Leveraging abundant labor for manufacturing
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Manufacturing has decided pluses. It can deliver increasing returns to scale and has great opportunities for technological learning. It gives agriculture a boost by creating demand for its products and by absorbing its labor. And it spawns an array of services from market research and design to shipping and payments. But manufacturing is yet to take off in Sub-Saharan Africa. Not only is the share of manufacturing in GDP low across the region, the shares in several countries have been falling.
A rising manufacturing capability propelled all previous economic transformations in their early stages. It diversified the production and export base and thus increased employment and export earnings. It reduced economic volatility from weather and the swings in international commodity prices. It also widened the scope for learning about and upgrading technology and thus for raising productivity.
This chapter shows how Sub-Saharan countries can leverage their abundant labor and low wages to enter the competitive production and export of manufactured goods. But since every country desires to raise the incomes of its workers, a low wage is not something a country should preserve as its long-term competitive advantage. Leveraging low wages should be seen as an interim strategy to make the most of the current situation while efforts are under way to change the underlying domestic supply conditions. The aim should be to reduce other domestic costs and raise productivity and technological capabilities over time so that real wages can rise while preserving global competitiveness. That is the way to transition from the poverty of low wages to the prosperity of high incomes.
The first section on garments starts with the key factors driving the global export markets in garments. It then provides short case studies of garments production and exports in six of the most important Sub-Saharan African countries in the industry—Mauritius, Madagascar, Lesotho, Kenya, Ghana, and Senegal in that order. It brings out the domestic supply and policy constraints covered in the previous chapter on exports. The second section explores assembling and exporting consumer electronics and home appliances. Because the prospects depend on the ability of countries to attract foreign direct investment (FDI) by the multinational companies that control most global production and exports, the section centers on attracting manufacturing FDI and features the results of interviews with top executives of such companies.