A partnership with academia

Building knowledge for trade and development

Vi Digital Library - Text Preview

Economic Development In Africa Report 2011: Fostering industrial development in Africa in the new global environment

Report by UNCTAD, 2011

Download original document

The Report provides an overview of the stages, performance and lessons learned from previous attempts at promoting industrial development in Africa, and disusses key elements for a new industrial policy for Africa. The report also sets out a framework for the diagnosis of the current situation and the design of a a strategy tailored to the needs of each country and calibrated with the new global environment.

U n i t e d n at i o n s C o n f e r e n C e
o n t r a d e a n d d e v e l o p m e n t


U
N


C
TA


D
/A


LD
C


/A
FR


IC
A


/2
01


1


U n i t e d n at i o n s i n d U s t r i a l
development organizat ion


ECONOMIC
DEVELOPMENT IN


REPORT 2011


UN
CTA


D


UN
ID


O


AFRICA
Fostering industrial
development in aFrica in the
new global environment


T
here is mounting evidence
ind icat ing that indust r ia l
development presents great
opportunities for sustained
growth, employment and
poverty reduction. Conse-


quently, over the past decade, African
governments have renewed their political
commitment to industrialization and have
adopted several initiatives at the national
and regional levels to enhance prospects
of achieving their development objectives.
The Economic Development in Africa
Report 2011 examines the status of
industrial development in Africa with a
focus on the identification of “stylized facts”
associated with African manufacturing. It
also provides an analysis of past attempts
at promoting industrial development
in the region and the lessons learned
from these experiences. Furthermore, it
offers policy recommendations on how
to foster industrial development in Africa
in the new global environment, which is
characterized by changing international
t rade ru les, growing inf luence of
industrial powers from the South, the
internationalization of production, and
increasing concerns about climate change.


T h e R e p o r t a r g u e s t h a t a n e w
industrial policy is needed to induce
structural transformation and engender
development in African economies. It
advocates a strategic approach to
industrial policymaking which is based
on an industrial diagnosis, and proposes
a framework for industrial strategy design
which takes account of the heterogeneity
of African economies and is also tailored
to country-specif ic circumstances.
Furthermore, the Report suggests that
efforts to promote industrial development
in Africa should focus on (a) the promotion
of scientific and technological innovation;
(b) the creation of l inkages in the
domestic economy; (c) the promotion of
entrepreneurship; (d) the improvement of
government capabilities; (e) adoption of
appropriate monetary and fiscal policies;
(f) avoiding exchange rate overvaluation;
(g) enhancing resource mobilization; (h)
strengthening regional integration; and (i)
maintenance of political stability.


www.unctad.org/Africa/series


SPECIAL ISSUE


Econom
ic D


evelopm
ent in A


frica R
eport 2


0
1


1
UNITED NATIONS


EMBARGO
The contents of this Report must not be


quoted or summarized in the print,
broadcast or electronic media before


11 July 2011, 17:00 hours GMT




SPECIAL ISSUE


New York and Geneva, 2011


U n i t e d n at i o n s C o n f e r e n C e
o n t r a d e a n d d e v e l o p m e n t


U n i t e d n at i o n s i n d U s t r i a l
development organizat ion


ECONOMIC
DEVELOPMENT IN


REPORT 2011 Fostering industrial
development in aFrica in the
new global environment




ii economic development in africa report 2011


Copyright © United Nations, 2011
All rights reserved.


UNCTAD/ALDC/AFRICA/2011


UNITED NATIONS PUBLICATION
Sales No. E.11.II.D.14


ISBN 978-92-1-112825-3
ISSN 1990–5114


note


Symbols of United Nations documents are composed of capital letters combined
with figures. Mention of such a symbol indicates a reference to a United Nations
document.


The designations employed and the presentation of the material in this publication
do not imply the expression of any opinion whatsoever on the part of the Secretariat
of the United Nations concerning the legal status of any country, territory, city or area,
or of its authorities, or concerning the delimitation of its frontiers or boundaries.


