24 March 2013

Africa Needs to Industrialize Now

A COMMITTEE of experts of the 6th joint Annual Meeting of the Economic Commission of Africa (ECA) Conference of African Ministers of Finance, Planning and Economic Development and the African Union Conference of Ministers of Economy and Finance are in Abidjan, Cote d'Ivoire to discuss and deliberate on the way forward for Africa to Industrialize.

This year's theme "Industrialization for an Emerging Africa", many are of the opinion that this is the right time for Africa to take the industrialization route, having missed the three global industrializations, namely the Iron, electricity and the Information Communications Technology industrialization.

So why has Africa lagged behind while the rest of the world is industrializing? The Director in the department of economic affairs of the African Union Commission, Mr Rene Kouassi says that colonialism is one among many reason behind African woes. He notes that the seeds of Africa's industrialization woes were sown during the colonial period, when the extractive nature of African colonialism left behind structures, institutions and infrastructure designed to enhance extraction.

In his paper to the committee of experts, Mr Kouassi explained that at independence the structure of African economies was not geared toward transformation and value addition but rather commodity extraction and export. The issues of policy failure at independence, starting with import substitution policies, whereby African countries genuinely decided to industrialize and then the Structural Adjustment Programmes (SAPs), where African countries were forced to de-industrialized.

Following independence, Mr Kouassi explains that industrialization in the 60's was seen as a central part of Africa's development agenda, which was expected to facilitate transformation of the economic structures into modern industrial economies.

To achieve this objective most, countries adopted the import substitution industrialization (ISI) model in the 60's and then70's whose key component was protection of domestic firms from foreign completion, however because of lack of financial and managerial capacity and by distorting factor prices and rates of return, policies such as subsides on imported capital equipment and cheap loans designed to direct investment toward industries had negative impact on other sectors such as agriculture and in some cases lead to expansion of consumers goods sector rather than production of intermediate goods.

Over half a century after independence, other regions have increased their share of manufactured exports while the continent still depends on the export of raw material to the industrialized world. These raw material are processed and sold back to Africa at much higher prices. The consensus is that the potential for Africa to industrialize is large. Sixty per cent of the continent's land is arable and can be used to turn around agriculture from the traditional agriculture to a modern agricultural industry that will ensure food security for the continent and the surplus sold to other parts of the world.

The abundant natural resources in Africa is also another potential area for industrialization if the resources could be processed to add value before exporting them as is the case currently. Mr Kouassi notes that the current way of exporting Africa's significant natural resources in the raw form and not as processed or finished products is a serious missed opportunity for more robust, diversified and sustainable economic development.

This is more so, especially because some of these natural resources are irreplaceable, non-renewable asset and their exploitation generally has weak linkages to the rest of the economy, consequently contributing very little to the Gross Domestic Product (GDP). He adds that the natural resource wealth for the continent should provide a foundation for its accelerated industrialization.

Policies measures have to be introduced and implemented to maximize deliverables from the exploitation of natural resources to enhance the investment that is required for industrial development and to increase local processing and value addition for natural resources. Mr Kouassi agrees that Africa has recorded an impressive economic rate of 5 per cent in 2012, with 16 African countries being among to 30 countries to experience the highest growth rates in the world, despite negative influences of the global crisis.

He however notes that although positive growth has continued to be recorded in most parts of the continent, the pace of progress is slow and insufficient to enable African countries to achieve social development goals and lift millions of people living in abject poverty. While sustained growth has contributed significantly to rapid economic transformation in other parts of the world, in Africa it has been observed that the relatively good growth performance has not been inclusive, as million of African still live in poverty, largely because of failure to diversify sources of growth, continue over-reliance on primary commodity exports.

In sharp contrast to the growth pattern of other developing regions, such as Asia, were growth has been driven by solid industrialization agenda, that places emphasis on manufacturing, in Africa the economic growth is currently driven by commodity exports.

Mr Kouassi explains that the downside of Africa's reliance on a commodity driven growth path includes risks to resource extraction, vulnerability to unfavourable terms of trade deterioration, risks of currency overvaluation weak backward and forward linkages to the domestic economy, limited use of technologies and above all, a weak employment creation. To be able to fully industrialize and reap the benefits, African nations require leadership and government commitment to industrial development that will set the right tone at the top and make industrial development a top priority.

It is crucial, Mr Kouassi adds, that government translates the strong political will for industuralization into action and pride leadership at various levels to support certain strategic sectors in the overall long-term development. The government needs to set up the right policies and use the right policy mix to facilitate industrial development and choose the right strategy, based on internal and external realities.

He explains that the success of any industrialization programme will require the creation of an enabling business climate that enhances domestic capacity and capability, particularly in respect of physical and social infrastructure, human capital, financial systems, technology and governance. Governments in addition, should put in place, regulatory framework for tackling market failures and also address coordination failures within the government as well as between government and other sectors.

Within government, coordination will entail making the right policies in terms of industrial, trade and macroeconomic policy, commitment to implement the policies based on sound technical decisions. He said the international community can also contribute to Africa's industrialization by delivering on its commitments in three critical areas of official development assistant, debt and trade. So far, the experience of Africa has been considerable gap between commitment and development.

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