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Africa: The Industrialization Agenda
AfricaFocus Bulletin
Apr 2, 2013 (130402)
(Reposted from sources cited below)
Editor's Note
It seems to be the season for economic reports and
meetings, with the IMF issuing a critique of subsidies
for fossil fuels, the UNDP's Human Development Report
focusing on the "Rise of the South," the BRICS summit in
South Africa, meetings of the Pan African Parliament and
civil society on "Structural Transformation," and more.
That's far too much to even provide links for in one
AfricaFocus Bulletin, so I'm beginning a series today
with a policy paper from the Economic Commission for
Africa on the critical importance of new
industrialization strategies.
Others in the series will appear over the next few weeks,
to avoid a steady diet of economic reports and because of
the work involved in excerpting manageable portions from
reports that are often long and sometime technical.
The report excerpted in this AfricaFocus Bulletin is one
of several released for the Sixth Joint Annual Meetings
of the African Union and the Economic Commission for
Africa, held in Abidjan March 21-26. The full text of
this reeport and additional material from the meeting are
available on the ECA web site at http://www.uneca.org/cfm
The fundamental point of the report is the need for
strategically planned industrialization, taking into
context current international economic realities and the
need to ensure sustainable industrial growth that builds
on African realities and resource endowments, and focuses
on job creation and structural transformation instead of
only quantitative expansion.
For previous AfricaFocus Bulletins on economic issues,
visit http://www.africafocus.org/econexp.php
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Industrialization for an Emerging Africa Issues Paper
Economic Commission for Africa
African Union Commission
7 March 2013
E/ECA/CM/46/2 AU/CAMEF/MIN/2(VIII)
[excerpts only. For full text of this and other
background documents, reports, and press releases, visit
http://www.uneca.org/cfm]
Introduction
1. ... Despite the negative influence of the global
crisis, the performances of Africa's economies remain
significant. In 2012, the growth rate in over 80 per cent
of African countries was higher than the global growth
rate of 2.7 per cent. In addition, 16 African countries
were among the top 30 to be experiencing the highest
growth rates in the world.
2. However, the growth performance, thus far, remains
highly vulnerable to external shocks and has not
translated into meaningful job creation for most
countries. ... while the total unemployment rate across
Africa marginally declined from 9.7 per cent in 2000 to
8.3 per cent in 2011, the share of vulnerable employment
in total employment remains very high, at about 70 per
cent in 2011. Africa is also the least diversified region
in the world, both in terms of its production and export
bases.
3. Africa thus needs to ensure that the current growth
momentum is more resilient to external shocks, translates
into desirable economic and social outcomes and does lead
to development. [This] requires changing the economic
structure from predominantly agrarian to industrial and
making the most of its large reservoir of natural and
agricultural resources. This will significantly boost the
economic performance of the countries as well as lift
many Africans out of poverty through employment and
wealth creation.
...
I. Africa's experience with industrialization and
structural transformation
7. Virtually all of today's successful nations actively
supported and protected their industries through specific
policies and institutions. Contrary to conventional
wisdom that often attributes the successes of Western
economies to laissez-faire and free-market policies,
historical evidence shows that the use of industrial,
trade and technology policies was the main ingredient in
their successful structural transformations (Lin and
Monga, 2010). Also, empirical evidence from developed,
newly industrializing and emerging economies has shown
that sustainable development cannot be achieved on a weak
industrial base (Lall, 1999). ...
11. While industrialization has contributed to exports
and employment in such countries as Malaysia and China
(Athukorala, 1996) and turned Korea, a relatively small
economy in 1999 into one of the largest producers of
ships and microchips (ECA, 2011), Africa's experience
with industrial policy and its outcomes since
independence has been largely disappointing. Yet, the
seeds of Africa's industrialization woes were sown during
the colonial period, when the extractive nature of
African colonialism left behind structures, institutions
and infrastructure design to enhance extraction. This
means that at independence, the structure of African
economies was not geared toward transformation and value
addition but rather commodity extraction and export
(Nnadozie 2013).
12. There is also the issue of policy failure after
independence, starting with import substitution policies,
whereby African countries genuinely decided to
industrialize; and then Structural Adjustment Programmes
(SAPs), whereby African countries were forced to deindustrialize.
Both of these policies were externally
driven.
...
17. Two key lessons on industrialization can be drawn
from the SAP period. First, while SAPs focused on
creating macroeconomic stability and structural reforms
to achieve a conducive environment, especially for
foreign firms (e.g. protection of property rights and
ensuring contract enforcement), there was little effort
to address market failures and externalities that had
historically constrained economic activity in Africa.
