

African governments should develop such plug-and-play industrial parks next
to main cities and ports. This would eliminate in one stroke the very high inland
transport costs for exporters in Africa.

As in China, industrial parks can bypass diffi cult land reform, which can
take years. African governments can test a variety of policies before gradually
applying them more widely. The demonstration effects can overcome political
economy constraints.

But industrial zones are not new to Africa. Why have they failed (box 3.1),
and why would they work now?

BOX 3 .1

Why Have Industrial Parks Failed in Africa?
Industrial parks have played a catalytic role in facilitating industrial upgrading and
export-led growth in East Asia, most notably in “tiger economies” during the 1980s
and in China since the early 1990s, but also in Latin America and parts of South Asia.
The African experience with industrial parks over the past two decades, which has
mostly involved traditional export-processing zones, has been less spectacular. With
the signifi cant exception of Mauritius and the partial (initial) success of Kenya, Mada-
gascar, and Lesotho, most African zones have failed to attract signifi cant investment,

Page 184

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“ Light Manufacturing in Africa yields excellent new insights for African policy
makers on how to grow industry and create productive jobs. The book combines
sound economic analysis with careful and detailed micro and enterprise survey data
to derive practical and sensible policy recommendations for the African context. In
particular, the value chain analysis across countries on different continents provides
a deep and clear empirical understanding of the relative costs, the priority con-
straints, and thus the policy interventions. This book is a must-read for anyone
interested in African development and industrialization.”

—K.Y. AMOAKO, President, African Center for Economic Transformation, Accra, Ghana

“ Excellent. I do not recall reading a book that is more clearly argued on the issue of
manufacturing competitiveness in developing countries. The study’s great strength is
that it combines very careful micro and enterprise level analysis with a deep under-
standing of the welfare economics that must underpin government intervention.
The discussion of fi scal cost and of the political economy of government intervention
breaks new ground and gets to the heart of the implementation issue.”

—URI DADUSH, Senior Associate and Director of the International Economics Program,
the Carnegie Endowment for International Peace

“ Light Manufacturing in Africa presents an innovative approach to industrialization
and job creation in Africa by identifying the binding constraints in specifi c subsectors
and suggesting policies to remove them and to enhance private investment and
create productive jobs. Using Ethiopia as an exemplar, the book relies on a range of
qualitative and quantitative tools to carefully assess the country’s low wage advan-
tage and production costs, and recommends policy interventions that the govern-
ment might pursue to foster specifi c light manufacturing industries. I strongly
recommend this book for development economists and policy makers interested in
industrial development.”

—HOWARD PACK, Professor of Business and Public Policy, the Wharton School of
the University of Pennsylvania

“ By focusing more narrowly and digging more deeply than standard econometric
studies have been able to do, this work sets a new standard for cost and productivity
analyses of African manufacturing.”

—JOHN SUTTON, Sir John Hicks Professor of Economics, the London School of Economics

Further information can be found online at http://econ.worldbank.org/africamanufacturing

ISBN 978-0-8213-8961-4

SKU 18961

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