Material in this publication may be freely quoted or reprinted, but acknowledgement
is requested, together with a reference to the document number. A copy of the
publication containing the quotation or reprint should be sent to the UNCTAD
secretariat.




iiiAcknowledgements


Acknowledgements


The Economic Development in Africa Report 2011 is the product of joint work
between UnctAd and UnIdo. It was prepared by a research team consisting
of norbert lebale (team leader), Patrick osakwe (UnctAd), Bineswaree Bolaky
(UnctAd), milasoa chérel-Robson (UnctAd) and Philipp neuerburg (UnIdo).


the work was completed under the overall supervision of charles gore, Head,
Research and Policy Analysis Branch (UnctAd); ludovico Alcorta, director,
development Policy and strategic Research Branch, Regional strategy and Field
operations division (UnIdo); and Jo elizabeth Butler, deputy-director and officer-
in-charge, division for Africa, least developed countries and special Programmes
(Aldc). the report benefited from the comments of the following, who participated
in a peer review discussion of a draft of the report: olusanya Ajakaiye, director of
Research, African economic Research consortium, nairobi, kenya; Helmut Asche,
University of leipzig, germany; michele di maio, department of economic studies,
University of naples, Italy; erika kraemer-mbula, Institute for economic Research
and Innovation (IeRI), Pretoria, south Africa; Zeljka kozul-wright (UnctAd); detlef
kotte (UnctAd); and Alfredo saad Filho (UnctAd).


statistical assistance was provided by Agnès collardeau-Angleys (UnctAd), and
gorazd Rezonja (UnIdo). Heather wicks and stephanie west provided secretarial
support. the cover was prepared by sophie combette based on a design by
Hadrien gliozzo. lucy deleze-Black and michael gibson edited the text.


the overall layout, graphics and desktop publishing were done by madasamyraja
Rajalingam.






vCoNTeNTS


contents


explanatory notes ............................................................................................ vii
Abbreviations................................................................................................. . viii


chapter i: introduction .........................................................................................1


chapter 2: promoting industrial development in aFrica:
stages, perFormance and lessons learned ...............9


A. Stages of industrial development in Africa .................................................. 10
B. The performance and characteristics of African manufacturing ................... 14
C. lessons learned ......................................................................................... 26


chapter 3: towards a new industrial policy in aFrica:
industrial diagnosis and strategy design ...............33


A. Introduction ................................................................................................ 34
B. The question of strategic choice and selectivity in facilitating


structural change ....................................................................................... 36
C. A framework for industrial strategy design .................................................. 39
D. Applying the framework: a typology of African countries’ industrial


performance .............................................................................................. 43
e. Applying the framework: linking countries with different strategic choices ... 54
F. Steps in the industrial strategy design process ............................................ 56


chapter 4: towards a new industrial policy in aFrica:
the why and the how oF policy-making .......................59


A. The rationale for industrial policy ................................................................. 60
B. key principles of new industrial policy......................................................... 64
C. The areas and instruments of new industrial policy ..................................... 67
D. Institutional and governance issues ............................................................ 71
e. The importance of complementary policies ................................................. 71
F. Financing industrial development: where will the resources for


industrialization come from? ....................................................................... 74
g. The role of regional integration ................................................................... 79


chapter 5: towards a new industrial policy in aFrica:
taking account oF the new global
environment .....................................................................................85


A. International trade rules .............................................................................. 86




vi economic development in africa report 2011


B. Rising industrial powers from the South ..................................................... 92
C. Climate change .......................................................................................... 95
D. global value chains .................................................................................... 98
e. Summary ................................................................................................. 101


chapter 6: Fostering industrial development in aFrica:
main Findings and recommendations ....................... 103


A. Main findings ............................................................................................ 105
B. Policy recommendations .......................................................................... 106
C. Conclusion ............................................................................................... 110


notes ................................................................................................................112


reFerences ...................................................................................................115


bOxEs


1. Floriculture in ethiopia: An African success story......................................... 63
2. The west African Common Industrial Policy ................................................ 80


TabLEs


1. Contribution of industry to gDP 1970-2008 ................................................ 15
2. African manufacturing by sectors and technological classification


2000-2009 ................................................................................................. 19
3. Structure of African manufacturing exports: top 10 export products by


technology category .................................................................................. 20
4. Manufacturing performance of African countries ......................................... 27
5. Industrial structure of selected African countries 2009 ................................ 49
6. Cost of infrastructure services in Africa ....................................................... 73


fIguREs


1. Structural transformation of Africa’s economy vis-à-vis other developing
regions ....................................................................................................... 16


2. Structural transformation of Africa’s exports vis-à-vis other
developing regions ..................................................................................... 16


3. Importance of low technology manufacturing exports and trade balance .... 21
4. A strategic approach to industrial policy making in Africa ............................ 35




viiCoNTeNTS


5. Framework for the comparative assessment of the relative attractiveness
and strategic feasibility of manufacturing activities for African countries ...... 41


6. Illustration of the relative attractiveness and feasibility of unused potentials
in various manufacturing industries ............................................................ 43


7. Typology of African countries based on industrial performance ................... 45
8. An overview of African countries’ industrialization level and growth


performance .............................................................................................. 46
9. African countries’ industrial performance .................................................... 47
10. gDP per capita in Africa and the BRIC countries ...................................... 83


explanatory notes


The $ sign refers to the United States dollar.


