This section presents some facts on capacity utilization rates in the manufacturing sectors of African economies, with a view to understanding the state and magnitude of the challenges facing policymakers in these economies. It uses data from both the World Bank Enterprise Surveys (WBESs) and information from selected African countries, namely: Ethiopia, Kenya, Mozambique, Nigeria, Rwanda, South Africa and the United Republic of Tanzania. The seven countries were selected based on the availability of reliable national data and contemporary studies on manufacturing capacity utilization in the country. Furthermore, the selected countries capture important features of African economies and are therefore representative of the types of countries in the continent. For example, it includes LDCs (Ethiopia, Mozambique, Rwanda and the United Republic of Tanzania), landlocked countries (Ethiopia and Rwanda), an oil exporting economy (Nigeria), and an economy with a relatively advanced industrial base (South Africa). Table II.3 presents information on the level and growth of per capita MVA in the selected countries. It indicates that South Africa has the highest level of manufacturing development, followed by
Group MVA at constant 2010 prices Population
2005 2010 2016 2005 2010 2016
Africa 1.7 1.8 2.0 14 14.9 16.2
Asia and the Pacific
36.5 44.1 49.5 60 59.7 59.2
Europe 31.4 27.4 25.1 12.3 11.8 11.1
Latin America
8.0 7.5 6.2 8.6 8.7 8.6
North America
22.4 19.2 17.4 5.0 5.0 4.9
LDCs 0.5 0.6 0.7 11.2 11.8 12.6
Nigeria and Kenya. The LDCs in the sample (Ethiopia, Rwanda, Mozambique, and the United Republic of Tanzania) all have very low levels of manufacturing development. Nigeria had the highest average growth of per capita MVA in the period 2010–2015, followed by Ethiopia. The other countries had relatively low average annual growth of per capita MVA, with Mozambique posting negative growth rates (table II.3).
Table II.3
Levels and growth of per capita MVA for selected African countries (at constant 2010 prices)
Source: compiled based on data in UNIDO (2017).
Country
Per capita MVA in 2015
(US$)
Share of MVA in GDP
Annual growth of per capita MVA
2005 2015 2005–2010 2010–2015
Ethiopia 20 4.1 4.5 6.9 10.8
Kenya 119 12.4 10.5 -0.1 1.0
Mozambique 43 14.1 8.5 -2.0 -0.3
Nigeria 254 5.9 10 5.8 12.0
Rwanda 34 6.0 4.9 2.6 2.2
South Africa 952 14.0 12.5 -0.4 0.0
United Republic of Tanzania
55 6.0 6.8 5.7 3.0
The capacity utilization rate of an industry has been defined as the “ratio of the actual level of output to a sustainable maximum level of output, or capacity”
(Corrado and Mattey, 1997). It is also expressed as the recorded annual output of a firm divided by its installed manufacturing capacity,5 although the exact measure depends on the methodology used in the study. Data from surveys of manufacturing enterprises are the most common source of information on manufacturing capacity utilization rates. The World Bank conducts these surveys in many countries, and some national statistics offices also conduct similar surveys. The core findings or messages from these studies on the issue of capacity utilization rates are discussed below.
Regional capacity utilization rate in sub-Saharan Africa is lower than the global average, but higher than the average for the Middle East and North Africa The World Bank conducts firm-level surveys of the private sector in most countries, which provides a dataset on business environment indicators. The WBES seeks to satisfy two objectives: to ascertain the investment climates of individual economies, and how this climate affects firm performance with one of the variables being capacity utilization rates. The WBES establishes a firm’s capacity utilization rate based on comparison of the current output with the maximum output possible using current inputs. The WBES data are the single most comprehensive source of data on capacity utilization rates, particularly for countries that do not conduct national enterprise surveys but rely on third party studies.6 According to the WBES, the average manufacturing capacity utilization rate for all countries included in the survey is 72.1 per cent (table II.4). This is the average for the last available surveyed year, for each country included in the WBES. This global average figure is higher than the average capacity utilization rate for all sub-Saharan countries included in the survey, at 69.9 per cent, and for Latin America and the Caribbean (71.6 per cent). But the global average is much lower than the average for East Asia and the Pacific (79.2 per cent) and South Asia (77.6 per cent). The only region in the survey with (substantially) lower capacity utilization rates than sub-Saharan countries is the Middle East and North Africa (63.4 per cent).
5 This is an engineering term that describes the production capacity of a plant based on its rated (nameplate) capacity, or the potential output which could be produced if capacity was fully used.
6 It should be noted that, for some African countries and LDCs, the data coverage is limited.
Table II.4
Regional average capacity utilization rates (%)
Source: Compiled based on data in WBES (2018).
These regional averages obtained from the WBES dataset mask significant diffe-rences across countries. For example, among the seven African countries selected as case studies for this chapter, three have had capacity utilization rates below the global average of 72.1 per cent: Rwanda in 2006, Nigeria in 2007, and Ethiopia in 2015 (figure II.1). The remaining four countries had capacity utilization rates above the average, with South Africa and the United Republic of Tanzania leading, with capacity utilization rates above 80 per cent. However, these capacity utilization rates are derived from a methodology which assumes that respondents to the ques-tionnaire have an accurate estimation of their capacity utilization rate. In the South African case, the figure also predates the financial crisis, potentially reflecting a ca-pacity utilization peak rather than being representative of the post-financial crisis picture.
