Margaret McMillan

Africa’s manufacturing puzzle: Evidence from Tanzanian and Ethiopian firms

Agrifood processing in Africa: Status, challenges, and opportunities

Ashift from agriculture to manufacturing was one of the hallmarks of job creation, poverty reduction, and rapid growth in low-income countries during the latter half of the 20th century. This experience in earlier decades of structural transformation was characterized by labor-absorbing, productivity-increasing manufacturing. Recent structural change in African countries has been markedly different—productivity gains are realized through reallocation of economic activity away from agriculture without the accompanying within-sector productivity growth in nonagriculture, and manufacturing in particular (Diao, McMillan, and Rodrik 2019; Diao et al., 2021; McMillan and Zeufack 2022). This chapter examines the extent to which agrifood processing follows these trends.

Labor productivity growth and industrialization in Africa

Manufacturing has made an important contribution to raising living standards in many parts of the world. Concerns about premature deindustrialization have made some observers skeptical about the potential for manufacturing to play this role in Africa. But employment in African manufacturing has grown rapidly over the past 20 years. These employment gains have been accompanied by: (i) large increases in the number of small manufacturing firms; (ii) limited employment gains in large firms; and (iii) robust labor productivity growth in Africa’s large firms. Limited employment growth in Africa’s large manufacturing firms is partly a result of the capital intensity of the manufacturing subsectors in which African countries are most engaged—the processing of resources—and partly a result of rising capital intensity in manufacturing. The potential for manufacturing to raise living standards in Africa depends on indirect job creation by large firms through backward and forward linkages and increasing labor productivity in small firms.