Coherent strategies were also lacking. Second, the
withdrawal of Government support even in the presence of
pervasive market failures and the liberalization of trade
without taking account of the capabilities of domestic
firms, exposed African firms to foreign competition at a
time when they were not mature enough.
18. ... Most of Africa's economies are still driven by
commodity production and export of agricultural and
mining products. Africa remains the least industrialized
continent of the world. Indeed, the growth of
manufacturing value added during the SAPs period was
disappointing, with several countries actually suffering
de-industrialization. From 1980 to 2009, the share of
manufacturing value added to GDP marginally increased in
North Africa, from 12.6 per cent to 13.6 per cent, while
it fell from 16.6 per cent to 12.7 per cent in the rest
of Africa. Over half a century after independence, while
other regions have increased their share of manufactured
exports, the continent still depends on the export of raw
materials to the industrialized world. ...
...
20. The dependence on primary commodity production and
exports exposes the continent to external demand shocks
and leads to pro-cyclical fiscal spending in many
resource revenue- dependent countries. More importantly,
the commodity-driven feature of Africa's economy poses
serious questions about its long-term sustainability, as
agriculture is subject to diminishing returns to scale
due to land constraint while exploitation of nonrenewable
natural resources is limited by available
reserves.
21. This industrial stagnation is in sharp contrast to
the success of the East Asian newly industrialized
countries. ... The success of the East Asian model is
attributed to three factors from which African countries
could learn. First, Governments provided stable and
predictable incentive frameworks that supported
investments. Second, Governments had close, continuous
and strong dialogue with the private sector. The State
was thus able to withdraw support whenever a firm's
performance was not satisfactory and imposed exportperformance
standard. Lastly, Governments used import
substitution and export promotion strategies
simultaneously, combining them in the most efficient way
to serve the industrialization objective (ECA, 2011).
II. Role of industrialization in Africa's emergence
22. While sustained growth has contributed significantly
to rapid economic transformation in other parts of the
world, in Africa it has been observed that the relatively
good growth performance has not been inclusive ...
Structural transformation and value addition
...
24. Development in Africa requires economic
transformation and industrialization, as has already been
stated; this is the key to achieving sustained levels of
growth. Africa's economic development thus needs to be
accompanied by structural transformation from an agrarian
base to an industrial one. The structural transformation
in Africa will be a continuous process that should
include an industrial catch-up period, as industry in
many countries is either inexistent or in the very early
stages. Equally important is an industrial upgrading
period. However, Africa being resource rich, has
potential to achieve rapid structural transformation by
manufacturing its vast natural/raw materials (primary
products) into finished products for export. It can also
take advantage of leader countries and follower countries
in Europe or Asia as well as the backward linkage between
industrialization and the rest of the real economy.
Sustainable structural transformation
25. Industrialization and structural transformation lead
to intensive use of natural resources at the expense of
the environment. The challenge for Africa is not only to
successfully transform its economies, but to do it in a
sustainable way, using and adapting existing
environmentally sound technologies to local conditions as
well as indigenous technological innovation.
26. Implementing sustainable structural transformation in
Africa will not be easy and there is no "one size fits
all" approach. Each African country will have to design
strategies and policies based on its own sectoral and
resource priorities, environmental challenges, initial
conditions and domestic capabilities.
...
IV. Industrializing for Africa's economic emergence:
emerging global issues
...
36. The problem is that Africa today faces a very
different global and regional environment from that faced
by earlier developing country entrants into industrial
development. Among the factors that have shaped the new
global environment are globalization and the changing
international economic order; the rise of (East) Asian
countries; and climate change and its implications for
latecomers into the industrial development process.
37. Globalization: Africa did not benefit from the
massive globalization that began in the early 1980s and
which was characterized by several changes in the world
economic order. First, it coincided with the period of
SAPs in Africa, which meant that, as Governments were
liberalizing their trade and financial sectors and
eliminating the import substitution industrialization
strategies, multinational corporations were able to
expand their markets to Africa. SAPs brought in the
growing dependence on (mostly consumer) imports, which
eroded the weak industrial base of most African economies
(Ogbu and others, 1995). On the other hand, East Asian,
and to a lesser extent, Latin American economies were
able to take advantage of globalization and be part of
the global value chains, partly because their Governments
still used industrial policies (including providing
finance and developing strong commercial public sector
enterprises) to seize those opportunities.
