Today, the industrial sector represents only 11.8% of Africa’s gross domestic product (GDP), according to data from the World Bank (2021). This figure is very low compared to regions like East Asia, where industry contributes about 30% to GDP, and Europe, where it accounts for around 24%, according to a study led by the United Nations Industrial Development Organization (UNIDO, 2020).
This low share of industry weakens the continent’s economy, which remains heavily reliant on the export of unprocessed raw materials, making it vulnerable to price fluctuations in global markets.
On the occasion of Africa Industrialization Day, it is important to emphasize the significance of industrial transformation as a crucial lever for boosting African economies and strengthening their resilience.
ETC – Export Trading Cooperation is committed to supporting the development of the industrial sector in Africa. As a partner of banks, financial institutions, and corporates, ETC provides tailored solutions to facilitate access to the guarantees essential for financing projects. In this way, it contributes to enhancing regional competitiveness and promoting sustainable economic growth across the continent.
Why is industrialization essential for Africa?
Industrialization is much more than a driver of economic growth for Africa; it is a lever to secure the continent’s future prosperity. Here’s why industrialization is vital for Africa:
- Economic Diversification and Resilience
Industrialization is a key lever for reducing Africa’s dependence on unprocessed raw materials. Currently, raw material exports represent about 80% of Africa’s foreign trade. The continent could thus reduce its vulnerability to price fluctuations in global markets, stabilize its economies, and create robust value chains. According to a study led by the African Development Bank (AfDB), a 10% increase in the industrial share of Africa’s GDP could generate nearly 2 million additional jobs across the continent.
- Job Creation and Skills Development
Industrial development is a crucial driver of high-value job creation. According to the African Development Bank, industrialization in Africa could generate more than 7 million jobs by 2030, especially for young people. This would help reduce inequalities and improve living conditions across the continent.
- Accelerating Sustainable Development
By integrating modern and environmentally friendly technologies, industrialization in Africa could promote the growth of green industries, thereby contributing to sustainable development goals.
How does ETC support the development of the industrial sector in Africa?
Since its establishment in 2012, ETC has pursued its mission: stimulate trade and investment across the African continent.
By issuing Investment Guarantees, and other services, ETC positions itself as a key partner for African financial institutions and businesses looking to develop and industrialize their activities.
The coverages provided by ETC help African banks and their international correspondents finance major projects in key sectors like infrastructure and energy, by mitigating their risk exposure.
Specifically:
ETC’s Investment Guarantees, such as the Project Finance Bond (PFB), are essential tools for protecting banks against borrower defaults. They guarantee that in the event of borrower insolvency, the guarantor will step in to honor the commitments made. This guarantee is particularly suited to medium- and long-term loans, which represent about 30% of new loans issued by African banks (source: African Development Bank). It covers various sectors, including agriculture, industries, and services, but excludes sectors deemed non-compliant with ETC’s ethical standards, such as tobacco or arms.
Impact of Investment Guarantees on Industrialization and Growth in Africa
By facilitating access to financing, the Investment Guarantee not only stimulates economic growth but also creates jobs and attracts foreign investors.
According to the African Development Bank, every dollar invested in infrastructure can generate up to four dollars of economic return, highlighting the importance of supporting long-term investment projects in vital areas such as energy, transport, and telecommunications.
In 2022, the International Finance Corporation revealed that around $130 to $170 billion per year is needed to meet Africa’s infrastructure needs, while only $55 to $70 billion comes from public budgets. This reality highlights the crucial need for financing mechanisms, such as the Investment Guarantee, to bridge this gap.
In Conclusion
Industrialization is a key lever for Africa’s economic development, enabling the diversification of economies, job creation, and increased resilience against global fluctuations. By facilitating access to financing, ETC helps banks and companies overcome financial obstacles and play a central role in this transformation. Its tailored solutions strengthen regional competitiveness, attract foreign investment, and support sustainable industrialization, paving the way for a prosperous future for the continent.
Sources:
- World Bank. (2021). World Development Indicators.
- United Nations Industrial Development Organization (UNIDO). (2020). Industrial Development Report 2020.
- World Bank, Africa Foreign Trade Report, 2023.
- African Development Bank, Industrialization and Employment in Africa, 2022.
