29 March 2014

Statement by Mr. Carlos Lopes at the Opening of the Conference Ministers

Photo: UNECA
Carlos Lopes

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Abuja — Statement to the Seventh Joint Annual Meetings of the ECA Conference of African Ministers of Finance, Planning and Economic Development and AU Conference of Ministers of Economy and Finance. Theme: "Industrialization for Inclusive and Transformative Development Agenda" by Carlos Lopes, UN Under-Secretary-General and Executive Secretary of ECA

Your Excellency, President Goodluck Jonathan, Your Excellency, President Ellen Johnson-Sirleaf, Your Excellency, Dr. Nkosazana Dlamini-Zuma, Chairperson of the African
Union Commission, The United Nations Deputy Secretary General, Jan Eliasson, Honorable Ministers,Distinguished Ladies and Gentlemen

I would like to warmly welcome you to this Joint Annual Meetings of the African Union and ECA for Ministers of Finance, Planning and Economic Development.

Let me take this opportunity to thank President Goodluck Jonathan, the Government and people of Nigeria for their usual kind hospitality and for the excellent hosting arrangements made for this conference. It is particularly befitting for us to be here given this year's conference theme. Nigeria has undertaken some impressive reforms in the financial sector, agricultural incentives, telecommunications, energy, transports and has now launched its Industrial Revolution. When the rebasing of its national accounts will be announced we shall not be surprised if Nigeria claims its rightful place as the largest economy in our continent.

I also wish to recognize with appreciation, ECA's strategic partnership with the other two pan-African institutions intertwined in our history: the African Development Bank and the African Union, our neighbor in Addis Ababa. I wish to commend the leadership of the Chairperson of the Commission, my sister
Dr. Dlamini-Zuma, for being at the forefront of a more coherent pan-African economic strategy.

I also wish to thank the UN leaders who have come for the Annual Regional Coordination Meeting, at a time when we are boosting Africa's role in the Post 2015 process. In this regard I am delighted to extend a special welcome to the UN Deputy Secretary General, Jan Eliasson, who wanted to be part of this moment.

Ladies and gentlemen,

In order for Africa to grow and transform we need to have a clear understanding of our times. We are not new in the business of transformation. But Africa has, nevertheless, to innovate in the business of transformation.

Most of you will not know that Prato, a small town in Italy, was once hailed as that country's textile capital. In the last twenty years a surge of Chinese investment brought to the heart of this European town 50,000 Chinese workers churning out "made in Italy" fashion cloths labeled Fendi, Salvatore Ferragamo all the way to low cost Zara or Topshop. Their speed, efficiency and high productivity are a force to be reckoned with. This growing community has turned around all the rules of once quite Prato, some accusing this development to be sweatshop export.

Mexico's "maquiladoras" are another phenomenon of contemporary economic patterns. "Maquiladora" is a free-trade-zone manufacturing operation where factories import material and equipment, on a duty-free and tariff-free basis, for assembly, processing, or manufacturing, and then export the assembled, processed or manufactured products, back to the country from where the raw materials' originated. In Tijuana, Mexican workers know all about their dependence both ways from the investment and export across the border in the US. During the years of recessive demand from the big neighbor 300,000 jobs were lost to competitors far away in Asia.

However recent rising labor costs in Asia have made them competitive again. Exports grew 50% between 2009 and 2012, to attain US$ 196 billion; to compare Africa's total manufacturing exports are just US$ 91 billion, the same as Thailand. What is new in Mexico is that Chinese investors have discovered the catch and are part of the surge of US$ 7.4 billion investment in the "maquiladoras" in 2012. They are offering for the "maquiladoras" to pursue their shift to the more lucrative automotive industry. One state to benefit from this investment is Guanajuato, whose growth is set to accelerate considerably. There have been announcements of sourcing expansion by firms such as General Motors, Ford, Chrysler, Honda, Mazda, Nissan, Audi and Volkswagen.

In China itself the manufacturing of electronic goods has captured the world's imagination. Most of the devices we use are assembled by Foxconn, the largest operator in the field, employing over half a million workers. Foxconn is actually the world's biggest contract electronics manufacturer with clients such as Apple, Dell, HP, Microsoft, or Sony. They have decided to build a plant in Itú near São Paulo, that will eventually employ 10,000 workers in a half a billion dollar investment.

Ladies and gentlemen,

What are the lessons for Africa from these stories?

The changing landscape of international trade and investment has completely overhauled our understanding of Global Value Chains. Since the 1990's there is a growing trend for enterprises to spread across several countries for the different stages and activities of the production process. It is not even one firm anymore that produces from A to Z. Production is no longer limited to borders. The value of patents and intellectual property is more substantial than the physical goods. Complex and innovative financial systems, capital and venture arrangements, global standards and dispute settlement mechanisms have all contributed to a world where crude protectionism does not work. However everybody practices smart protectionism, better defined has the ability to make the rules work for you and outsmart the systems to attract investment, equity and markets.

Previously countries had to develop strong industrial bases before trading and competing globally. They now can insert into specific segments and sub-sectors of global production processes. The rise and expansion of global value chains is not primarily due to the increasing trade of goods, rather it is focused on technology, finance, investment, and other modern services. We see this, for example, in the comparative advantage exercised by China in Prato, not only because of cheap labour, but due to the ability of the Chinese to quickly produce and alter production patterns overnight. The main focus of industrialization in the 21st century is therefore innovation and flexibility.

This leads me to a second lesson. The requirements for industrial policy development are different today in comparison to 1970's. Key changes include the fact that economic policy has become open and comparable like never before. Interested groups want to be part and contribute to the design of innovative multi-sector strategies. Instruments of economic policy have also changed significantly, from an overwhelming reliance on administrative direction to placing greater emphasis on modifying market processes through taxation, subsidies and public expenditure measures, in order to correct market imbalances. In addition, industrial policy development has become more polycentric and more eclectic in its simultaneous pursuit of a variety of objectives rather than being solely centered on just promoting rapid growth.

