Study evaluates African nations as potential manufacturing destinations
Washington – A new study released today by Center for Global Development researchers finds that Ethiopia tops the African continent as Africa’s most attractive destination for global manufacturing.
The report, “Can Africa Be a Manufacturing Destination: Labor Costs in Comparative Perspective” takes an in-depth look at labor costs in Africa’s low- and middle-income nations, and compared these costs to current manufacturing destinations outside of Africa to determine how attractive African nations are as a future destination for manufacturing firms. The researchers looked at data from 5,467 manufacturing firms in 29 countries.
“Multinational business leaders and international policymakers alike are very interested in the future of manufacturing – what will it be and where will it be,” said Vijaya Ramachandran, one of the report’s authors. “This study attempts to answer some of those questions, and finds that Ethiopia is a potentially attractive destination for future manufacturing. But the continent as a whole might not fulfill the manufacturing promise as much as we all had hoped.
The research examines the relationship between labor costs in African nations, comparing them to other countries outside of the African continent that could be considered as competing manufacturing destinations and found:
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Human capital costs in Africa are high. The table below compares labor costs in four African countries—Kenya, Tanzania, Senegal and Ethiopia—with Bangladesh. More broadly, each additional worker in Africa contributed $5,202.67 in manufacturing value added, compared to $11,371.83 in comparison countries.
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Labor Costs in Africa vs. Bangladesh
| Labor cost/worker | Capital cost/worker | GDP/capita | |
|---|---|---|---|
| Bangladesh | $835.31 | $1069.84 | $853.02 |
| Kenya | $2118.01 | $9775.45 | $1116.69 |
| Tanzania | $1776.65 | $5740.99 | $1094.9 |
| Senegal | $1561.64 | $2421.98 | $775.45 |
| Ethiopia | $909.28 | $6137.98 | $471.19 |
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However, Ethiopia has comparable labor costs to other international manufacturing destinations. Ethiopia, at $909, has labor costs comparable with the cost of labor in Bangladesh which is $835 per worker. Fashion brands like H&M are setting up shop in Ethiopia to assemble garments that are then sold around the world.
Read the full study here.
“It is always risky to speculate on the future, especially considering evolving trends in technology which will shape the evolution of comparative and absolute advantage in manufacturing,” said Ramachandran. “Africa is not, in general, poised to embark on a manufacturing-led take-off. However, Ethiopia could be the new China — its labor costs are competitive to investors who are facing rising costs in Asia.”
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