Trade and industrialization in Africa: two peas in a pod?

By George Boateng

 

Will there ever be the ‘African Tigers’? A question begging answers. A look at the manufacturing sector’s total contribution to African economies is telling. Since 1980, the sector has grown more slowly than African economies overall. In 2014, Africa’s average share of manufacturing value added in gross domestic product (GDP) was 9.8%, 3 percentage points less than the 12.8% of 1990. The manufacturing sector in Africa wanes each passing year. Just over 6 percent of jobs in Africa are in the manufacturing sector. To reverse this trend, trade has a critical role to play.

There are ongoing negotiations between the African Union and its members to achieve a Continental Free Trade Area (CFTA) by the close of 2017 – an ambitious target to say the least. But the final CFTA agreement aims to commit member states to a radical liberalization agenda by creating a single continental market for goods and services – industrialization being central to this decree. This will be crucial for boosting intra-African trade, which accounts for just 18 per cent of total African trade, compared to 60 per cent with the European Union. Also, Industrial policies are unaligned with trade policies in most African countries and infrastructure, both soft and hard, is inadequate. Fresh thinking is needed on how to achieve Africa’s industrialization objectives.

Industrial policy is now the toast of academics. It has found renewed indulgence among economists, and rightly so. In the words of Joseph Eugene Stiglitz, “Good industrial policy incorporates risk-taking, and risk-taking means that there will be successes and failures. No oil exploration company would judge its performance by pointing out that it drilled some dry wells – the successes must offset the failures.” Obviously, he is in the school of thought that is optimistic about Africa’s quest for an Industrial Revolution. But a cogent industrial policy will be needed.

Trade patterns have changed too. Instead of producing finished products in one country, African industries must slot into global supply chains that employ scale economies. But this can only be done by providing adequate infrastructure and a supportive policy environment. By adequate infrastructure, I mean the provision of passable physical (roadways, railways, air and water transportation), energy (electricity and fuel), and telecommunications (telephonic and internet) structures. A smart trade policy should have an eye on how to enable global supply chain development. This will offer significant and underutilized tools for African countries to achieve their industrialization objectives.

At the center of trade policy and industrialization ought to be manufacturing. Surely manufacturing comes in different shades but the production of diversified goods will be vital. African countries should improve the effectiveness of export processing zones (EPZs) to enhance their competitiveness and further diversify their exports. Also, manufacturing will be critical to improve Africa’s balance of payments and Africa needs to increase its share of manufacturing in total global exports. This will mean manufacturing of goods towards an export-led regime.

Inasmuch as I advocate for free trade, there is not a single country that attained its Industrial Revolution without a semblance of protectionism. But some might argue that there is no need to copy as circumstances in the past may not be the same now. But the eighteenth-century US President Ulysses Grant once asserted that the United States will continue to protect its industries until such time that it can adopt free trade. Africa must look to a protective trade policy that shields indigenous infant industries at any trade negotiation.

The role of the state cannot be overlooked in the drive for industrialization. Arkebe Oqubay in his recently published book ‘Made in Africa: Industrial policy in Ethiopia’, couldn’t have put it any better. He reiterates that a bold state-led development model with a long-term vision for structural transformation, a highly committed political leadership, and effective transformative institutions will be the key drivers of the industrialization process. There is nothing wrong in learning by doing or copying from early or late industrial developers. However, the mistakes from learning or copying shouldn’t be a deterrent. African countries can also learn from their peers. The economic rise of Ethiopia is most commendable. In just over a decade and a half, Ethiopia has achieved double-digit economic growth. From agribusiness, cement, leather, beer and wine production to floriculture, its manufacturing sector is fast achieving diversification, alongside great infrastructure and industrial parks.

The icing on the cake will be a prudent approach that encourages continental and regional trade policy alignment towards making industrialization a top priority. This will enable Africa to compete with the best of them. I am optimistic about Africa’s industrial revolution. Like the United States in the early 20th century, it’s time for Africa to play catch-up. Let’s leave the cynics behind.

 

George Boateng is Research Analyst at the African Center for Economic Transformation. 

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