The industrialization models of import substitution, used in Latin America, or the Southeast Asia export driven model, are no longer an option for Africa. Particularly the latter was based on the premise of mass production with cheap labor and great absorptive capacity and significant resource savings. As a latecomer Africa sees this niche occupied and mostly gone, even if its attractiveness could be taken into account.

Indeed the third lesson is that Africa has to fight for a level playing field, under adverse weather. The current trade and climate change negotiations are not in its favour. Take the example of agriculture. Some of our cotton farmers, like Burkinabé for lint or Egyptian for processed cotton, have made it in terms of productivity; but cannot compete with the subsidies of developed countries' farming. The subsidies are officially gone in the categorizations of the WTO, but they are replaced by equal or higher amounts, through a battery of environmental and insurance premiums that blurs the frame. If agriculture must play a fundamental role in the continents structural transformation, given that 60% of the labour force is employed in the sector, we need a mammoth internal effort to increase productivity and take advantage of our enormous reservoir of non-used arable land. However, the external factors are equally pertinent.

The international trading system is struggling with the notion of Special but Differential Treatment the same way as climate change negotiations are with Common but differentiated responsibilities. If Africa's aim is to become a "a prosperous and integrated continent in peace with itself", its negotiating stance has to be consistent with - and supportive of its transformative agenda, as envisioned for 2063.

Ladies and gentlemen,

At last year's conference in Abidjan, we reached a unanimous decision to pursue commodity based-industrialization as a propeller of the continents transformation, in order to create much needed jobs for Africa's youth, generate the knowledge and skills base to manage a rapid process of urbanization, and reap the benefits of a potential demographic dividend. Also recognised was the need for adding value to our natural resources; the importance of science, technology and innovation for industrial development; and the shift to modern agriculture.

We need to dig deeper now. We need to explain how are going to be organic and pursue an industrialization path that is specific to the needs of a plural continent. An industrialization path that is sophisticated and different.

First Africa needs to fully use its bargaining position by maximizing the demands for value addition in the commodities it has a dominant position. Africa is home to 12% of the world's oil reserves; the largest renewable energy potential; 40% of world's gold; 80% to 90% of its chromium and platinum; 70% of coltan; 60% of the world's unused arable land; 17 % of the world forests; or 53 % of the world's cocoa produced by two countries –Côte d'Ivoire and Ghana- alone!. Resources such as these should be leveraged.

Second, as a latecomer, Africa is not locked in any technology preferences; it can follow a green and clean energy pathway and leapfrog old carbon-intensive industrial models. The growing awareness of environmental degradation and climate change is giving rise to new Research & Design priorities, like clean energy technologies, that could be scaled-up rapidly. The continent is well positioned to absorb, adapt and build on the vast quantities of scientific and technical knowledge already available. Its vast hydropower, geothermal, biomass, wind and solar to power potential is an amazing asset. For example, only 5% of Africa's hydropower potential has been exploited.

Third, Africa should focus on its domestic consumption. Africa's rising population growth, growing middle class and rapid urbanization trends will continue to increase demand for consumer goods. Agribusiness holds the key to meet this demand, particularly processed food. The shift from primary production towards modern, integrated agri-business provides a lucrative opportunity for a large number of smallholder farmers, the majority of which are women, as well as for generating modern jobs for the continent's youth. We cannot continue to import yoghurt or toothpaste.

Fourth, industrialization can and should be inclusive. It should avoid buildings collapsing with sweatshop workers trapped inside, migrants dying in the desert or sea; nor do we want to learn about six out of the ten most unequal countries in the world being in Africa.

Fifth, promoting greater regional integration across Africa is an imperative. The scope for regional integration is still largely untapped due to both tariff and non-tariff barriers to intra-African trade. Africa's transformation will require renewed and bolder efforts.

Ladies and gentlemen,

So what are Africa's chances going forward?

Key drivers for the continents transformation are due to formidable growth; improved economic governance; an export boom and rising commodity prices. A growing class of new consumers have brought about a rise in domestic demand spurring increased public spending and private investment. In addition, steady progress is also being made in tackling some key social challenges. Most countries achieving universal primary enrolment at rates of above 90 per cent and with one half of African countries having achieved gender parity in primary school enrolment. Health has also seen major gains, with 38 percent decrease in under-five mortality, similarly, maternal mortality rate declining 42 per cent over the MDG period, adult HIV/AIDS prevalence rates also declining from 5.9 per cent in 2001 to 4.9 per cent in 2011.

A new brand of Africa is emerging; one that exudes confidence, attractiveness for investments and that has considerably lowered risk, with investment reaching US$50 billion in 2012.

But, there is a but…we still need to move from 5 to 6% average growth to the magic 7%!, the minimum required to double average incomes in a decade. There is still a long way to go as poverty remains high, access to social services weak and pervasive conflict undermines gains.

Africa, therefore, needs policy tools and economic enablers. The commonality between the investments in Prato, Guanajuato and Itú-São Paulo is that they have attracted the attention of our number one trading partner: China. The lesson for us is that industrialization is a competitive business. We have to find our own recipe, our miracle recipe, if we want to become one the factory floors of the world. Our attractiveness will most likely not be found in producing a Prada wear, a spare part for Ford or adjusting Apple's Iphone to the Brazilian market. Africa's attractiveness will be to challenge that its coffee has to be Starbucks, its cocoa Toblerone or its Coltan Samsung, without any slice of the industrial chain that can also be proudly African.

I thank you.

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