Industrial Innovation: the next frontier for African progress

The digital revolution in Africa is not just about mobile phones and internet access. It can be an incredibly powerful tool to make African manufacturing more efficient and better connected to global markets. In an age of disruption due to COVID-19, it will be even more critical for African industries to adapt, evolve, and innovate.

Industrial innovations are driven by policies that help manufacturers and processors harness advancements in technology to improve industrial performance. In Africa, strong industrial innovation ecosystems, if developed, hold immense opportunity. For example, they could counter the disruption of global value chains caused by the COVID-19 pandemic, improve regional markets and foster trade, and develop a more sustainable industrial sector. But to date, the industrial policies in most African countries have hindered innovation development and not kept pace with global trends.

According to ACET’s African Transformation Index, Sub-Saharan Africa’s share of manufactured value added to total GDP between 1970 and 2010 remained at 10%, while the same share grew from 19% to 22% in a group of comparator countries in Latin America and Asia. Gaps in technology adoption are even wider. In 1970, the share of high- and medium-technology manufactured products of the total manufactured output was 15% in Sub-Saharan Africa, and 33% in comparator countries. Thirty-five years later in 2005, Africa remained at 15%, while the share went up significantly to an average 58% in the comparator countries.

Recent trends are equally worrying. Forthcoming research from ACET shows that technological upgrading in African economies has slowed every year since 2013 and has been on a slowing trajectory since 2003. Diversification has also decreased annually since 2013, and overall since 2009. It is clear that production and manufacturing are headed in the wrong direction.

This is not surprising, as ACET research shows that the private sector has made limited investments in innovation sectors, the digital economy, and Fourth Industrial Revolution technologies. African governments are also doing relatively little to promote smart and incentivizing industrial innovation policies, even as industrial policy is seeing a global resurgence.

The United States recently announced a new industrial policy, and many countries are making efforts to create vaccine and medical manufacturing and supply chains, and governments are developing policies that seek to counter global shortages of products such as semiconductors. The US National Science Foundation has an annual budget of more than $8 billion to support research and industrial innovations, and Germany is also a global leader in industrial innovation, with more than 1,000 institutions for science, research, and development.

African governments are unlikely to create such robust institutional structures due to budgetary constraints and the urgent need to focus on the COVID-19 response. However, they can take steps that will pay dividends in the future. There are already some bright spots – the Support Program for Industrial Innovation in South Africa is a leader in the global South, while in Tunisia, the Agency for the Promotion of Industry and Innovation offers good lessons for other countries. Taking industrial development to the next level requires bringing in the private sector to help create industrial innovation policies that drive economic transformation.

To help determine the right mix of industrial policies, ACET recently completed an industrial innovation landscape analysis across seven countries, including a deep dive of the industrial innovation agenda in Ghana. The analysis looked at policies that transform discoveries into innovative commercial technologies with societal benefits, and determined ten policy actions to support industrial innovation in Africa:

1. Provide forums and venues for the private sector, technical colleges and universities, and research and development institutions to work collaboratively and spur additional industrial innovation.
2. Increase spending and promote collaboration across government departments and agencies responsible for industrial innovation policy and support.
3. Invest more in capacity and skills building through STEM engagement.
4. Tap into higher segments of the value chain by engaging in sectors that are growing or have the potential to grow.
5. Support firms to become competitive among other lower middle-income countries where industrial innovation agendas are gaining prominence.
6. Improve access to finance and technical assistance for SMEs in the informal sector, and help them benefit from the innovation being made in larger or related industries by linking them to larger value chains.
7. Support tech hubs and innovation centers and avoid disincentivizing policies.
8. Move from technology transfers to technological learning and innovation capability building.
9. Develop robust, yet realistic, industrial innovation strategies that benefit from extensive input from the private sector.
10. See the role of the government as a facilitator for industrial innovation.

As part of ACET’s Innovation and Digital programs, we plan to undertake additional country case studies, prepare policy briefs, and advocate for the industrial innovation agenda. Success will require the international community, the private sector, governments, and research institutions to join the industrial innovation policy bandwagon.