A tale of industrial stagnation from Africa

Abstract

Many African economies have experienced rather dismal industrial development since the 1980s. The consensus is that African firms lack competitiveness in a world with increasing trade openness. What determines competitiveness? A well‐known explanation is that resource endowments in Africa favour land not labour, which results in high wages, especially in comparison with ‘labour abundant’ Asian economies. This paper examines the validity of this view on the basis of the case of Sudan. We demonstrate that the lack of competitiveness of manufacturing industries is not caused by high wages. Assuming a direct relationship between labour productivity and international competitiveness, we argue that acute capacity underutilisation, caused by supply‐side constraints, lowers manufacturing productivity, which in turn negatively influences competitiveness.

Keywords:

• manufacturing
• wages
• productivity
• capacity utilisation
• Africa
• Sudan

JEL Classifications:

• O14
• 025
• 053
• 055

Acknowledgements

The research material for this paper was collated while working on a project for the United Nations Development Programme (UNDP) whose support is gratefully acknowledged. The suggestions of two anonymous referees on earlier versions of this paper are greatly appreciated.