Outline 1. Introduction 2. The Case for Industrialization in - - PowerPoint PPT Presentation

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Renewing Industrialization Strategies in Africa ¡

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Patrick Kormawa ¡ FAO Sub-Regional Coordinator, Eastern Africa and Representative to the AUC and UNECA. ¡ Email: Patrick.Kormawa@fao.org ¡ and ¡

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Afeikhena Jerome ¡ National Coordinator, States Peer Review Mechanism, Nigeria Governors' Forum, Abuja. ¡ Email: ajerome4@hotmail.com ¡

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Outline

1. Introduction 2. The Case for Industrialization in Africa 3. Past Industrial Strategies and Outcomes 4. Current Status of Africa’s Industry 5. Toward a New Industrial Strategy for Africa 6. Conclusion

Introduction

• Africa is now the second highest growing region in the world, outperformed
• nly by East Asia and the Pacific region.
• Overall, the size of the regional economy has more than doubled (in real

terms) in the last decade. (Diop, 2015).

• However, growth has not been accompanied by significant structural
• transformation. Out of the 35 countries that have been low income since

1950, 30 of them are in SSA, 4 in Asia, and 1 in the Caribbean (Felipe, Kumar, and Galope, 2014).

• Commodity exports are still largely driven by oil and metals.

Introduction

• There is already a groundswell of activities around Industry.
• Industrialisation has featured prominently in recent continental plans, such as the Common

African Position (CAP) on the Post-2015 Development Agenda and Africa Agenda 2063.

• At the global level, industrialization is being reinvigorated as part of the Post-2015

Development Agenda. SDG Goal 9 - building resilient infrastructure, promoting inclusive and sustainable industrialization, and fostering innovation.

• What is needed is to sustain the current momentum. Africa needs to industrialize massively to

transform its economies structurally.

The Case for Industrialization in Africa

• Until recently, industrialization was the quickest means for a country to transform to a midd

income or developed economy.

• An unprecedented pace of industrialization in the BRICS and East Asian economies lifted millio
• ut of poverty.
• Industry, especially manufacturing, has evolved in several ways, with the dominance of glo

supply chains.

• The premature deindustrialization and the atypical transformation from agriculture to low-va

services, the so-called “tertiarization” has so far failed to deliver quality jobs (Rodrik, 2015).

• Job creation (10 -12 million youths join the labour market every year). ¡

Past Industrial Strategies

• While industrialization patterns in Africa have been as varied as the countries

themselves, the continent has no doubt experimented with all the approaches, especially the first three. 1) Import-substitution industrialization (ISI) policies; 2) Export-oriented industrialization (EOI) policies, which include variants such as export processing zones (EPZs), special economic zones (SEZs), and industrial clusters; 3) Resource-based industrialization (RBI) policies; and 4) Industrialization through innovation (see Low and Tijaja, 2013).

Past Industrial Strategies (1)

Immediate Post-Independence Era, 1960–1985: Import Substitution Strategy (ISI) ¡

• On attaining political independence, mostly in

the 1960s, most African nations adopted ISI. ¡

• This development strategy seems to have

been successful during the first one and a half decades of independence, but lost stream. ¡

• ­‑20 ¡
• ­‑15 ¡
• ­‑10 ¡
• ­‑5 ¡

0 ¡ 5 ¡ 10 ¡ 15 ¡ 20 ¡ 1960 ¡ 1961 ¡ 1962 ¡ 1963 ¡ 1964 ¡ 1965 ¡ 1966 ¡ 1967 ¡ 1968 ¡ 1969 ¡ 1970 ¡ 1971 ¡ 1972 ¡ 1973 ¡ 1974 ¡ 1975 ¡ 1976 ¡ 1977 ¡ 1978 ¡ 1979 ¡ 1980 ¡ 1981 ¡ 1982 ¡ 1983 ¡ 1984 ¡ 1985 ¡

GDP ¡Growth ¡(Annual ¡Percentage): ¡1960–1985 ¡ ¡

EAP ¡ LAC ¡ MENA ¡ SSA ¡

Patrick ¡Kormawa ¡and ¡Afeikhena ¡Jerome ¡ ¡ 7 ¡

Past Industrial Strategies (2)

tructural Adjustment Programme Era (1986–1995)

• The SAP era commenced in the mid-1980s. Many countries sought financial assistance from

the IMF and the World Bank.

• SAP policies curtailed specific policy efforts to promote industrialization and focused on

removing anti-export biases and furthering specialization according to comparative advantage.

• The conventional view is that they did not boost industrialization in the region (Soludo, Ogbu,

and Chang 2004). Evidently, the declining contributions of manufacturing to GDP in Africa are stark manifestations of the de-industrialization that occurred during the SAP period.

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Past Industrial Strategies (3)

w Orthodoxy Era/ Global Financial Crises and its Aftermath (1996–2015)

• Since the turn of the millennium, the external environment has

shifted in favor of developing countries.

• Paradoxically, this shift and the global economic and financial

crises opened up the space for developing countries to explore a much wider set of heterodox policies than those endorsed by the Washington Consensus.

• The resumption of growth in SSA, though impressive, is yet to

translate into the economic transformation that provides the basis for sustained rapid growth.

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Past Industrial Strategies (4)

New Orthodoxy Era/ Global Financial Crises and its Aftermath (1996–2015)

• These is a renewed appreciation of the importance of an industrial policy to achieve

sustainable and inclusive growth path.

• This commitment to industrial policy has been particularly strong in countries such as

Rwanda, Ethiopia, and South Africa.

