New UNIDO report shows that Africa is industrializing, albeit insufficiently

Despite the continent has made significant strides in infrastructure development and energy and resource efficiency, the rate of speed at which it is industrializing is still insufficient, the new United Nations Industrial Development Organization (UNIDO) industrial development report (2024) shows. Presented on 26 March 2025 in Johannesburg, South Africa, during a joint event titled ‘The Future of Industrial Development in Africa’, the study shows that the rate of transformation of African economies is low, participation in global chains remains weak and employment conditions are deteriorating.

This is worrying. Already the UNCTAD Trade and Development Report 2024 argued that industrialization of Africa has occurred so far at a pace that is not fast enough, noting that in sub-Saharan Africa, from 1981 to 2023, manufacturing as a percentage of Gross Domestic Product (GDP), declined from 18 per cent to 11 per cent, concluding that this is a clear trend to industrial decline. Moreover, the report calculated that the number of formal wage jobs that Africa creates annually (about 3 million), is only one third of the current demand of employment, a gap that is expected to widen in the next decade, when Africa will be able to meet only one in four of its population's job demand, due to the rapid demographic growth in the continent. This means that jobs that Africa is creating are not enough, and that the overwelming majority of Africans still operate in the informal economy. Combined with the increased inflation, this massive unemployment risks sparkling major political instability on the continent if not adequately addressed by African governments.

Other major bottlenecks to Africa’s industrialization that the UNIDO report underscores is energy access and infrastructure, particularly in Less Developed Countries (LDCs), where industrialization is progressing much more slowly compared to LDCs in other regions, like in the Asia-Pacific region. While most developing countries are close to achieving universal energy access for their populations, the report notes, in Africa only 58 per cent of people has access to electricity. Lessons from past industrial policy experiences in other regions show that transport, electricity and telecommunication services are key for triggering a deep and lasting change in the structure of an economy, shifting from less productive activities to more productive ones. Furthermore, some sectors with a particularly high potential on the continent require specific infrastructure to thrive, which is currently not yet widely available. For example, businesses dealing with sale and export of horticultural products like fruits, vegetables, and flowers, require specific temperature and humidity-controlled storage and cold-chain facilities along transport corridors and at key logistics hubs. This is essential to avoid post-harvest losses, leading to economic losses and food waste. Quality infrastructure is a prerequisite for successful industrial policy, the report notes and, in this regard, there is still much to do in the continent.

Despite all, there is enormous potential for transformative growth. In particular, a main opportunity is offered by the African Continental Free Trade Area (AfCFTA), which can compensate the weak integration of African nations in the global economy, by favoring the emergence of regional and continental value chains due to the enhanced access it offers to continental markets. Furthermore, the AfCFTA offers African businesses the possibility to exploit the dynamics of the regional division of labor to maximize value creation by allocating specific stages of their production processes to those territories that have a competitive or cost advantage in carrying out them. Lastly, by stimulating demand, driving investment and attracting more Foreign Direct Investments (FDI) into modern sectors, the AfCFTA could become a game-changer for the continental industrial landscape. At present, this situation has not materialized yet. A report issued in 2024 by the Overseas Development Institute (ODI) jointly with the AfCFTA Secretariat, SOAS - University of London, and SITA (Supporting Investment and Trade in Africa), noted that despite the recent rise observed in FDI, and particularly in intra-African investments, the quantity of jobs created over the African soil has been minimal. The report concludes that differently from extra-African investors, which seem to prefer to invest in extractive or energy sectors such as coal, oil and gas, and a more recently, renewable energies, African investors prefer services, with communications, finance, business and tourism at the top of their priorities. The problem is that services create fewer jobs than the manufacturing and industrial sectors. Conversely, the sector that is most neglected by both international and African investors is agriculture, that still remains at a subsistence level in many African countries, rarely developing into intensive production.

The potential, however, is there. The AfCFTA provides an opportunity for Africa to leverage economies of scale, advance in industrial digitalization, and move up the technology ladder. At full implementation, the free movement of goods, services, labour and capital is expected to generate higher intra-African trade volumes and a common market capable of addressing many of the industrialization barriers faced by industrial operators in African countries. Regional integration through the AfCFTA, UNIDO notes, is not only about breaking down trade barriers between African countries. It also involves strengthening industrial capabilities to increase quantities, quality and the share of goods produced. Regional value chains can be important avenues for industrialization and growth. Moreover, they can become a springboard to a higher participation in global value chains. It is expected that the implementation of the AfCFTA will enhance opportunities to specialize in specific domains of industrial competitiveness, creating new markets and new products with higher value-added content. However, the successful realization of these opportunities, UNIDO warns, depends not only on the attraction of foreign and domestic investments, but also on the Africa’s ability to increase skills and productivity of its workforce through targeted education programmes.

The implementation of AfCFTA has been positive thus far. Trade in goods has commenced under the AfCFTA’s Guided Trade Initiative and key sectors have been prioritized for industrialization in the AfCFTA framework, including automotive, pharmaceuticals, transport and logistics, and agri-business. There is a moreover a general expectation that the SEZs will play a pivotal role in the future industrialization plans of member states. So far, African states have demonstrated strong political will in implementing the agreement. It is now the time to move from political will to political action.