1 Establishment Age Effects on Job Growth across Size Groups

Indeed, most manufacturing activities now occur across global value chains (GVCs), such that many firms in different countries are involved in tasks ranging from the design of products, to the procurement of parts and components, to the final delivery of products to end users in the global market. This breakdown of the manufacturing process across GVCs, straddling international borders, has made it possible for developing countries to industrialize. It has created opportunities for countries to kick-start industrialization by initially specializing in lower-value-added tasks in which they have a comparative advantage along a given GVC, while at the same time actively investing in activities that culminate in building a comparative advantage in higher-value-added tasks. These developments offer opportunities that policy makers could capitalize on and strategize around to make industrialization work in the context of GVCs.

This report reassesses the prospects for industrialization in Sub-Saharan African countries via integration into GVCs and discusses the role of policy in enhancing these prospects. Industrialization stands to be a key precursor for jobs growth in Sub-Saharan Africa, with transformative potential in many parts of the continent. Thus, the focus should turn to creating the right policy environment to enable countries to integrate into manufacturing GVCs as a path to industrial development. However, not all countries in the region may be able to seize these opportunities, which gives rise to two interrelated questions. First, what are the prospects for countries in the region participating in specific manufacturing GVCs to generate significant and sustained gains in jobs and productivity? Second, what role, if any, can industrial policy play in promoting such prospects? The answers to these questions should be sought against the backdrop of the Fourth Industrial Revolution (the ongoing automation of traditional manufacturing and industrial practices using modern technology) and growing protectionism in developed countries.

The prospects for industrialization are bound to differ across countries, depending on resource endowments and initial policy configurations. Thus, an assessment of the region should account for the heterogeneity across the continent. Such prospects must also be assessed in specific countries in the context of new and emerging digital technologies, the evolution of regional and global value chains, and the implications of these developments for regional trade agreements and the broader international trading system.

Despite considerable heterogeneity across countries in the region, the evidence shows that Africa has not experienced premature deindustrialization. Moreover, manufacturing employment is driven primarily by the formation of new establishments and the growth of younger ones, similar to what is observed in advanced economies. This pattern is most evident in the earliest phase of the job growth process, when employers benefit from an environment of “unlimited labor supply” by hiring more workers at roughly constant wages. However, based on specific country cases, this phase of job growth is not sustainable, given that