A regional value chain approach, one stop border posts and harmonized trade guidelines were export policies key to spurring industrialisation, participants at the recently concluded second African Transformation Forum (ATF2018) agreed. The Forum was held on 20-21 June in Accra, Ghana.
Mounting an export push was one of three areas endorsed by members of the Light Manufacturing Chapter of the Pan-African Coalition for Transformation (PACT), which for the past two years, has been exploring issues critical to moving the sector forward. The other two areas agreed were getting the basics right in industrialisation, and deepening coherence and coordination.
The Chapter was formed following the inaugural ATF, held in Kigali in March 2016, where PACT was launched. PACT is a network of like-minded countries, organizations, and companies that come together to share valuable knowledge and harness successful initiatives, policies, and reforms to speed up the implementation of transformation strategies.
Light Manufacturing is one of five PACT chapters. The others are Resource Mobilization and Management, Agriculture, Extractives, and Youth Employment and Skills. Since ATF2016, the PACT chapters have conducted research, convened to share ideas and advocated with policy makers on various issues.
The Light Manufacturing Chapter in particular has convened representatives of nine African countries from both the public and the private sectors, and produced several studies exploring the impediments to the expansion of manufacturing as one of the pathways to transforming African economies. The nine countries are Burkina Faso, Côte d’Ivoire, Ethiopia, Ghana, Kenya, Nigeria, Senegal and Uganda.
Through a series of studies and events hosted in partnership between the African Center for Economic Transformation (ACET) and the Overseas Development Institute (ODI) and culminating at ATF2018, the various members of the Manufacturing Chapter agreed to sharpen their focus on the three areas validated at ATF2018. The three areas are described in turn below.
Getting the basics right
In order to increase the productivity of firms and attract new investment, countries must address the basics. Poor infrastructure (energy, roads, ports, water, rail, etc.) and a widening skills gap are some of the biggest constraints to manufacturing in Africa.
On the problem of reliable infrastructure, one of many examples that was highlighted during the light manufacturing chapter session at ATF2018 was how Ethiopia’s heavy investment in renewable energy has resulted in the lowest energy cost per kilowatt hour on the continent, which translates directly into lower manufacturing costs.
Conversely, a South African policy maker highlighted how the skyrocketing cost of electricity, coupled with instability, has reduced the competitiveness of the manufacturing sector.
And on the skills side, in Nigeria the manufacturers association has partnered with both government and private sector to upgrade the curriculum and support vocational schools that respond directly to the needs of industry. Also, given the changes that digitization and mechanization are having on manufacturing generally and employment in particular, African countries must not take for granted the need to aggressively re-skill their labour force – and most importantly the youth who represent both an opportunity and a risk.
Mounting an export push
Exports to regional and global markets will spur growth in manufacturing, agro-industry and in tradeable services, however individual firms face high barriers to entry. The discussions at ATF2018 on this aspect revolved around the need to bolster regional markets to take advantage of economies of scale.
Some of this scaling could be achieved through specialization to increase capacity and standards, and where possible implement supportive policy incentives. More importantly, there was consensus that African countries need to develop a regional value chain approach, and backward integration, so that intra-African trade accounts for more than the estimated one third of trade it currently represents.
As an example of how policies to promote intra-African export can have direct positive impact, participants discussed how the cost of transporting a container of goods from Mombasa to Kigali had dropped from US$ 4,000 to US$ 2,000 simply by having one-stop border posts and harmonizing trade guidelines. It should come as no surprise then that Rwanda ranks second in Africa on Ease of Doing Business.
The chapter will therefore focus on how manufacturing exports can spur intra-African trade, and how specialization as a means of driving scale can be promoted to increase competitiveness in regional and global markets.
Coherence and coordination
There are no guarantees that a country’s manufacturing sector will not only develop but also thrive over time. As such, countries must be deliberate, focused and committed to this sector and demonstrate this by developing coherent strategies to promote the sector.
It is often the case that there is far too little inter-government, intra-government, government-to-private sector, etc., coordination when it comes to manufacturing – especially as it relates to collaboration to increase productive capacity.
This serves to lose out on opportunities and synergies that might have been created; and results in mistakes and inefficiencies that cost money, time, goodwill and other resources.
The PACT platform seeks to bridge the gap between policy design and implementation as well as draw on best practice through multi-stakeholder consultation to ensure the initiatives undertaken are transformational and fit for purpose.
In the light of the consensus that was formed during ATF2018 on moving forward with the three areas outlined above, ACET and ODI will now work together to identify actionable next steps that can be taken forward through PACT. Interested parties are encouraged to join the Chapter by contacting ACET at email@example.com.
Buddy Buruku was formerly ACET Country Program Manager.