• Regional Economic Communities (EAC, SADC, and ECOWAS) are also introducing

industrial policies as an essential pillar of their economic integration strategy. ¡

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Record of Industry in Africa (1)

• The record of industrialization in Africa has been profoundly
• disappointing. Africa has a weak industrial base and lags behind
• ther developing regions in industrial performance.
• Africa's share of world manufacturing output was a paltry 1.49% in

2012, corresponding to 10% of China’s MVA. Manufacturing as a share of GDP for Africa was only 10% in 2012, compared to 23% in Asia and Pacific and 15% in Latin America.

• Within Africa, the distribution of manufacturing activity is highly

skewed with just one country, South Africa, accounting for 38.9% of total MVA, followed by Egypt (15.4%).

REGIONS MVA PER CAPITA 2012 (US $) MVA, 2012 (% of GDP) 2

• f

Africa 126.92 9.989 Sub-Saharan Africa 43.56 5.224 African LDCs 33.04 7.706 Asia & Pacific 912.28 23.007 South Asia 153.97 15.351 North America 5,590.37 13.246 Latin America 859.02 15.069 Europe 3,030.50 14.470 World 1,277.10 16.711 Patrick ¡Kormawa ¡and ¡Afeikhena ¡Jerome ¡ ¡ 11 ¡

• In 2010, Africa’s share of global manufacturing exports was

1%, lower than India’s share of 1.4% and China´s 15%. High technology exports account for only 3.5 % of manufactured exports from Africa compared to 32 % in East Asia and the developing country average of 22 %.

• South Africa is clearly an outlier, contributing equivalently

63.6% of SSA’s total manufactured exports in 2000, though the figure has declined considerably to 37% in 2014.

Record of Industry (2)

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Manufactured exports for selected countries (million US$)

¡ ¡ South Africa Mauritius Botswana Manufactured exports SSA share (%) Manufactured exports SSA share (%) Manufactured exports SSA 2000 16,145 63.6 1,258 5.0 2,396 2001 15,657 64.9 1,208 5.0 2,274 2002 18,495 59.4 1,308 4.2 2,205 2003 21,215 60.7 1,397 4.0 2,427 2004 26,569

• 1,357
• 3,008

2005 29,249

• 1,228
• 3,777

2006 30,750 49.2 1,492 2.4 3,621 2007 36,006 47.8 1,385 1.8 3,793 2008 42,186 43.2 1,366 1.4 3,777 2009 29,284 43.1 1,245 1.8 2,695 2010 44,466 45.1 1,360 1.4 3,733 2011 49,750 44.2 1,653 1.5 5,200 2012 47,537 41.0 1,635 1.4 5,278 2013 44,019 37.8 1,686 1.4 6,663 2014 45,141

• 2,063
• 7,014

Source: Computed from World Bank, (2015) World Development Indicators Note: SSA = Africa south of the Sahara.

Record of Industry in Africa

• Manufacturing companies are already looking to countries such as Ethiopia,

Kenya, & Rwanda as a result of rising production costs in Asia. Massive infrastructure projects are also ongoing to spur industrialization

• The Huajian shoe factory, which opened in Ethiopia in 2012 is already

showing that Africa can indeed become a global manufacturing hub. The 6,000MW Grand Ethiopian Renaissance Dam will be the largest hydroelectric power plant in Africa when completed, and the 11th largest in the world.

• Senegal is developing industrial zones near the airport and the first is due to
• pen in early 2016.

Towards a New Strategy (1)

Africa needs a new framework and approach to industrial policymaking, that is selective, strategic and that integrates lessons from the past. Three key considerations for developing a new industrial strategy:

• Sound microeconomic strategy;
• New realities of the 21st century; and
• Strong institutions.
• 1. Invest in Infrastructure. Africa must push for the full implementation of the Plan for

Infrastructure Development in Africa which will scale-up of investments in energy.

• 2. Invest in Research, Science and Technology.
• 3. Improve the Business Climate and emphasize “creative” competitiveness that would

help enterprises establish, grow, and compete internationally.

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Towards a New Strategy (2)

• 4. Development of the Private Sector by addressing widespread and rising informality; a

“missing middle” and lack of upward mobility of enterprises; weak inter-firm linkages; low levels of export competitiveness; and lack of innovation capabilities (UNIDO/GTZ, 2008).

• 5. Intensify Regional Integration to spur full economies of scale in the adequate

production of raw materials and the provision of key infrastructure.

• 6. Long-term financing with the private sector through domestic resource accumulation,

particularly income from natural resources, and through industrial partnerships.

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Conclusion

• It is becoming increasingly more difficult than ever for poorer developing countries to foster

industrial development and structural change, compared to the 1960s era. New challenges that have arisen include the shrinking policy space, intensified global competition, and jobless growth.

• A bold state-led new dynamic and organic industrial strategy is fundamental to structural

transformation and inclusive development in Africa.

• Apart from broad strategies such as investing in infrastructure, the development of the

manufacturing sector needs to be intensified in the context of country-specific conditions.

• Renewal of Agriculture and strong linkages between agriculture and industry is key.
• Investment in Industrial zones and focussed incentives.

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Conclusion

• Good lessons are emerging all over Africa:
• Gabon is on the right track with emerging Gabon 2025. The plan targets massive

infrastructure investment and boosting the quality of human capital for exploitation of natural resources (agribusiness, gold and diamond mining and wood processing).

• Africa has many things in its favour: young demography, leapfrogging opportunities and

expanding internal market of 1 billion people.

• Ownership matters: change cannot be imposed from outside but cultivated within.

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Thank you for your attention