To Industrialize Or Not? Experts Give A Cautionary Yes

For Africa to industrialize to the extent of getting returns on investments quickly and perpetually, she must desist from doing business as usual. But what is not doing business as usual? 

Célestin Monga, Vice President and Chief Economist of the African Development Bank Group argues that Africa’s GDP can improve when certain goals are set.

"African countries can lower the cost of doing business by building strategically located production clusters and industrial parks, including for green industries. They are also in a strong position to attract foreign direct investment, which brings the positive externalities of technology and know-how transfer, managerial best practices, state-of-the-art learning, and access to large global markets."

He argues that, "Africa must take stand on what she has to protect and allow. Long and short term investments must be balanced. The unlikely trigger for what could turn out to be a continent-wide strategic shift was Rwanda’s decision to increase tariffs on imported second-hand clothes and footwear in support of its local garment industry. This provoked an immediate hostile response from the United States, which suspended duty-free status for Rwandan textile exports under the African Growth and Opportunity Act (AGOA), America’s flagship trade legislation for the continent. Africa has to identify and stick to policies that facilitate structural change by overcoming information and coordination and externality issues, which are intrinsic to industrial upgrading and diversification. 

Such interventions aim to provide information, compensate for externalities, and coordinate improvements in the"hard"and"soft"infrastructure that are needed for the private sector to grow in sync with the dynamic change in the economy’s comparative advantage. Second are those policies aimed at protecting some selected firms and industries that defy the comparative advantage determined by the existing endowment structure—either in new sectors that are too advanced or in old sectors that have lost comparative advantage."

He highlights these five trade measures:

"The five trade measures could bring total gains worth 4.5% of Africa’s GDP, or $134 billion a year – almost the amount of all official development aid in 2017. The first is elimination of all bilateral tariffs. Second, country-of-origin rules (needed to determine the source of a product) should be kept simple, flexible, and transparent. Third, all non-tariff barriers on trade of goods and services should be removed on a most-favored-nation basis. Fourth, the World Trade Organisation's Trade Facilitation Agreement should be implemented to reduce the time it takes to cross borders and the transaction costs associated with non-tariff measures. Lastly, tariffs and non-tariff barriers applied to trade with other developing countries should be reduced by half on a most-favored-nation basis. In a world where 60% of trade occurs through global value chains, Africa must industrialise to diversify away from natural resources and create jobs for its fast-growing young population. By boosting intra-continental trade, consumption, and investment, regional integration can be a strong vector for improving productivity, building manufacturing powerhouses, and developing credible African brands. Open regionalism could also stimulate connections between small and medium-size enterprises and international value chains, thereby enabling these firms to enter global markets.”

David Dollar, adds to this, "Global value chains (GVCs), in which production crosses at least one border and usually more than one, now make up about two-thirds of global trade. GVCs are a key reason China has been able to increase its role in trade so quickly and pull a large number of workers out of agriculture into labor-intensive manufacturing."

Mary Hallward Driemeier, suggests that "the adoption of labor-saving technologies associated with Industry 4.0—the Internet of Things, advanced robotics, and 3-D printing—in high-income economies is reducing the importance of low wages in determining costs of production. China, too, is automating at a rapid rate and is projected to be the largest user of industrial robots by 2018. This trend potentially narrows the path for less-developed countries in Africa to industrialize—the expected en masse migration of labor-intensive manufacturing activities to poorer economies with lower labor costs, such as those in Africa, may not occur." In the case of Africa, robotics may not be the trend but use of ICT is no doubt improving communication and information marketplaces. The use of the radio, TV, phones and internet is by far showing how fast Africa can grow when information to influence decisions is shared.

John Page, finds that "today, new technologies have spawned a growing number of services and agro-industries—including horticulture—that share many characteristics with manufacturing. They are tradable, have high value added per worker, and can absorb large numbers of moderately skilled workers. Like manufacturing, they benefit from technological change, productivity growth, scale, and agglomeration economies. These are “industries without smokestacks,” and in 2015, the Africa Growth Initiative and UNU-WIDER set out to study their role in Africa. The results are forthcoming in Industries Without Smokestacks: Industrialization in Africa Reconsidered. Between 1998 and 2015, services exports grew more than six times faster than merchandise exports. Kenya, Rwanda, Senegal, and South Africa have vibrant ICT-based services sectors. Tourism is Rwanda’s largest single export activity, accounting for about 30 percent of total exports. In 2014, 9.5 million tourists visited South Africa, contributing 3 percent to its GDP. Ethiopia, Ghana, Kenya, and Senegal all actively participate in global horticultural value chains. Ethiopia has achieved extraordinary success in flower exports, so much so that the country is now a global player in the sector."

According to Joshua Amlanu, African countries can establish mechanisms to create a larger market base for consumables. A case in point is Nigeria and Ghana. "There is huge market potential for Ghana’s chocolate, as the 170 million-strong Nigerian market has proven to be the largest export market of both Ghanaian made chocolate and its related products, including sweetened cocoa powder. Exports of the products to the Nigerian market under HS code of 1806 stood at US$ 9.4 million, representing 47.2 percent of the total products imported by Nigeria in 2017 under the same heading."

There could be many reasons why Africa is yet to industrialize.  But one thing is for sure and that is, Africa has to get her act right in order to industrialize. Reluctance could be because costs of human resource, the mechanisms and the structures required for industrialization to take root. But still, one can argue there is need for good planning as well. Perhaps, this can be the good beginning that was missed in the first place.

The writer of these blogs is an American Political Scientist. Read more of these blogs please. Thank you.

Source: Brookings. edu