What did we Learn at the L2C Conference about Industrial Development and Policy in Africa?
22 August 2013
Given the high growth rates since 2000 and low labour costs, Africa could develop manufacturing industry, agro-processing, and services. But these cost advantages can easily be undermined by factors such as inadequate infrastructure, particularly power, transportation and communication technologies. Education and skills training should be fitted to the needs of African economies.
Good news on African growth
For too long, the Afro-pessimists have dominated the discourse. But now there is a good growth story to tell as the opening speaker, Benno Ndulu (Central Bank of Tanzania), made clear. His presentation was optimistic and challenging. He framed the agenda, stressing structural transformation through industrialization; productivity growth and technology-based innovation; reducing the cost of doing business; enhancing skills and exploiting the African youth bulge; and achieving regional integration.
John Sutton (London School of Economics) similarly emphasized growth, the importance of medium-sized companies, and a pragmatic approach of removing obstacles to production and exporting.
The presenters at the conference brought together evidence from the firm level and export sectors such as clothing, as well as analyses of the history and current structure of manufacturing in African economies. ‘Learning-by-exporting’ is explored in empirical studies conducted by UNU-WIDER.
Industrialization experiences in Africa and Asia
No country has yet achieved development without manufacturing. Straight manufacturing in itself is not very lucrative—it is a stage to go through, but the aim must be to move on to more rewarding aspects of manufacturing as the economy matures. Even if the achievements of the Asian Tigers cannot be replicated and there are no more growth miracles, it should be possible for 12-13% of the workforce to be absorbed into manufacturing in the African continent in the future.
The development of a number of African economies was extensively reviewed and compared with the Asian experience. Commissioned case studies on, e.g. Ghana, Kenya, Mozambique, Nigeria and Uganda, as well as Asian examples, were presented. It is interesting to note that many countries are now planning on a 10-20 year horizon.
Industrialization and the macroeconomy
The stabilizing effects of economic diversification are now being recognized. There has now been a move beyond the Washington Consensus list of desirable characteristics of successful economies, to an insistence that national governments must analyse their comparative advantage and step-by-step remove obstacles to development and growth.
What do firms need to succeed?
Clustering and the effects of special economic zones were studied empirically, and again comparisons made between Asian and African experiences. Clustering provides opportunities for localized infrastructure, overcoming transport costs, and benefiting from proximity and influence between firms, as well as having access to better trained labour.
Detailed case studies of the ‘learning-by-exporting’ hypothesis were also presented. It was stressed that many of the firms exporting were medium-sized firms, and had emerged from trading firms or that they were ‘born global’;i.e. established with the intention of exporting.
Firm capabilities, the importance of management and the right skill base in the workforce were consistently emphasized. Sutton’s work argues that it is often the market knowledge which is the hardest part of the equation for exporters—the practicalities of manufacturing are easier to assemble. Human capital constraints have implications for training and education, which need to be adapted to the requirements of the economy.
Industrial development and infrastructure
Under half the annual infrastructure needs of Africa are currently financed (according to the World Economic Forum) which could hold back the continent’s growth by up to 2% per annum (World Bank). The Programme for Infrastructure Development in Africa, compiled by the African Development Bank and partners, has identified US$67.9 billion of priority projects before 2020—largely in energy, transboundary water supply, transport, and information and communication technology. This will require confidence from international investors, support by international organizations and innovative sources of finance. The African Development Bank, for example, is launching an Infrastructure Bond.
How structural change happens?
Rather than a single dramatic change, structural transformation is likely to consist of progress in key areas—key infrastructure for getting products to market, development of agribusiness and manufacture, investment in skills and technology. Africa has been a continent of urbanization without industrialization—which has serious consequences where needs outstrip infrastructure in an urban context.
State-business relations: the key is to ensure that a developmental rather than a rentier economy is the favoured project of the political elite. Leadership matters. Industrial policy is now seen in a more positive light.
The World Bank study on manufacturing in Africa underlines that no country has become an advanced economy without industrialization, by means of light manufacturing. Africa needs to take advantage of its low labour costs and potential market access. Government needs to foster a positive climate for inward investment.
Much of the tenor of the conference was severely practical and factual. The huge infrastructure needs were underlined, but pragmatic judgments suggested that ensuring special economic zones were well equipped and ports upgraded would be valuable first steps.
The developmental state and growth diagnostics are increasingly favoured analytically. Developing state competence and coherent industrial policies is essential. Later developers are able to determine their own path. There seems to be an increasing weight of opinion in support of growth diagnostics (Rodrik) and country ownership by developmental states to ensure that inclusive growth is achieved. The stress on manufacturing using low-cost labour, creation of conditions in which firms can thrive and export, strong institutions, and sound macro-economic policy are all seen as positive elements of a growth strategy.
Don’t rely on the mineral boom!
Mineral wealth generates few jobs; and both extractive industries and aid dependence can lead to currency appreciation, undermining competitiveness. Mobilization of domestic resources will require more effective tax regimes.
African countries can neither rely on the commodity boom lasting long term, nor depend on aid to cover the costs of their social sector. The report concludes with material drawn from the reports of international organizations on Africa setting the detailed case studies of the conference in a wider analytical context.
Learning more from the conference
A good way into the themes of the conference would be to watch the video presentation of the opening and closing sessions available online. at:
The conference included presentation of almost 60 papers. See here.
Roger Williamson is a Visiting Fellow at the Institute of Development Studies at the University of Sussex, UK.