East Asia and the
Pacific
Europe and Central Asia
Latin America and Caribbean
Middle East and North
Africa
South Asia
Sub-Saharan Africa
World
Capacity utilization rate
(%)
79.2 71.2 71.6 63.4 77.6 69.9 72.1
Figure II.1 Capacity utilization rate in select African countries (%), 2006–2017 Source: Compiled based on data in WBES (2018).
In the rest of the section, we compare the estimates of capacity utilization rates from the WBES to those obtained from national studies that provide capacity utilization rates, for our scope countries. The definitions of manufacturing capacity utilization in the surveys and studies are similar, albeit technically different. Nevertheless, a comparison of estimates from the different sources should provide useful insights into the magnitude and range of capacity utilization rates in African countries. We begin the comparison of estimates of capacity utilization rates from the WBES and those of national studies with examples of the United Republic of Tanzania and Mo-zambique.
Manufacturing capacity utilization rates for the United Republic of Tanzania are shown in figure II.2. They were sourced from three publications. The WBES (the 2006 and 2013 data points), the 2013 Census of Industrial Production (2013 data point) and the Tanzanian Manufacturing Enterprise Survey (1995, 1998 and 2000 data points). The Tanzanian Manufacturing Enterprise Survey results are presented in a paper by Harding, et al. (2002). Two key messages from the table stand out.
The first is that the United Republic of Tanzania has low capacity utilization rates, and the second is that the estimates of capacity utilization from the WBES are higher than those from national surveys or studies. For example, according to the WBES, the capacity utilization rate for the United Republic of Tanzania in 2013 was 80.8 per cent, while the estimate from the Tanzania Census of Industrial Production sug-gests it was 62.7 per cent.
A report by Andreoni (2017), in conjunction with the Tanzania National Bureau of Statistics, reproduced the data collected in the 2013 Census of Industrial Produc-tion, specifically on manufacturing. The report noted that the average production capacity utilization was 63 per cent among major industries, but capacity utilization rates among these industries varied greatly. Manufacturing of tobacco products, electrical equipment, machinery and chemicals (more precisely the processing of salt) had capacity utilization rates above 70 per cent, while industries with lower ca-pacity utilization rates, all below 55 per cent, included the manufacture of coke, re-fined petroleum products and nuclear fuel; wearing apparel, dressing and dyeing of fur; wood and products of wood; and food products and beverages. Andreoni (2017) also highlighted the large heterogeneity in respondents to the survey and noted that larger firms reported higher capacity utilization rates than smaller firms, suggesting some industries’ capacity utilization was correlated with firm size.
Figure II.2
The United Republic of Tanzania capacity utilization, (%), by data source
Sources: The 2013 Census of Industrial Production (see NBS and MITI, 2016);
Manufacturing Enterprise Survey, 2002; and WBES (2018).
Turning to Mozambique, estimates of the manufacturing capacity utilization rates are shown in figure II.3. They were sourced from three publications: the World Bank Enterprise Surveys (the 2007 data point), the Regional Programme on Enterprise Development (the 1998 data point) and the Enterprise Development in Mozambique (2002 to 2005 data points). The Enterprise Development in Mozambique survey results for the period 2002 to 2005 are presented in a discussion paper by Cruz, Mafambissa and Sulema (2007). They discuss the findings of a survey conducted in 2006 that sought to assist in policy research on firm dynamics, and to inform about the challenges faced by manufacturing firms, as well as to examine the opinions of managers regarding the business environment in Mozambique. The results in figure II.3 suggests that Mozambique has low capacity utilization rates and that the WBES estimates are much higher than those of national surveys or studies.
Figure II.3
Mozambique capacity utilization, (%), per source, 1998–2007
Sources: Regional Programme on Enterprise Development, 1999; WBES (2018);
Enterprise Development in Mozambique, 2007.
Figure II.4 presents estimates of capacity utilization rates for the remaining countries included in our case study: Ethiopia, Kenya, Nigeria, Rwanda and South Africa. It compares the results from the WBES and the closest comparable years7 from national surveys and consultative studies measuring capacity utilization. As with the case of the United Republic of Tanzania and Mozambique, figure II.4 confirms that capacity utilization rates are low in the five African countries. It also confirms that the WBES estimates are higher than the estimates from national studies. In sum, the manufacturing sectors in the case study countries seem to have substantial latent capacity. Compared with the WBES result for East Asia and the Pacific (79.2 per cent), South Asia (77.6 per cent) and the Latin American and the Caribbean (71.6 per cent) groups of countries, sub-Saharan African countries are lagging with regard to manufacturing capacity utilization.
7 Where possible WBES studies and selected national statistics offices plus academic studies results are no more than one year apart.
Figure II.4 Capacity utilization rates in selected countries by source, (%) Source: Compiled by authors.
In the following section, the reasons for low capacity utilization in the select case study countries are presented and discussed. This should provide some insights into what challenges African countries face in maximizing their installed manufacturing capacity utilization.
C. Understanding manufacturing capacity underutilization in African countries