June 17, 2012
With domestic labor costs rising, many Asian manufacturing producers are now looking to relocate their factories in other regions of the world. Could Africa replace Asia and/or China as the world's next manufacturing hub?
To be sure, Africa has a number of manufacturing advantages that it has yet to realize. Besides low labor costs and abundant resources, these include duty-free and quota-free access to U.S. and EU markets for light manufactures under the Africa Growth and Opportunity Act and the Cotonou Agreement.
Is this enough to offset Sub-Saharan Africa's generally low labor productivity relative to that of its Asian competitors?
Yes, if Africa can implement appropriate supportive policies to leverage its opportunities soon. This is the finding from a recent book by a team of World Bank economists. China dominates the global export market in light manufacturing, and its competitive edge far exceeds that of low income exporters that recently entered the global market.
But steeply rising costs of land, regulatory compliance, and especially labor in China's coastal export manufacturing centers have begun to erode the latter's cost advantage, a trend likely to accelerate in the coming years.