Busting the myths about industrialisation in Africa
Africa’s need to aggressively pursue the industrialisation path has become more compelling.
Africa’s need to aggressively pursue the industrialisation path has become more compelling in light of the need to sustain current growth standards. With carefully developed backward and forward linkages, industrialisation has the potential to diversify economies and reduce exposure to external shocks.
We at the United Nations Economic Commission for Africa (ECA) are working the case for industrialisation and we do not apologise for that. We are convinced it opens doors to address most of Africa’s many challenges, if properly done. It has the potential for poverty reduction, dealing with inequality provoked by rent seeking practices still persisting in many countries, and it can allow leapfrogging into a green economy model. Several myths are bandied around for why Africa’s industrialisation has been stunted. Let me address a few fallacies that continue to plague Africa’s industrialisation drive – discussing them and giving reasons why there is no truth in these allegations.
Myth 1: Industrialisation is a fashionable developmental word that will soon be forgotten
There continue to be strategic and policy changes in the posture taken by African states regarding development strategies. We remember buzzwords like ‘structural adjustment’, ‘trickle-down effect’, ‘poverty reduction strategies’ that influenced national policy direction. Although industrialisation has always been in development literature, this is the first time it will likely take centre stage. We see this because the call for industrialisation is now linked to a structural transformation of the state.
The Action Plan for the Accelerated Industrial Development of Africa (AIDA) supported by the African Union, ECA, African Development Bank and New Partnership for Africa's Development demonstrates how the link between industrialisation and structural transformation is being taken seriously. AIDA is based on four pillars: using Africa’s own natural resource endowment as a basis for industrial transformation; developing an infrastructural system including energy and transportation; increasing research and development and the adaptation of technology; and promoting private sector development, especially the role of small and medium scale enterprises. It is hoped that these enablers will lead to the structural transformation of the continent’s economies.
In the 1970s, Korea had neither the skill, nor raw material for developing a world class ship building industry but decided to follow this path based on a well-developed policy. Today, South Korea is one of the three largest ship building nations. These are examples we need to think about. Although we need African solutions and priorities we can learn from such successes.
Myth 2: Industrialisation is all we need to develop
African countries must begin to see industrialisation as a tool for the social and economic transformation of their societies with structural transformation as the end result. Deng Xiaoping’s transformation of China’s economy is an example of the need to address industrialisation as part of a wider integrated and intergenerational process of development.
In this regard, I define structural transformation as a significant change in the sectoral composition of GDP with the share of the primary sector in employment and output shifting to industry and modern services. Structural transformation can be realised by giving attention to key developmental elements, one of which is industrialisation. We have to still deal with a demographic challenge and transform it into a dividend, not to mention social cohesion that should result from less inequality, embracing diversity and increasing human security and inclusive governance.
Myth 3: African countries have tried industrialisation before and it failed, so why now?
In the 1960s, newly independent Africa emulated other regions of the world in undertaking import-substituting industrialisation. This led to some remarkable progress but was ultimately stymied by the limits of the model and global political economy. This is why today Africa should be mindful of a very different global context. Africa needs alternate models that play to its strengths and satisfies the need for transformation.
Brazil’s Bolsa Familia programme, which took 30m Brazilians out of poverty, was designed to achieve economic growth with social equality. With up to 90% of Africans still heavily reliant on the agricultural sector, commodity-based industrialisation speaks to our strength. Commodity based industrialisation also offers immediate scope for value addition and plenty of opportunity for exploiting consequential linkages. Botswana’s decision to add value to rough diamonds before exporting ensured an extra US$6bn of diamond sales are now going through the country’s financial centres. This created new jobs for its youth whilst boosting the infrastructure and tourism sectors.
Myth 4: Africa comes too late to industrialise without polluting the environment
The world has changed since the times of the industrial revolution. Coming late to the club gives Africa the opportunity to industrialise differently. It is not about privileging export-oriented or import substitution models. The new industrialisation model must be closer to the commodities production centres, looking at leapfrogging technological potential and with African growth market in mind. It should ensure strong forward and backward linkages and of course, understand the sophisticated global value chains.
Myth 5: Africa’s current economic growth will lead to job creation
Based on demographic growth projections, Africa will need to create up to 10m formal jobs annually as more young people enter the job sector. Current economic growth models do not create enough modern jobs. In fact, the highest growing African economies also have the highest levels of youth unemployment. Although growth is robust in many countries, it is propelled by internal consumption that does not benefit all.
To reverse this trend proper planning should focus on modernising the economies though more manufacturing production taken from other parts of the world where unit values are increasing fast and starting by positioning Africa in relation to its natural resources and renewable energy potential assets. These combined with a younger, more educated, urbanised, connected workforce is unique.
Myth 6: Investors are not attracted by risky Africa
Intra-African investment has, since 2007, been growing at a 32.5% compound rate with South Africa leading with $18bn invested across several sectors, followed closely by Morocco and Nigeria. In 2011, the rate of return on inward foreign direct investment (FDI) in Africa (9.3%) was the highest compared to other regions of the world, such as 8.8% in Asia and 4.8% in developed economies.
This is important because it means Africans are not just asserting themselves in a political narrative. They are also investing more in their own continent. Fortunately others are following. FDI will attain $50bn this year, an all-time high. More realise Africa is not as risky an investment decision as it may appear. In fact, it has the best return on investment. Africa needs to better brand and market itself.
In conclusion, if the news on growth is good, Africa wants and needs more. It needs to be able to deal with the challenge of having to industrialise and grow when its population and cities are growing quicker than any previous historical experience. It wants more as it realises it will have to be faster than any other region of the world. It needs more because it is high time we turn the ‘no hope’ to ‘rising’ continent story into meaningful change that will prove the skeptics wrong.
Carlos Lopes is executive secretary of the United Nations Economic Commission for Africa. The article was first published on his blog.