South African anti-apartheid campaigner and former first lady Winnie Madikizela-Mandela has died aged 81. She and her former husband Nelson Mandela, who were both jailed, were a symbol of the country’s anti-apartheid struggle for three decades. However, in later years her reputation became tainted legally and politically. Crowds of mourners and political figures flocked to her home in Soweto, in Johannesburg, after news of her death broke.
Germany ends military mission in Somalia
Germany has formally ended its military training mission in Somalia, the country’s armed forces (Bundeswehr) announced on Tuesday. The armed forces have completed the withdrawal of military personnel and equipment from Somalia, Bundeswehr said on its webpage. “In future, the engagement of Germany in Somalia will focus on the development of civilian structures to ensure security for the population,” it said.
Gateway to European technology
Siemens set up its East Africa hub in Ethiopia last year. The German company that used to be active in Ethiopia’s telecom sector in the 2000s, before merging that section of its business with Nokia, now focuses on power generation, automation and digitalization projects. This week CEO of Siemens for Southern and Eastern Africa Sabine Dall’Omo visited Addis Ababa. Capital caught up with her along with the CEO of East Africa Lukas Duursema, who is based in Addis Ababa, to discuss current projects.
Capital: If you could give us an overview of Siemens’ operations in Africa; in the country’s you are responsible for.
Sabine Dall’Omo: Siemens is active in all the countries on the African continent. My responsibility is for the Anglophone Africa plus islands to the Eastern side of the continent. Our main focus is on the electrification, automation and digitalization. When we talk about Africa, we know that electricity is the founding principle in order to access any further development in any of the countries.
So electricity and the supply of it to the consumer; be it private or industrial consumer, is our main focus in the business we are currently in but also in the context of specifically industrial applications, like for instance in the food processing side, in the pharmaceutical side our technology of automation is very crucial in order to ensure consistent productivity and products to come out specifically in the food and beverage side, because you do want to have a defined quality going into the market and hence that is our core focus.
Combined with digital application, and this is something we are very excited about looking into the future of Africa because the continent is much faster developing in the context of digital applications.
Capital: When it comes to Ethiopia, Siemens used to be very active in the telecom sector but then after some time wasn’t as active anymore. What exactly are you doing in the country?
Dall’Omo: Maybe to demystify the past a bit, our activity in Africa, specifically in the early 2000’s was very much around the telecommunication environment but in 2007 we basically merged our telecommunication business with Nokia so it’s not part of our portfolio anymore. But many of the backbones of companies in the telecom industry were based on Siemen’s technology.
When we look at Ethiopia; it is a great market for German industries, specifically also looking at possibilities to have cooperation with Germany and establishing how we can industrialize Ethiopia and having the benefit of the workforce available in Ethiopia.
Therefore we have our own legal setup in Ethiopia which we opened last year In Addis Ababa.
Lukas Duursema: Like Sabine stated, we are basically involved in all African companies. In Ethiopia specifically we have decided to create an East African hub of which the headquarter office is based in Ethiopia. There are a few factors that led us to make that decision; one was growth potential opportunities and we have accessibility in the hub itself; as you know Ethiopian Airlines is well connected in the whole of East Africa, we also considered economic growth and Ethiopia is a nice place to be in.
We focus very strongly on electrification in Ethiopia, which is a core market. Electrification will continue for a number of years; if you look at the electrification plan that Ethiopia has set aside with the Grand Renaissance Dam being built and other projects to come as well, it is a core area for us.
We are currently executing the Ethiopia, Kenya interconnect project. Specifically on the automation side, if you look at both old and new projects that are being implemented, they are using Siemens automation technology, Siemens drives; both electrical and mechanical drives. For us obviously is a very good business but also allows us to support customers from a hub perspective, but also Ethiopia in particular.
Capital: You have mentioned power generation and other sectors, but you also focus on developing inclusive growth, the mobility of people and goods as well as developing the manufacturing sector. It seems very vast.
Dall’Omo: It might sound like a big area to cover but when we look into the Siemens philosophy, our values are always more than just the inherent business only, so we always look after the countries where we are present.
If I want to sell a product, say like a power plant, then I need to make sure I also take care of the infrastructure around it which is not only physical infrastructure, but also the people and the social development because when everything develops in a country then there is so much more potential for us to do business and for others.
So we always have a very inclusive view when we look at countries, we don’t have the intention just to take all the business for Siemens. For us what is absolutely crucial, specifically in the context of Africa, is to have strong partnerships in the countries, because at the end of the day, you want to develop a local economy. Only if a local economy from medium size companies is existing, like we have in Germany, then you will have very strong fundamentals for economic development.
Our view is also always to improve society, specifically on health, but also education to make sure that we also, later on, have the possibility to have the work force to work on our projects and work for our customer’s projects.
Capital: Do you work with the private sector actively or right now it is mostly with the public sector?
Dall’Omo: Currently we are working with both. If you take for example the Ethiopia, Kenya interconnection, we are working with a civil company which is basically a woman who has a private entity here in Ethiopia which is now basically our civil company executing this project.
In the public space we are definitely more engaged because most of the infrastructure projects are government funded projects and only the government will be able to put a value proposition later on for such kinds of projects.
Duursema: If you also look our portfolio, some of it is facilitated out of a project, which means we have to sub-contract some components of it and some require local partners. So we do have a very strong partner focus to be able to have some of our portfolio. It provides opportunities for local entities and companies to develop new portfolios or projects that also help us expand our business.
We are currently in discussions with a number of local entities in Ethiopia, in addition to other countries, where we try to find out where we can fit them in to help us to generate business.
Capital: What would you say are some of the success stories of Siemens in Ethiopia?
