Geographies in Depth

Embracing “islandization”: how an unlikely opportunity could help Africa achieve inclusive growth

Traders work at the Egyptian stock exchange in Cairo, Egypt, March 8, 2016. Stock markets in the Gulf may firm on Tuesday as investors could be encouraged to enter longer-term positions with further evidence that oil prices may have bottomed. Egypt may be supported by positive earnings from Telecom Egypt. REUTERS/Mohamed Abd El Ghany - RTS9S5T

How can Africa take advantage of an increasingly "islandized" world? Image: REUTERS/Mohamed Abd El Ghany

Johan C. Aurik
Partner and Chairman Emeritus, Kearney
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Africa

This article is part of: World Economic Forum on Africa

In 1624, the English poet John Donne wrote the famous line: “No man is an island.” His verse conveys the message that no one is self-sufficient; we all rely on others.

As we enter the Fourth Industrial Revolution, in which advanced manufacturing and the convergence of new technologies hold the key to economic success – or failure, these words have never seemed so prescient.

A world in flux

The opportunities presented by emerging technology breakthroughs are vast. They have the potential, when combined and connected, to transform our manufacturing and production systems, entire business models, our economic outlook, the future of employment and even our stewardship of the world around us.

The key lies in the words “combined” and “connected”: more than at any other time in our industrial history, deep collaboration across our civic, organizational and national boundaries is needed to unlock the true value that these new production systems offer.

Unfortunately, the failure to date to combine and connect is having very real consequences. Certain groups and regions within countries feel the global free market system is working against their interests and they are turning to political leaders peddling a return to nationalism and protectionist policies—an “islandization” of what was globalization.

On top of the real and perceived political consequences of inequality within key markets, our era is characterized by growing volatility, unpredictability, and geopolitical tensions. This swing towards divergent economic approaches has slowed cross-border movement of goods, services, capital and people.

Another influencing factor is the extent to which economies around the globe have been able to industrialize. Those that have had the capacity to translate scientific discovery into technological innovation are arguably going to be quicker off the starting blocks. Others may find themselves having to look for opportunities to bypass traditional routes to development.

Clearly, different countries and regions will need their own unique strategies to take advantage of this new future of production in an increasingly “islandized” world – that is, one less friendly to global trade, and far less favourable to new entrants on the global stage. One of the most interesting examples is Africa.

The outlook for Africa

As a collection of disparate economies, and with mixed experience in manufacturing, Africa largely missed out on the opportunities afforded by globalization. Today, it is starting to gain ground and has a selection of success stories, notably in Mauritius, Ethiopia and Tanzania.

There are also encouraging signs of growth for the continent as a whole. Manufacturing in Africa – although having declined as a share of GDP in most individual countries – is actually growing in absolute terms. Between 2005 and 2014, production more than doubled from $73 billion to $157 billion. Additionally, foreign direct investment (FDI) has been increasing, while direct investment from one African country to another is now a significant source of FDI.

However, Africa’s total share of global manufacturing exports remains at less than 1%. Moreover, together with Latin America, it holds less than 8% of the market in the big five new production technologies (the Internet of Things, Artificial Intelligence, robotics, 3D printing and enterprise wearables).

Geographic adoption of technologies
Geographic adoption of technologies

As I wrote last year, population growth and the associated need to create jobs mean that Africa has no alternative but to continue to develop a strong, value-added manufacturing base. In addition, increasing consumption – driven by a rising middle class – presents another argument for industrialization.

Two windows of opportunity

For Africa, the advent of the Fourth Industrial Revolution and the trend of “islandization” both offer opportunities to catch or even leapfrog its global competitors through the use of innovative approaches to industrialization.

Firstly, new technologies are undoubtedly improving the economics of local production systems, enabling developing communities to become more self-sufficient. Local production also reduces the need for costly, long-distance transportation, which has long impeded Africa’s ability to compete. Meanwhile, as costs rise in China and other economies start to move up the value chain, Africa could emerge as an alternative source of light manufacturing. Along with an improving business environment, the Fourth Industrial Revolution could potentially provide Africa with a launchpad to accelerate its industrial development.

Have you read?

“Islandization” might seem an unlikely opportunity, but, while undoubtedly problematic from a rational economics perspective, the trend does not foreclose Africa’s right to rise economically. On the contrary, it offers an additional blueprint for future success. With the other major players setting up their own “islandized” economies, Africa could seize the opportunity to do the same, in an inspired way. By viewing its own market bloc as the end consumer base for production, Africa has the ability to grow its global competitiveness. If enacted, the African Union’s proposed Continental Free Trade Area could double intra-African trade from its 2012 level by 2022.

Of course, this is not to suggest that Africa should become protectionist or replace all foreign imports with domestic production; rather, the idea is to find ways to reduce its own internal barriers and create free trade across the continent. This would encourage inward-facing markets and the free movement of people and ideas, and establish value chains on the continent, while addressing longstanding infrastructure challenges.

If Africa can ride both of these trends, it will kick-start an industrial upswing, presenting an opportunity for the continent to emerge as an economic power in its own right.

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Related topics:
Geographies in DepthEconomic GrowthGeo-Economics and Politics
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