The Notion that African Economies Should Produce more Locally is Gaining Traction

The Covid-19 pandemic has reinforced the notion that African countries should produce locally, rather than importing from abroad. Cipla, an Indian pharmaceutical company which holds a 51% stake in CiplaQCIL, used to import the drugs it sold in Uganda. In 2005 it entered into a partnership with Quality Chemicals Industries, its Ugandan distributor, and moved parts of the manufacturing process to Kampala. This kind of import substitution creates jobs, transfers skills and saves foreign exchange, as well as stirring patriotic pride. Many African countries adopted this approach after independence, with some initial success. Between 1965 and 1970 manufacturing output grew annually by 8% in Ghana, and 10% in Tanzania, rates which have rarely been matched since. But the boom didn’t last. African countries became more dependent on imports, in part because they still needed to buy intermediate and capital goods. Industrial enterprises were inefficient and badly run after being shielded from international competition. In the 1980s, as Africa lurched into a debt crisis, the IMF and World Bank pushed governments towards exports, privatisation and foreign direct investment. Import substitution is usually practised on a national scale, but the growth of regional markets is creating a pan-African equivalent. Regional economic communities are deepening, and a continental free trade area is on the horizon. In Africa’s Business Revolution, a 2018 book, McKinsey consultants forecast that “three-quarters of the growth opportunity in manufacturing lies in meeting intra-African demand and substituting imports”.

SOURCE: AFRICAN BUSINESS MAGAZINE