Sub-Saharan Africa: except where otherwise stated, this includes South
Africa.


North Africa: In this publication, Sudan is classified as part of sub-Saharan
Africa, not North Africa.




viii economic development in africa report 2011


abbreviations


AFC African Finance Corporation
AfDB African Development Bank
AID Africa Industrialization Day
AIDA accelerated industrial development of Africa
BRIC Brazil, Russian Federation, India and China
CAMI Conference of African Ministers of Industry
CCS carbon capture and storage
CDM Clean Development Mechanism
DAC Development Assistance Committee
DBSA Development Bank of Southern Africa
DeSA Department of economic and Social Affairs
eBA everything But Arms
eCowAS economic Community of west African States
eITI extractive Industries Transparency Initiative
ePA economic partnership agreement
ePZ export processing zone
eU european Union
FDI foreign direct investment
gATT general Agreement on Tariffs and Trade
gDP gross domestic product
gHg greenhouse gases
gSP generalized System of Preferences
gVCs global value chains
HIPC heavily indebted poor countries
IMF International Monetary Fund
IPAP Industrial Policy Action Plan
IPR intellectual property protection regime
ISI import substitution industrialization
lDCs least developed countries
lT low technology
MDg Millennium Development goals
MFN most favoured nation
MHT medium and high technology
MVA manufacturing value added
NAMA non-agricultural market access
NCPC national cleaner production centers




ix


NePAD New Partnership for Africa’s Development
NIC newly industrialized country
NIPF national industrial policy framework
oDA official development assistance
oeCD organization for economic Cooperation and Development
PoSCo Pohang Iron and Steel Company
PRSP poverty reduction strategy papers
RB Resource-based
SAP structural adjustment programme
SCM subsidies and countervailing measures
SeZ special economic zone
SMe small and medium-sized enterprise
TRIMs Trade-related Investment Measures
TRIPs Trade-related Aspects of Intellectual Property Rights
UNeCA United Nations economic Commission for Africa
UNeP United Nations environment Programme
UNFCCC United Nations Framework Convention on Climate Change
UNIDo United Nations Industrial Development organization
wACIP west African Common Industrial Policy
wTo world Trade organization


ABBReVIATIoNS




introduction




1CHaPTER
introduction




2 economic development in africa report 2011


the political commitment to
industrialization in aFrica


After gaining political independence, which occurred mainly in the 1960s,
most African countries started to promote industrialization. The emphasis on
industrialization was based on the political conviction by African leaders that it was
necessary to ensure self-reliance and reduce dependence on advanced countries.
Furthermore, there was the expectation that industrialization would hasten the
transformation of African countries from agricultural to modern economies,
create employment opportunities, raise incomes as well as living standards,
and reduce vulnerability to terms of trade shocks resulting from dependence on
primary commodity exports. But during the 1970s, with successive oil shocks
and an emerging debt problem, it started to become clear that import substitution
industrialization was not sustainable. with the introduction of structural adjustment
programmes in the 1980s, African countries curtailed specific policy efforts
to promote industrialization and focused on removing anti-export biases and
furthering specialization according to comparative advantage. It was expected that
competitive pressures would revitalize economic activity by leading to the survival
of the fittest. But whilst these policies were certainly intended to have structural
effects, the conventional view is that they did not boost industrialization in the
region (Soludo, ogbu and Chang 2004).


