Industrialisation policy

Why a transformative industrialisation policy is crucial for sub-Saharan Africa

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Why a transformative industrialisation policy is crucial for sub-Saharan Africa

Emmanuel K.K. Lartey

03 Aug 2017

6min min read
  • Industrialization
  • Manufacturing industries

ndustrialisation is arguably the only historically proven path to sustainable economic growth and development — no country in the world has developed or can develop without producing light manufacturing, at the minimum. Its historical role as a driver of long-term growth is attributable to the inherently higher productivity and employment intensity of manufacturing activities relative to other sectors, including traditional agriculture, tradable services and the production of non-tradable goods and services. 

Moreover, only a handful of countries have emerged out of poverty without having employed a significant proportion of the labour force in the manufacturing sector. Thus, the manufacturing sector is widely viewed as the industry to propel Africa’s development. 

The recent decline in oil and other commodity prices and the lowest growth rate experienced in sub-Saharan Africa in over two decades has re-ignited the debate on whether the sub-region can sustain the high GDP growth rates of the 2000s. The African Think Tank Summit, held in Abidjan, Côte d’Ivoire in April this year, for instance, made industrialisation in Africa central to its theme. The topic is likely to remain at the top of the agenda for policy makers in the sub-region as countries look to forge their path to economic development and address unemployment, poverty and socio-economic transformation.

"Economic growth in Africa, which exceeded that of developed countries over the last decade due to the commodities super cycle, has stalled."

Unlike other sectors, manufacturing is characterised by faster productivity growth in that it is associated with technology that spurs innovation, and which can be imitated across countries. Manufacturing is also more capital-intensive and therefore provides an avenue for capital accumulation which is an essential source of economic growth. Technology and skills spillover effects are therefore, greater in manufacturing, making the sector a driver of technological progress and human capital accumulation, and hence productivity growth. 

Economist Angus Deaton notes the following in his article in the Journal of Economic Perspectives:

“Over the long term, the real prices of primary commodities produced by African countries either have been without trend or have trended gently down. There are good reasons…to expect this behavior to continue. Rising commodity prices will not solve Africa’s poverty; rather, only an end to tropical poverty will bring increases in commodity prices. Commodity price booms are only partly understood, and good short-term forecasts are typically not available either to African policymakers or to other market participants who might choose to bear some of the commodity price risk…”

There are two things that emanate from this quote by Deaton:

1. More accurate and reliable forecasts for commodity prices are needed in the sub-region, but even where such forecasts are available, policy makers cannot and should not rely on natural resources and primary commodities for export earnings or as the core of economic growth strategy.

2. Poverty alleviation and inclusive growth cannot be attained through commodity and natural resource-driven growth.

As anecdotal evidence for these observations, economic growth in Africa, which exceeded that of developed countries over the last decade due to the commodities super cycle, has stalled. A negative real GDP growth was also recorded for sub-Saharan Africa in 2016, and investment growth, which was at 8% in 2010, has dropped sharply and was near-zero in 2015. It is therefore imperative to devise a strategy to boost investment and growth if the World Bank’s twin objectives of poverty reduction and shared prosperity are to be realised in sub-Saharan Africa.

It was with these thoughts in mind that Albert Zeufack, chief economist of the Africa Region at the World Bank, recently issued the following clarion call to policy makers and colleagues across the continent who have the wheels to the region’s economies in their hands.

1. There should be an aggressive pursuit of policies to attract and nurture private investments in infrastructure, manufacturing and high value services with the expectation that it would drive productivity and economic growth;

2. Reform the regulatory framework to ensure contestability of markets thereby providing an enabling environment for private firms to compete and raise the quality of output;

3. There is the need to fix utility services; eliminate waste and inefficiency in operations to make these enterprises profitable; 

4. Invest in skills and technology to minimise the distance to the technological frontier; and 

5. Mobilise more revenues domestically, especially from land and real estate, to deliver quality public services.

 These action items underscore two main ideas:

1. Creating an environment that is supportive to both local and foreign businesses; and

2. Pursuing policies that foster structural transformation, releasing resources to the manufacturing and services sectors while raising productivity in the agricultural sector.

In essence, this was a call for state and non-state actors to take necessary steps towards industrialisation in Africa. 

Notably, nearly all manufacturing goods are now produced and traded along global value chains, with different stages of production from innovation to delivery now occurring across countries. In fact, the argument has been advanced that this fragmentation of the manufacturing process has made it easier for developing countries to industrialise, and sub-Saharan African countries should seize this opportunity.

It terms of industrial policy, agribusiness and agro-processing should be emphasised as foundational to industrialisation in the sub-region. Leveraging the region’s relatively cheap labour, as well as its natural resources, particularly metals and minerals, as a path of entry into global value chains should make industrialisation of Africa viable. 

It is worth a mention that as the region embarks on this transformative agenda and seeks to make further progress towards industrialisation, it faces significant challenges that differ across countries. These include, in general, lack of reliable power supply, a shortage of domestic suppliers, high costs of importing and exporting goods, limited access to appropriate technology and capital goods, credit constraints and deficient industrial infrastructure. Yet, at the same time, these represent investment opportunities that the private sector can exploit, in partnership with governments, to provide an enabling environment and policy incentives in support of the agenda on industrialisation. 

(Main image: Getty/ Bloomberg)

The opinions expressed in this article are those of the author(s) and do not necessarily reflect the views of SAIIA or CIGI.