What is standing in the way of Africa’s industrialisation

Industrialisation has been a campaign promise across the continent, with its acknowledged ability to bring prosperity, new jobs and better incomes for all. Yet, the continent is less industrialised today than it was four decades ago. PHOTO: COURTESY

At no point in recent history have calls for Africa to industrialise been stronger than they have been lately.

Industrialisation has been a campaign promise across the continent, with its acknowledged ability to bring prosperity, new jobs and better incomes for all. Yet, the continent is less industrialised today than it was four decades ago.

In fact, the contribution of Africa’s manufacturing sector to the continent’s gross domestic product declined from 12 per cent in 1980 to 11 per cent in 2013, where it has remained stagnant over the past few years, according to the UN Economic Commission for Africa (ECA).

The UK’s Economist Intelligence Unit reckons that Africa accounted for more than 3 per cent of global manufacturing output in the 1970s, but this percentage has since halved. It warns that Africa’s manufacturing industry is likely to remain small throughout the remainder of this decade.

High commodity prices triggered by China’s appetite for natural resources have fuelled rapid economic growth in Africa since the 1990s. Many thought the boom would revive Africa’s waning manufacturing industry. Yet, to the dismay of analysts, it failed to live up to expectations.

Instead of using the windfall to set up or stimulate manufacturing industries, African countries – with a few exceptions – wasted the money on non-productive expenditures. Ghana and Zambia, for instance, used profits from the commodity bonanza to solve short-term domestic problems, such as by increasing salaries for civil servants.

Now commodity prices are falling and the Chinese economy is cooling. The International Monetary Fund estimates that growth in 2016 will fall below 4 per cent.

Had African leaders heeded advice from experts and pumped profits from the commodity boom into stimulating manufacturing companies, the results could have been different. So what are the options for Africa over the next few years?

Policymakers and economic experts at the launch of the Economic Report on Africa 2016: Greening Africa’s Industrialization, published by the ECA, had this to say.

1. Industrialise or decline

During discussions, experts agreed that one of the main reasons for Africa’s slow industrialisation is that its leaders have failed to pursue bold economic policies out of fear of antagonising donors.

2. Firm hands on the wheel

Asia’s development of its industries is instructive: state-led development policies were responsible for lifting the region’s economies out of poverty during the late 20th century.

In a forcefully argued opinion in British daily The Financial Times, Kingsley Moghalu, a former deputy governor of the Central Bank of Nigeria, insists “governments must lead the way, with a firm hand on the wheel and by setting policy that creates an enabling environment for market-based growth that creates jobs”.

He points to Ethiopia and Rwanda as notable examples of how Africa could industrialise its economies.

3. The good, the bad and the smart

Many experts have called on Africa to practice sophisticated or smart protectionism – that is, to impose temporary tariffs to shield budding industries from the negative effects of cheap imports – as part of its strategy to industrialise.

In his book, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism, Ha-Joon Chang argues that rich countries have historically relied on protectionist approaches in their quests for economic dominance.

In its review of the book, The Publishers Weekly, a US-based news magazine, says rich nations that “preach free market and free trade to poor countries in order to capture larger shares of the latter’s markets and to pre-empt the emergence of possible competitors are Chang’s bad Samaritans.”

The ECA has also maintained that African countries can pursue smart protectionism as practiced by the West.

4. Follow the leader

Ethiopia, Rwanda and to a lesser extent Tanzania have proven adept at navigating the bumpy path to industrialisation. The common thread among them is that they have embraced policies that target and favour their own manufacturing industries.

In addition to pursuing what experts call a “developmental state model,” under which governments control, manage and regulate economies, they have adopted investor-friendly policies. And most importantly, they have shown a commitment to and ownership of these policies.

State control over economic policies appears to have contributed to less corruption in Ethiopia and Rwanda. Ethiopia has shown industrialisation can happen in Africa. What the continent needs is political commitment and the audacity to implement the right policies, even in the face of strong external opposition.

— Africa Renewal