In recent years, African countries have demonstrated renewed commitment to
industrialization as part of a broader agenda to diversify their economies, build
resilience to shocks, and develop productive capacity for high and sustained
economic growth, the creation of employment opportunities and substantial poverty
reduction. For instance, in January 2007, the South African government adopted
the National Industrial Policy Framework (NIPF) aimed at diversifying the production
and export structure, promoting labour-absorbing industrialization, moving towards
a knowledge economy, and contributing to the industrial development of the
region. It has also unveiled Industrial Policy Action Plans (IPAP) to implement the
framework. The first IPAP was adopted by the National Cabinet in August 2007 and
was for the period 2007/08 while the second IPAP was adopted in February 2009
and covers the period 2010/11 to 2012/13. other countries in the region have also
taken steps recently to build a modern, competitive, and dynamic industrial sector.
For example, industrialization is a component of recent national development
programmes unveiled by egypt, ethiopia, kenya, Namibia, Nigeria and Uganda
(Altenburg, 2011).




3


The commitment of African countries to industrialization is also evident at the
regional level. The New Partnership for Africa’s Development (NePAD) adopted by
African leaders in 2001 identified economic transformation through industrialization
as a critical vehicle for growth and poverty reduction in the region. Furthermore, in
February 2008, African Heads of State adopted a Plan of Action for the Accelerated
Industrial Development of Africa (AIDA). Implementation strategies for the Plan
were subsequently endorsed by African Ministers at the 2008 Conference of
African Ministers of Industry (CAMI).1 At the 2011 CAMI organized by the African
Union, the United Nations Industrial Development organization (UNIDo) and the
government of Algeria, participants deliberated on the effective implementation
of AIDA and how to achieve sustainable industrial development in Africa. The new
commitments build on past regional initiatives such as the lagos Plan of Action
(1980), the Abuja Treaty establishing the African economic Community (adopted
in 1991), and the Alliance for Africa’s Industrialization (1996), which also stressed
the need for diversification and economic transformation as a critical vehicle for
achieving African self-reliance.


At the global level, there is also interest in drawing attention to issues and
challenges of industrial development in Africa as evidenced by the fact that at the 85th
plenary meeting of the United Nations general Assembly held in December 1989,
the international community adopted Resolution 44/237 proclaiming 20 November
as the Africa Industrialization Day (AID). The AID is an annual event coordinated
by UNIDo and the first celebration was held in 1990. The AID is used to mobilize
support and commitment of the international community to the industrialization
of Africa. It is also an occasion for African countries to review progress made in
industrial development and chart a way forward. The theme for the AID varies from
year to year. In 2010 the event was held under the theme Competitive Industries for
the Development of Africa.


the rationale For renewed commitment
to industrialization


The renewed commitment to promoting industrial development in Africa is
timely. African countries have been buffeted by three very serious and interrelated
external shocks, namely hikes in food prices, increases in energy prices and
the global financial and economic crisis triggered by events in the United States
housing market in the fall of 2007. The economic and social costs of the triple


cHAPTER 1. Introduction




4 economic development in africa report 2011


crises in Africa have been quite substantial. The growth rate of real output fell from
an annual average of 5.2 per cent over the period 2000–2006 to 2.6 per cent in
2009. Similarly, the growth rate of real output per capita fell from 2.7 per cent to
0.3 per cent over the same period. The crises have also eroded recent gains made
by African countries in poverty reduction and reduced prospects of achieving the
Millennium Development goals (MDg) by the target date (osakwe 2010).


The triple crises have refocused attention on Africa’s high vulnerability to external
shocks and the need for policymakers to take urgent action to diversify their
production and export structure to build resilience to shocks. The region is currently
the least diversified in the world and, more importantly, has made relatively very
slow progress in this area in the last two decades. The export diversification index
for the region improved slightly from 0.61 in 1995 to 0.58 in 2009.2 In developing
countries in Asia, it fell from 0.32 to 0.26 and for developing America it fell from
0.36 to 0.33.


Recent research suggests that economic development requires structural
change from low to high productivity activities and that the industrial sector is a
key engine of growth in the development process (lall, 2005; Rodrik, 2007; Hesse,
2008). Virtually all cases of high, rapid and sustained economic growth in modern
economic development have been associated with industrialization, particularly
growth in manufacturing production (Szirmai 2009). Commodity exports can lead
to high but not sustained economic growth.


The necessity of structural change also arises from the fact that Africa needs
high and sustained economic growth in order to make significant progress in
reducing poverty. one of the major challenges which African countries currently
face is to generate productive jobs and livelihoods for the 7–10 million young
people entering the labour force each year. This is difficult to achieve simply through
commodity exports but rather requires a complementary process of agricultural
productivity growth and development of non-agricultural employment opportunities
in both industry and services. If African countries are to achieve substantial poverty
reduction and also the Millennium Development goals (MDgs), they have to go
through a process of structural transformation involving a decrease in the share of
agriculture and an increase in the share of industry and modern services in output,
with a shift between and within sectors from lower productivity to higher productivity
activities.