Dall’Omo: So far we are proud of the Ethiopia, Kenya interconnect because it shows the integration of countries specifically in East Africa and that just resonates very well with the European community because I do believe it is a great step from a technology point of view, but also from a country point of view.
The cooperation with the Ethiopian government specifically in helping us setting up our entity here, being active, these are also success stories for us, it also gives us a lot of confidence that we have partners here which are willing to work with us.
Capital: What would you say are some of the challenges that are facing Ethiopia in terms of growth?
Dall’Omo: If you look at Ethiopia’s growth specifically, one of the challenges is the inflow of hard currency. Getting the country into a position that it is able to produce more value which it can later export for hard currency in order to fund investment projects is a challenge because this is the current limiting factor. The lack of infrastructure at the end of the day is always the hindering point; if you look at for instance energy, water and transport, specifically when you are outside of the major capital, you can see that there is a great need in order to improve and industrialize the society so then there is a higher productivity.
What I would like to give you as an input on is that we are thinking about how we can make input costs for infrastructure lower. We have seen in Africa, many countries have a view towards China. China is a country which has the biggest number of infrastructure projects pushed out over the last decade; if you have seen with regards to roads, airports and rail connections, but also in power and water supply, they have basically uplifted their society to a complete different level than they have been say in the beginning of 2000.
We see there is great competence on the Chinese side and it is also more affordable for African countries. In Ethiopia there is a strong Chinese alliance and Siemens is a big company in China as well , we have 60,000 employees there and we are currently trying to understand to what extent we could package European technology with Chinese solutions making it more affordable and Ethiopia in that case will be in the position to afford infrastructure projects faster.
The Future of Manufacturing in the Global South
As a growth strategy for low-income countries, the efficacy of traditional manufacturing is waning. To compete in the technology-driven global economy of the future, developing countries will need new models to increase productivity and put people to work.
In emerging markets, manufacturing has historically been a source of productivity, growth, and jobs. Since the 1950s, industrialization has kept economies in Latin America, Asia, and Eastern Europe on a steady glide toward higher stages of development.
But as a growth strategy for low-income countries, the efficacy of traditional manufacturing is waning. To compete in the technology-driven global economy of the future, developing countries will need new models to increase productivity and put people to work.
Two factors are conspiring to cast doubt on the wisdom of manufacturing-led development. The first is competitiveness: attracting production to low-income countries has never been harder. Labor costs, exchange rates, and infrastructure are all fiercely contested, which has led to a consolidation of global manufacturing hubs.
The second factor is technology. As robotics and artificial intelligence lower labor costs, the rationale for transferring manufacturing to emerging economies has diminished. This is particularly problematic for countries, such as those in Sub-Saharan Africa, that are just now turning to industrialization to spur growth. In the near term, developing countries that are dependent on manufacturing can compete by improving business environments and training more skilled workers. But sooner or later, wages and workforces will stop offering a comparative advantage.
With traditional manufacturing unlikely to fuel future economic growth in the Global South, economists are exploring new models of productivity. One idea is to encourage a transition toward services such as banking, finance, telecommunications, and insurance. Some even predict that manufacturing centers could become locations for the “production” of services. For developing countries in particular, technology-dependent activities are being championed as an economic panacea, given the low marginal costs of expanding production.
But embracing the service sector in isolation will not solve the economic and employment-related challenges that the Global South faces. Unlike traditional manufacturing, which employs legions of low-skill workers, an expanded services sector will not offset the jobs lost to shuttered factories. With a few notable exceptions – including construction and tourism – nonmanufacturing industries cannot deliver productivity gains while also ensuring adequate employment. For this reason, a full departure from the status quo would be unwise.
But there is a solution: emerging markets may be able to develop more nuanced strategies that merge elements of production processes for both physical and non-physical goods. If, however, the future of production is a melding of manufacturing and services, low-income countries will have to adapt.
The world has much to learn about the interplay of manufacturing and services, but one thing is certain: technology lies at the center of the transition. As my World Bank colleagues Mary Hallward-Driemeier and Gaurav Nayyar recently noted, “interconnected manufacturing” – whereby machinery and equipment are connected to each other and to the Internet – is the future of production. These so-called “smart factories” will drive manufacturing forward, and if emerging markets are to compete in this new production landscape, those driving policy will need to raise the levels of automation, competitiveness, and connectedness in their economies.
The coming “servicification of manufacturing” will confront policymakers everywhere – but especially in the developing world – with hard choices. Not all economies will benefit from manufacturing-related services, and it will require creativity to determine how services might complement evolution on the factory floor.
But as Hallward-Driemeier and Nayyar note, regardless of where output occurs, tomorrow’s production lines will be smarter than today’s. “The agenda, therefore, should be to prepare countries to use synergies across sectors to participate in the entire value chain of a product, while also exploiting standalone opportunities beyond manufacturing.”
It is more difficult than ever to boost employment of low- and unskilled workers while maintaining healthy levels of growth. Globalization and new technologies are dramatically changing the world’s manufacturing landscape, forcing leaders in emerging economies to reconsider their paths toward prosperity.
Fortunately, there is more that unites manufacturing and services than separates them. If the “smart factory” transition is managed wisely, economies in the Global South could find new opportunities for growth. The alternative – joblessness amid sputtering economic engines – is an outcome no one can afford.
Otaviano Canuto, former State Secretary for International Affairs at the Brazilian Ministry of Finance, is Executive Director on the Board of the World Bank for Brazil, Colombia, the Dominican Republic, Ecuador, Haiti, Panama, the Philippines, Suriname, and Trinidad and Tobago. A former vice president and senior adviser at the World Bank, he previously served as Executive Director of the IMF and Vice President of the Inter-American Development Bank.
