The outcry for Africa to industrialise is growing louder!
This Africa Industrialisation Day we reflect on the pace at which Africa is developing. Most African nations are eager to industrialise given the associated benefits of job creation, economic resilience and technological diffusion. However, it is the agglomeration and development of industrial clusters in Africa that will ultimately lead to progress.
The UN’s Sustainable Development Goal (SDG) 9 aims to ‘build resilient infrastructure, promote sustainable industrialisation and foster innovation’. Within the development financing space – the African Development Bank has ranked industrial development as one of ‘top priorities’ whereas, the World Bank Group has sustained its promotion of ‘creating the conditions for a more competitive manufacturing sector’ in Africa as a response to dependence on commodities. Overall, how African countries push the pace of industrialisation depends on how well they address the ‘bottlenecks’ at policy, regional and continental levels. This is why it’s very important for policy makers and donors, alike to identify as well as establish appropriate development strategies and related mechanisms to accelerate Africa’s industrialisation agenda.
The African Union’s first 10 years of the implementation of the Agenda 2063 focuses on regional integration. It advocates for Regional Industrialisation Hubs through a framework that supports value chains, business development and services, innovation and incubation, entrepreneurship to create wealth and employment and strengthen informed advancement of the regions private sector; this is in line with the UN’s SDGs:
SDG Goal 8, indicator 8.2, aims at achieving higher levels of economic productivity through diversification, technological upgrading and innovation, including through a focus on high-value added and labour-intensive sectors.
An additional Goal 9, indicators 9.2 and 9.3, speak to the promotion of inclusive and sustainable industrialisation (by increasing manufacturing value added as a proportion of GDP and per capita and manufacturing employment as a proportion of total employment) and increasing the access of small-scale industrial and other enterprises to financial services, including affordable credit, and their integration into value chains and markets.
African industry generates an average of US $700 of GDP per capita, barely one-fifth of East Asia’s US $3 400.
According to the Africa Development Bank, Africa’s lack of industries is largely responsible for its low standing in global development. The continent is said to be the weakest link in an interconnected global economy.
Africa’s industrialisation strategy has followed a familiar pattern starting with inward looking policies (such as import substitution) post-independence, followed by outward policies that liberalise trade. This pattern led to a boom in state-led/ state-owned manufacturing entities and a subsequent destruction of the same as a result of liberal trade policy reforms, leading to job losses and a decline in the share of the sector to GDP in many African countries (see for instance Ethiopia, Ghana, Kenya, Mozambique, Nigeria, Senegal, Tanzania, Uganda). Thus, while closing borders worked for the USA and China, Africa’s gains from a similar strategy were only short-lived. Moreover Africa’s development partners like the World Trade Organisation advocate for open borders. For this reason, Africa needs to accelerate its integration agenda along with the promotion of ‘Boosting Intra-African Trade’ (BIAT) priorities.
Africa needs to accelerate its integration agenda along with the promotion of ‘Boosting Intra-African Trade’ (BIAT) priorities.
So how should Africa industrialize in the new world order? African governments will need new approaches to industrial policy with regional and/ or continental dimensions in consideration of the operationalisation of an African Continental Free Trade Area (AfCFTA).
A recent study by UNU WIDER’s Manufacturing Transformation of developing and developed economies, shows that agglomerations and industrial clusters or industrial parks provide a window of opportunity towards closing Africa’s industrialisation gap.
Evidence from Cambodia, Vietnam and Tunisia suggest that African governments can foster export-oriented industrial agglomerations by concentrating investment in high-quality institutions, social services, and infrastructure in a limited physical area such as an export processing zone (EPZ).
Such an industrial agglomeration, UNU WIDER argues, would be designed to serve the global market. Thus, within the framework of trade liberalisation, countries should use trade policy to promote the international competitiveness of domestic enterprises; improve export competitiveness of such enterprises; diversify markets and increase exports; and accelerate economic integration.
As instruments to industrial development, industrial parks require long-term investments. This partly implies that the African governments must collectively strengthen and harmonise their public policies to attract long-term investors, including private sector
Current experimenters like Ethiopia and Senegal who have raised funds for their industrial parks, show that sustainable industrialisation is achievable through a strong link between infrastructure development and inclusive and sustainable industry innovation.
Evidence from Ghana points to the role of the private sector not only for sustainable financing but for industrial production that is driven by the application of science and technology. Researchers argue that the industrial policy should therefore aim at promoting agro-processing, facilitating the development of commercially viable export and domestic market-oriented enterprises in the rural areas, improving agricultural marketing and enhancing access to export markets, and improving the competitiveness of domestic industrial products. At regional level, the Costed Action Plan for SADC Industrialisation Strategy and Roadmap provides an example of possible regional value-chain clusters among countries, a model that could be replicated in other regions on the continent.
Africa can leverage its current endowment to make the industrial clusters or parks model a success. Industrial clusters usually attract ‘specialised trading firms’ – this could benefit small and medium domestic firms thus enabling the very firms’ access to regional and continental markets following the operationalisation of AfCFTA.
Africa’s rapidly growing population provides a demographic dividend for labour – the industrial cluster model allows the matching of ‘youthful’ workers to jobs, while learning on-the-job facilitates the diffusion of knowledge. Further, a consumer boom due to a growing middle class, provides a ready market in Africa – the operationalisation of the AfCFTA presents a market of 1.2 billion people.
Given the significant benefits from agglomeration, it is important that firms cluster across borders to stimulate the much-needed economic transformation.
The actualisation of this, according to UNIDO, requires that the continent strengthens its institutions, knowledge of global value chains, value-add to agriculture and mineral beneficiation through manufacture in order to participate in the global value chain, invest in skills development to leapfrog technology and, finally, leverage development finance.
Dr Lwanga Elizabeth Nanziri is a Senior Lecturer in Development Finance at the University of Stellenbosch Business School (USB). Her research interests include Development Economics, Financial Inclusion for Households and Firms, Behavioural Economics, Gender and Welfare, and Public Policy Analysis. She is the director of the Association for the Advancement of African Women Economists in South Africa, and has served as the Chief Executive Officer of the South African Savings Institute, founded by the Ministry of Finance and the Industrial Development Corporation.