38. Globalization has also changed the pattern and rules
of international trade in two critical ways. First,
current international trade and division of labour are
organized along value chains, and multinational companies
play a dominant role in creating and controlling these
value chains. Without being integrated into these value
chains, it will be difficult for African countries to
access larger external markets. Yet on the other hand,
there is the risk that they may be further pinned down at
the lower end of the global value chains as their
industrial base is weak and their negotiation capacity
with multinationals may be low. African countries must
thus strategize on how to position themselves in the
global value chains and steadily promote value addition
towards the higher end of these value chains.
39. Second, with globalization came new global trade
rules that have reduced the space of industrial policy in
Africa. Traditionally, trade policies have been critical
tools for industrial policy. However, various regional
and international agreements over the past two decades
have changed the rules of world trade significantly,
affecting domestic trade policies as well as opening new
markets for trade. Indeed, Africa must overcome the
burden of having opened up to international trade before
domestic industries had a chance to become competitive.
Domestic firms must therefore first be able to compete
with high-quality and low-cost goods that have penetrated
local markets.
40. Rising labour costs in East Asia: The growing middle
class in Asia and the development of most Asian countries
into middle income economies have led to a rise in the
cost of labour -the very characteristic that attracted
most multinational corporations to invest their
production processes in the region. This implies that as
labour costs increase, the multinational corporations
will start looking elsewhere for labour services to
maintain or lower their production costs. The challenge
for African countries is that the cost of manufactured
products is steadily falling, meaning that competing on
low labour costs is no longer an attractive option.
41. The growing significance of South-South Cooperation:
The economic emergence of the South is likely to continue
to be the major feature of the global development
landscape in coming decades. The leading Southern
economies have already become the global hub for low-tech
and labour-intensive manufacturing and are quickly moving
up along the global value chains towards more technologyand
capital-intensive sectors. To obtain access to larger
external markets and become integrated into global
industrial value chains, Africa must form a proactive
strategy to engage the southern partners to effectively
enhance its own industrialization process. ...
42. Trade relations between Africa and emerging countries
should be put into perspective: Africa's trade with these
countries is characterized by exports of raw materials
and imports of manufactured goods. In particular, China
is becoming an important trading partner with Africa.
However, China's exports to Africa compete with the
domestic manufacturing sector, with adverse implications
for the employment of low- skilled workers. ...
43. Climate change, sustainability and green growth: The
global concern about climate change provides Africa with
both challenges and opportunities. In practice, it means
that Africa may need to take an industrialization path
that may need harmonizing industrial development with
environmental sustainability, as opposed to the "pollutefirst
-clean-up-later" approach that most industrialized
nations took.
...
V. Planning and accelerating Africa's industrialization
45. Implementing sustainable structural transformation in
Africa will not be easy, and there is no "one size fits
all" approach. Each African country will have to design
strategies and policies based on its own sectoral and
resource priorities, environmental challenges, initial
conditions and domestic capabilities. Among other areas,
focus should be placed on efficient, sustainable resource
use in energy, industry and agriculture. African
countries that are well embarked on that path include
Kenya, Mauritius and South Africa (UNCTAD, 2012).
46. The planning and industrial acceleration process in
Africa needs to define strong industrialization
strategies, identify priority sectors to focus on the
short term, as well as strategies for the medium and long
terms, and identify the key enablers to kick-start and
sustain industrial development. ...
...
48. The priority sectors are bound to vary from country
to country in Africa. However, agroprocessing is a
priority in most countries, as are value addition to the
extractive sectors and modernization of agriculture. As
indicated in the Economic Report for Africa 2007, most
African countries are still in the very early stages of
industrial development and should strive for
diversification in higher-valued products, capitalizing
on their mineral and agricultural wealth. In addition,
Africa needs to increase its participation in a broad
range of global value chains, starting with natural
resource extraction and agro-industry and later moving
into other manufacturing global value chains to create
wealth and employment.
49. An overwhelming majority of the poor in Africa live
in rural areas and potentially depend on agriculture for
their livelihood. A modernized agriculture sector, which
is labour-intensive and creates jobs and generates value
added in agro-processing activities would lift many
Africans out of poverty. A modernized agriculture sector
also entails significant forward and backward linkages to
the domestic economy, which do not exist to the same
extent in the extractive industries. Indeed, an
agribusiness-led development strategy involving higher
value added and stronger productivity growth throughout
the entire value chain system of the economy offers a
strong potential and promise for rapid and broad-based
economic growth and wealth creation in Africa and poverty
alleviation for Africa's rural dwellers.
