Africa: The World Has Changed. African Countries Must Rethink How They Grow Their Economies

The ongoing disruption to shipping through the Strait of Hormuz has highlighted how susceptible African economies are to geopolitical shocks. Fuel prices have stayed high, pressuring economies that rely heavily on Middle Eastern petroleum imports. Countries such as Ethiopia, Kenya, Mozambique, South Africa, Tanzania, and Uganda are among those vulnerable.

This economic fragility also jeopardizes Africa's goal of escaping poverty via structural transformation—a process of shifting workers from low-productivity jobs, like subsistence farming, to higher-productivity roles in manufacturing and modern services. Africa never fully engaged in the export-manufacturing wave that transformed East Asia starting in the 1960s.

Now, Africa's industrialization goals have become even more challenging due to geopolitical rivalries, fractured supply chains, and the rise of artificial intelligence reshaping the global economy.

As an economist familiar with how weaponization of global trade impacts African economies, I believe structural transformation still holds importance. However, it must be adapted to address four key priorities: Japan, South Korea, Taiwan, China, and Vietnam—all industrialized in a similar manner. They expanded exports of labor-intensive goods such as garments, footwear, furniture, and electronics.

These industries generated millions of jobs for low-skilled workers while simultaneously cultivating technological prowess, productive enterprises, and efficient logistics networks. The key to this success was a relatively stable global trade system. Trade barriers generally decreased, demand for manufactured goods grew, and wealthier countries gradually phased out low-wage industries as income levels rose.

African nations failed to reap that advantage. Manufacturing contributes only about 10% to sub-Saharan Africa's GDP, compared to approximately 22% in East Asia and the Pacific. The continent's share of global manufacturing has dwindled from roughly 3% in the 1970s to less than 2% today. Africa's struggle to establish internationally competitive manufacturing, even when the global trading environment was relatively open, has hindered its progress.

Historical constraints persist, now compounded by a double challenge: overcoming previous structural barriers and adapting to a rapidly evolving global economy. This doesn't make structural transformation unattainable; it simply means the outdated approach will no longer suffice. The first change is that trade itself has become a geopolitical instrument.

Countries employ export controls, financial sanctions, and control over strategic technologies to achieve national security objectives. The Hormuz shipping disruption exemplifies this. Secondly, manufacturing is no longer a significant job creator. Automation has reduced demand for low-skill factory jobs that once absorbed millions of workers.

By 2030, sub-Saharan Africa is projected to host roughly half of all new labor entrants to the global workforce—around 15 million young individuals annually. Generating productive employment will necessitate growth across manufacturing, modern services, and higher-value agriculture, rather than solely relying on factories. Third, China continues to dominate labor-intensive manufacturing.

Escalating wages once prompted predictions that clothing, textiles, and footwear production would migrate to lower-income nations. Instead, China remains the top producer. This makes it significantly more difficult for African producers to enter sectors that earlier industrializers utilized as starting points. Lastly, artificial intelligence is emerging as a general-purpose technology that can assist economies in transitioning labor and capital toward more productive pursuits.

For instance: African nations still require millions of better-paying jobs and heightened productivity to alleviate poverty and enhance living standards. What has changed is the pathway to attaining these objectives. The first step is to pursue economic security collectively rather than individually. Structural transformation necessitates firms investing in new industries.

However, they are less inclined to do so if export markets are uncertain or supply chains are easily disrupted. A larger integrated market can mitigate these risks. Collaborating also enhances African countries' negotiating power as the United States, China, and Gulf states vie to invest in the continent's digital and physical infrastructure.

Implementing the African Continental Free Trade Area is more crucial than ever. Second, invest in electricity. It is the backbone of both industrialization and the digital economy. Manufacturing, digital services, and AI-driven industries cannot flourish without reliable power. Yet electricity remains a major obstacle. In sub-Saharan Africa, 78% of businesses encounter frequent power outages.

Consequently, they lose an average of 8.4% of annual sales, compared to a global average of 5.2%. In Nigeria, 86% of businesses own or share a generator; in Kenya, it stands at 65%; in South Africa, 63%. Dependence on diesel generators increases reliance on imported fuel—a precarious situation. Third, African nations should focus on industries where they possess genuine comparative advantages, linked to natural resources and expanding domestic markets.

Examples include: Finally, acknowledge that agriculture is integral to structural transformation, not detached from it. Approximately half of sub-Saharan Africa's workforce is engaged in farming. Boosting farm productivity elevates rural incomes, releases labor for productive activities, and contributes to overall development.