On December 18 2023, the Financial Times published an article that had an international resonance, which argued that Africa cannot grow without increasing productivity of labor. The article noted that in contrast to the average East Asian worker, an African worker is about three times less productive, which poses a challenge for the industrial development of the continent.
Increased productivity means that each worker can produce more goods in the same amount of time. This directly correlates with a higher overall economic output, as measured by GDP, as well as an increase in GDP per capita.
The Financial Times conclusions are echoed by another article published on Semafor Africa on March 31 2025, where the author points out that Africa’s economic poverty is rooted in low labor productivity.
Quoting Paul Krugman from his 1994 book, The Age of Diminishing Expectations, the article highlights that while productivity is not the sole determinant of economic development, it is certainly a long-term factor necessary to raise the standard of living of their populations, particularly those that are embarking on a path to industrialization.
However, boosting productivity per worker is no simple task, as it necessitates substantial investments across multiple areas. These include enhancing employee skills through targeted Learning and Development (L&D) initiatives, advancing technology and automation, optimizing processes and resource allocation, and implementing fair compensation systems to motivate and retain talent.
Equally critical is the development of infrastructure – such as transportation, energy, and IT systems – alongside fostering a positive corporate culture that prioritizes collaboration, innovation, and employee well-being.
Lessons from East Asia’s Developmental Model
The developmentalist approach adopted by many East Asian countries from the 1950s to the 1990s – and subsequently emulated by numerous African nations – was rooted in substantial investments across key areas, guided by a strong, interventionist role of the state. Economic development in Asia was driven by a combination of financial and technical support from international donors and multilateral development banks, such as the World Bank and the Asian Development Bank, alongside efforts to attract both domestic and foreign investment.
This mix generated a virtuous circle of job creation, economic growth, and collection of conspicuous tax revenue. While it is challenging to give a precise quantitative measure of how much the economic miracle of Asian economies was caused by financial and technical support and investments versus other crucial factors, without the support of loans, aid and bilateral grants from the international donor community, investment alone would likely not have produced such transformative results.
But what has probably been the winning recipe of the Asian development vision, it was the development of capable administrative institutions, with a qualified and efficient bureaucracy. These institutions have managed to create the conditions for economic development by channeling the resources collected through international loans and grants, tax collection, and capital markets, among others, into the construction of roads and education systems, the promotion of the industrial development and technological advancement and innovation in highly promising sectors.
Equally important it was the creation of favorable environments for businesses, like in the case of special economic zones (SEZs), where both infrastructure and skills training investments have been strongly concentrated, avoiding dispersion. All these interventions have contributed to increase work productivity in Asia, which has been a substantial factor in the Asian economic miracle.
The development of robust and diversified banking systems, with increased access to credit to support entrepreneurship, were additional factors that contributed to the East Asian economic expansion. They allowed businesses, both large and small, to secure the necessary capital for investment in machinery, technology, and business expansion that fostered industrialization and economic growth.
This was achieved primarily through strategic State intervention, by directing credit towards targeted industries deemed crucial for national development. In addition, credit policies favoring export-oriented businesses, provided businesses with necessary working capital and trade finance to support expansion on international markets.
Africa’s Unique Challenges in Financing and Industrialization
Unfortunately, a similar pattern or parallel is not evident in Africa, where entrepreneurs continue to encounter significant barriers in accessing the necessary capital. Additionally, levels of domestic savings – essential for capital accumulation – remain among the lowest globally. Despite the situation in Africa is evolving, with financial inclusion driven by mobile money and fintech innovations, the scale and impact of these efforts are still considerably smaller compared to the conditions that favored entrepreneurship financing during Asia’s economic transformation, and the financing gap for entrepreneurs is still huge.
Estimates from the International Finance Corporation (IFC) and other sources suggest that the financing gap for formal SMEs only in Sub-Saharan Africa is in the range of US$331 billion. This figure can be even higher when considering informal enterprises.
