Despite the critical role of manufacturing per se in the transformation and development processes of African economies, it is important that African policy-makers do not seek to achieve industrialisation at the expense of the agricultural sector.
Industrial policy has to address the integration of the rural sectors with the rest of the economy as well as the contribution that these could make to industrial development. This can be done by advancing agro-industry, value-addition and the supply of wage goods that enhances the competitiveness of domestic enterprises in global value chains and export markets.
The olive oil sector in North Africa is a good example for opportunities to integrate the rural world with the rest of the economy through GVCs. Development of new competencies in the last steps of the supply chain will allow the sub-region to create sustainable competitive advantages. Ongoing efforts on brand management, development of new products in the medical and cosmetic sectors as well as control of the supply chain are being explored by North African countries. It is hoped that the implementation of these strategies will deepen sub regional integration efforts and build coherent national strategies.
The promotion of GVCs should be based on the complementarities between agriculture and industry, taking into account the potential of agricultural development to contribute to the creation of competitive advantage industry. In many African countries, given the dominance of agriculture in their economic structure, the sector will continue to be an important source of foreign exchange needed to import intermediate inputs for domestic industries. A major challenge in industrial policy, including its implementation through the establishment SEZs, is how to create mutually supportive linkages between the industrial and non-industrial sectors of the economy.
Economic diversification and industrialisation
Africa’s significant agricultural and natural resources are being exploited and exported mostly in their raw form, with little or no value added to commodity exports. Some of these natural resources represent irreplaceable, non-renewable assets, and their exploitation generally has weak economic linkages to the rest of the economy.
The upsurge in GVCs as a vehicle for economic diversification and the basis for resource-based industrial development is timely, given the increased demand for Africa’s natural resources, together with increased urbanisation and consumer demand for processed goods within the continent. The domestic and sub regional markets should be a prime target. However, accelerating industrialisation through diversification of exports can also potentially contribute to the expansion of trade within Africa and between Africa and the rest of the world.
Much has been said about the fact that six of the world’s ten fastest-growing economies (Democratic Republic of Congo, Ethiopia, Ghana, Mozambique, Tanzania and Zambia) are in Africa, recording at least a 7% growth rate. But the evidence so far suggests that growth in the region has generally not led to massive job creation. As part of the process of structural transformation, African countries should take targeted actions at national and regional levels to establish production and trade links and synergies between different actors along the entire agri-business value chain, through the provision of incentives for bolstering private sector investments and competitiveness. Together with SEZs, which have sprung up all over Africa recently, the shift from primary production towards modern integrated agri-business will undoubtedly be crucial for job creation and poverty reduction.
Preliminary evidence from some SEZs in Africa indicate that they are indeed creating new jobs and that workers in these zones are on average paid more than workers outside of the zones. The macro impact on jobs is still, nevertheless, limited to only a few countries. Ethiopia may be a good case for what needs to happen. The country is prioritising light manufacturing growth, particularly the leather industry, as part of its economic transformation programme, and recently landed a large investment by a Chinese firm producing designer shoes for the US and EU markets. Production is based at an industrial SEZ just outside Addis Ababa.
Ghana’s free zone area is another example. It houses companies such as Nestle and L’Oreal and had generated about 30,000 jobs by 2012 of which only 1,000 are held by expatriates. The Tangier Free Zone in Morocco, established a decade ago, had also by the end of 2010, attracted nearly 522 companies, $830 million investments, and created more than 50,000 direct jobs.
Major challenges regarding GVCs realising their potential as a valuable tool of industrial development and economic transformation in Africa relate to overcoming constraints of poor governance linked to weak institutions, lack of infrastructure, and shortage of skilled and disciplined labour. While GVC and SEZ-fuelled industrialisation has contributed to export and employment growth in countries such as Malaysia, Thailand, Indonesia and Vietnam, and turned China and South Korea into industrial giants, Africa’s experience with industrial policy and its outcomes since independence has been largely disappointing.
Most of Africa’s economies are still driven by commodity production and export of agricultural and mining products, and the continent remains the least industrialised region of the world. If GVCs and SEZs in Africa are to be sustainable and successful as showcases of industrial progress and structural transformation, as they have been in Asia, there is a need for forceful policies. Specifically, industrial strategies have to be introduced as a matter of urgency to remove existing constraints on value-addition and economic transformation, weak infrastructure, unreliable energy supply, underdeveloped and inefficient private sector, and shortage of skilled labour.
Carlos Lopes is executive secretary of the United Nations Economic Commission for Africa. The article was first published on his blog.