50. Asian NIEs used a variety of strategies, including
incentives, to promote local industry such as lowered
costs of entry into different manufacturing activities.
They started their industrialization process in
situations similar to current African ones, especially
Malaysia, which relied on exports of primary products
before embarking on rapid industrial development through
a series of policies (Athukorala, 1996). ...
...
52. Africa can thus capitalize on its resource endowments
and the commodity price boom to develop its industrial
base. Previous policy advice on industrialization in
Africa encouraged African countries to diversify away
from the natural resource sector in pursuit of
industrialization. ...
53. However, the historical experience of many resourcerich
countries is that commodity sectors do foster
productivity, growth, technological innovation and
forward and backward linkages, provided good institutions
exist and investment is made in human capital and
knowledge (de Ferranti et al, 2002). Examples of
countries that have developed their industry using their
natural resources include Sweden, Finland and the United
States. African countries endowed with natural resources
can take advantage of the recent commodity market boom,
expected to remain for the medium term, to promote
industrialization and knowledge intensification processes
around backward and forward linkages to the commodity
sectors.
...
Key enablers for Africa's industrialization
55. Successful industrialization requires leadership and
Government commitment to industrial development that will
set the right tone at the top and make industrial
development a top priority. It is crucial that
Governments translate the strong political will for
industrialization into action and provide leadership at
various levels to support certain strategic sectors in
the overall long-term development. First, Governments
need to set up the right policies and use the right
policy mix to facilitate industrial development and
secondly, the private sector should be confident about
its political commitment to industrialization. ...
56. The success of any industrialization programme will
require the creation of an enabling business climate that
enhances domestic capacity and capability, particularly
in respect of physical and social infrastructure, human
capital, financial systems, technology and governance. In
addition, Governments should put in place regulatory
frameworks for tackling market failures and also address
coordination failures within Government as well as
between Government and other actors. Within Government,
coordination will entail making the right policies in
terms of industrial, trade and macroeconomic policy
levels. ...
57. Productivity matters for the success of Africa's
industrialization. Africa is the least productive region
in the world, based on gross domestic product (GDP) per
hour worked. For each hour worked, Africa generates less
value form the efforts of its workers. As a result,
income growth is driven more by capital investments and
terms of trade than by productivity. This productivity
gap is a prosperity gap for an organization pursuing the
objective of a prosperous continent. Improving
productivity means producing more from available
resources such as labour, natural and mineral wealth,
capital and equipment, management capacities and
finances. Higher productivity allows a nation to afford
its citizen's well-being, which encompasses quality
healthcare and education, quality infrastructure and
environmental sustainability, through green growth and
industrial green productivity. ...
58. To tackle the various challenges, such as low
productivity and competitiveness in a globalized economy,
poverty and climate change confronting member States of
the Union, Africa must endeavour to pursue
industrialization that is rooted in the quest for high
productivity performance and innovation-led productivity
growth. For the African industrialization venture to
succeed, it is vital to ensure orderly implementation of
the AU Productivity Agenda for Africa.
59. Operating in a democratic environment, where people's
rights, in particular workers' rights, are of prime
importance, the mechanism for building a shared vision on
industrial development is also vital. This points to the
importance of social dialogue as a means for consensus
that leads to sustainable and productive partnership.
Effective social dialogue is needed at the national
level, as are other supportive labour market
institutions, to construct a peaceful and attractive
environment for industrial development in Africa.
60. The international community can also contribute to
Africa's industrialization. In particular, it should
deliver on its commitments to Africa in the three
critical areas of official development assistance (ODA),
debt and trade. So far, the experience of Africa has been
one of considerable gap between commitments and
implementation.
...
62. However, while the responsibility for industrial
development rests primarily with national Governments,
regional integration has an important role to play in
lifting the various binding constraints to
industrialization. For instance, regional cooperation in
the development of infrastructure would lower transaction
costs, enhance the development of regional markets and
make manufacturing production and exports more
competitive. Regional integration can also contribute to
reducing the regulatory burden facing African firms by,
for example, harmonizing policies and serving as an
external agency of restraint on domestic policies
(UNCTAD, 2011). ...
...
AfricaFocus Bulletin is an independent electronic
publication providing reposted commentary and analysis on
African issues, with a particular focus on U.S. and
international policies. AfricaFocus Bulletin is edited by
William Minter.
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