Another article published in the New York Times on April 2, 2024, reveals that unlike Asia, where the economic miracle was driven by policies that supported industrialization and by a widespread shift of workers from subsistence agriculture to manufacturing, this has not happened in Africa. As indicated in a paper published by the International Growth Centre (IGC), in recent years, most of labor in Africa has shifted from agriculture to services, mostly towards low-productivity services sectors which have contributed little to create new jobs.
Failing to cultivate a robust manufacturing base risks constraining long-term economic transformation, stifling job creation, and undermining economic resilience.
An example is Rwanda. The African Industrialization index 2022 of the African Development Bank (AfDB) describes this country as an example of a small and landlocked African economy that leapfrogged industrial development by developing a sophisticated service sector, particularly in IT, noting that in 2021, exports of IT services reached more than 12 percent of Rwandan exports.
Yet, based on the latest reports from the National Institute of Statistics of Rwanda (NISR) the unemployment rate in Rwanda in 2024 was about 15 percent, despite a downward trend is noticeable in unemployment levels compared to previous years. This is due to the choice of the Rwandan government to refocus its development strategy to further promote diversification toward agriculture and manufacturing, as indicated in Vision 2050, the Rwanda’s overarching development blueprint, and the Rwanda National Strategy for Transformation (NST), now at its second edition (NST2).
In the case of Rwanda, services were a springboard to manufacture development: a lesson that we have to bear in mind.
Rethinking Development Models for Africa’s Future
The New York Times article questions whether the Asian development model is still worth replicating today by other economies, such as those in Africa, or if it has become outdated. Modern factories increasingly rely on automation rather than on reducing labor costs or improving labor productivity.
Dani Rodrik also questioned a few years ago the trend by developing and less developed countries – including African ones – to imitate Asian nations in their economic development plans. He argued that, as a latecomer continent to industrialization, Africa would need to attract massive investments to catch up with such and more industrialized countries, and to develop technologic advancement and skills to compete with them, noting that industrialization is a long-term project which takes time to produce substantial and widespread results.
Moreover, it requires a series of preconditions that Africa has not yet put in place. In addition to the lack of human capital and skills needed for industrial operations and innovation, these preconditions include ensuring stable energy supplies, improving access to finance and financial markets for businesses and ensuring adequate investments in research and development (R&D), both from the public and the private sector.
Last but not least, there is the problem of developing an adequate transport infrastructure so that trade operations – especially at intracontinental level – can expand.
Rodrik wondered if developing countries should try to look at the segments of their economy that show more dynamism, trying to focus on them to drive their economic development. For Africa, these include the service and agriculture sectors.
A report published by McKinsey in 2023 found that these two sectors have the highest potential for development, absorbing most of Africa’s workforce. The New York Times article is on the same line.
It notes that two-thirds of the world’s output today comes from the service sector broadly defined, and that developing countries could leverage this sector for driving their growth as services can be developed faster than the manufacturing sector.
Building a Balanced Path Forward
Should Africa abandon industrialization? Certainly not.
While the primary and tertiary sectors are undeniably vital to African economies, overemphasizing them at the expense of the secondary sector – namely manufacturing and industry – could represent a significant strategic misstep. Failing to cultivate a robust manufacturing base risks constraining long-term economic transformation, stifling job creation, and undermining economic resilience.
A more balanced approach is needed that leverages the strengths of all three sectors.
African policymakers should prioritize policies that foster synergies between key economic sectors. This can be achieved, for instance, by promoting agro-processing to integrate primary and secondary sectors or by developing logistics and financial services to support manufacturing, thereby linking secondary and tertiary industries.
Crucially, an initial emphasis on labor-intensive manufacturing sectors is vital to tackling the continent’s rising unemployment challenges. Failure to urgently address these issues could pose significant risks to political stability and undermine efforts to attract investment.
Policymakers should also be aware that industrial development cannot happen overnight. Long-term development strategies for manufacturing and industrial sectors must be accompanied by intensive efforts to support the growth of higher-potential service sectors.
Among these sectors, logistics, finance and technology are key, as they form the basis for industrial and agricultural development.
They should therefore be targeted by short-term-oriented promotional interventions which include particularly flexible regulations, incentives, incubator support and expedited approval processes for businesses investing in these sectors.