Made in Sub-Saharan Africa?

Paul Collier, the author of Bottom Billion explains that one of the reasons that Asia has taken over the manufacturing industry is a term in Economics, called “Agglomeration of Economies.” The premise is that initial costs for a manufacturing company are higher when it first opens up in a particular area of lower cost labor where no other such firms like it exist; however, after subsequent manufacturers begin operating, costs reduce because of reduced labor costs and economies of scale (reductions in unit cost as the size of a facility and the usage levels of other inputs increase). This process spearheaded the transition of manufacturing from the rich world (Europe; US) to the Asian economies in the 1980s.

According to Collier, African countries lost their opportunity to become the manufacturing centers like some Asian countries such as China, India, Malaysia due to poor governance, poor trade regulations or international regulations like Africa Growth and Opportunities Act (AGOA) that didn’t last long enough. As a result of this lost opportunity, Collier argues that it will be difficult for the African countries to “break in” and become manufacturing centers due to their reduced efficiencies and increased labor costs compared to the Asian countries. For example, although, South Africa, Egypt, and Tunisia have been able to become manufacturing power houses their labor costs are considerably higher (about twice the costs of those in China according to this report from McKinsey).

So how do countries in sub-Saharan countries move from their current state to a more optimal one? They can create export processing zones thereby attracting outside (and inside) manufacturing firms to manufacture goods and continue to take advantage of legislation like AGOA