5


the strategic importance oF manuFacturing


The industrial sector is, in general, defined as being composed of manufacturing,
mining and construction. However, there is a large literature that suggests that
the manufacturing sector is the component of industry that presents greater
opportunities for sustained growth, employment and poverty reduction in Africa.


The United Nations Department of economic and Social Affairs (DeSA) defines
manufacturing as the physical or chemical transformation of materials, substances
or components into new products. The materials, substances or components
transformed are raw materials that are products of agriculture, forestry, fishing,
mining or quarrying or products of other manufacturing activities. Substantial
alteration, renovation or reconstruction of goods is generally considered to be
manufacturing.


The strategic role of manufacturing in the development process can be ascribed
to a variety of factors. The first is that technology and innovation are crucial for
economic development and manufacturing has historically been the main source of
innovation in modern economies (lall, 2005; gault and Zhang, 2010). The research
and development activities of manufacturing firms have been the key source of
technological advances in the world economy (Shen, Dunn and Shen, 2007).
Furthermore, manufacturing is a major conduit for diffusion of new technologies to
other sectors of the economy.


Another advantage of manufacturing relative to other sectors is that there are
very strong linkage and spill-over effects associated with manufacturing activities.
For example, it is well known that manufacturing is a critical source of demand for
other sectors. In particular, manufacturing firms are important consumers of banking,
transport, insurance and communication services. Furthermore, manufacturing
provides demand stimulus for growth of the agricultural sector. Consequently,
manufacturing has high forward and backward linkages, thereby contributing to
domestic investment, employment and output in the development process.


Manufacturing is also attractive because, following engel’s law, the share of
agriculture in total household expenditure falls as per capita income rises while the
share of manufactures increases. This implies that manufactures offer significant
opportunities for export market expansion and therefore is a key driver of growth
in merchandise trade. Interestingly, countries that have derived significant benefits
from the tremendous increase in merchandise trade over the past three decades


cHAPTER 1. Introduction




6 economic development in africa report 2011


are those that have been able to increase their exports of dynamic products,
particularly manufactures, with high income elasticity of demand. Consequently,
what a country produces and exports matters (Hausmann, Hwang and Rodrik
2007).


Manufacturing also has a higher potential for employment creation relative
to agriculture and traditional services. In particular, the existence of diminishing
returns to scale in agriculture (due to fixed factors such as land) implies that the
opportunities for employment growth in the sector are limited. Consequently, as
a country’s population grows and urbanization takes place, there is the need for
growth in manufacturing employment to absorb labour displaced from agriculture.


Despite the critical role of manufacturing in the development process, it is
important that African policymakers do not seek to achieve industrial development at
the expense of the agricultural sector because the latter can contribute to industrial
development through, for example, the supply of wage goods that enhance the
competitiveness of domestic firms in global export markets. Rattso and Torvik
(2003) show that discrimination against the agriculture sector could lead to the
contraction of industry, through trade linkages. De Janvry and Sadoulet (2010)
stress the need for complementarity between agriculture and industry. They also
argue that agricultural development can contribute to the creation of competitive
advantage in industry. Furthermore, in the short-to-medium term, the agriculture
sector will continue to be an important source of foreign exchange required to import
intermediate inputs needed by domestic industries. It is also important to recognize
that the provision of producer services also matters for the competitiveness of
the manufacturing sector. In this context, the challenge for policymakers is how
to create mutually supportive linkages between the industrial and non-industrial
sectors of the economy.


the new global environment


The global environment for African industrialization is also changing in several
significant respects and efforts to promote industrialization in the twenty-first
century must also take account of this new environment. First, multilateral trade
rules as well as bilateral and regional trade agreements are shrinking the policy
space available for promoting industrial development in African countries that are
not classified as least Developed Countries (lDCs). For example, the rules of the
world Trade organization (wTo) prohibit the use of industrial policy instruments




7


such as quotas and local content requirements. The use of export subsidies have
also been banned, except for the lDCs (Chang, 2009; Rodrik, 2004). Furthermore,
as a result of the economic Partnership Agreements (ePAs), African countries are
under increasing pressure to abandon the use of tariffs as a measure of protection.
Consequently, African industrialization is taking place in an environment in which the
use of some industrial policy instruments applied by the developed and emerging
economies are either banned or regulated.


Second, the global environment in which manufacturing production takes place
has also changed in the sense that firms are increasingly facing stiff competition
in global export markets due to the reduction in tariff and non-tariff barriers to
trade in industrial products coupled with the significant decrease in transport costs
and improvements in information and communication technology. For African
countries, the new environment is challenging because of the rise and growing role
of large developing countries such as China, India and Brazil in labour-intensive
manufactures (kaplinsky, 2007). These new competitive pressures imply that an
effective response to competition is no longer just about selling products at lower
cost. It is also about producing better products and getting them to consumers in
a timely manner.


Third, increasing concerns over climate change are forcing firms to adopt or
switch to new technologies and methods of production. In particular, manufacturers
are under increasing pressure to adopt climate-friendly technologies and methods
of production. Consequently, if African industrialization is to be sustainable it cannot
rely on the old technologies and methods of production used by the developed
countries when they were at a similar stage of development.


the Focus and organization oF this report


Against this background, the 2011 Economic Development in Africa Report
focuses on the topic Fostering Industrial Development in Africa in the New Global
Environment. The Report provides an overview of the stages, performance and
lessons learned from previous attempts at promoting industrial development in
Africa (chapter 2). It then goes on to discuss key elements for a new industrial policy
for Africa. This must begin with a careful diagnosis of the current situation and
strategy design. A framework for this, as well as a typology of African countries, is
set out in chapter 3. Chapter 4 goes on to discuss the why and the how of industrial
policy, whilst chapter 5 indicates how the policy may be calibrated with the new


cHAPTER 1. Introduction




8 economic development in africa report 2011


global environment. The concluding chapter summarizes the major findings and
policy messages of the Report.


The Report is the product of joint work, and is jointly published by UNCTAD
and the United Nations Industrial Development organization (UNIDo). It builds
on the 2009 Economic Development in Africa Report on Strengthening Regional
Economic Integration for Africa’s Development and the 2010 Report on South-
South Cooperation: Africa and the New Forms of Development Partnerships. It
also builds on the 2009 UNIDo Industrial Development Report on Breaking in and
Moving up: New Industrial Challenges for the Bottom Billion and the Middle-income
Countries.


promoting industrial
development in aFrica:


stages, perFormance
and lessons learned




2CHaPTER
promoting industrial


development in aFrica:
stages, perFormance
and lessons learned




10 economic development in africa report 2011


This chapter presents a short overview of attempts to promote industrialization
in Africa and then discusses the past performance and current characteristics of
Africa’s manufacturing sector with a view to drawing lessons for the future.


a. stages oF industrial development in aFrica


while there are differences across countries in terms of the starting dates for the
industrialization programmes, it is evident that industrial development in Africa has
gone through three broad phases or stages since independence. The first phase
which began in the 1960s and ended in the late 1970s is the import substitution
industrialization (ISI) phase. The second phase, which represents the structural
adjustment programme (SAP) phase, began in the early 1980s and ended in the
late 1990s. The third phase, the poverty reduction strategy papers (PRSP) phase,
began in 2000.


The import substitution industrialization phase


The ISI phase of industrial development in Africa began after political
independence in the 1960s up until the late 1970s. As in other developing country
regions, ISI in Africa started with the domestic production of consumer goods that
were previously imported. The idea was that the domestic markets for these goods
already existed and could form the basis for initiating an industrialization programme.
while the initial focus was on consumer goods, there was the expectation that, as
the industrialization process proceeds, there will also be domestic production of
intermediate and capital goods needed by the domestic consumer goods industry.
There was also the expectation and hope that the replacement of imported goods
with domestically produced goods would, over time, enhance self-reliance and
help prevent balance-of-payments problems.


The implementation of ISI involved substantial government support as well as
protection of domestic firms from foreign competition. In particular, domestic infant
industries were identified and nurtured through trade protection and other domestic
economic policies. This was rationalized on the grounds that domestic firms have
the potential to be competitive but require a temporary period of protection before
they could withstand international competition.3 Although there are country-specific
differences in policies adopted, the implementation of ISI in Africa generally involved
the following elements: (a) restriction of imports to intermediate inputs and capital
goods required by domestic industries; (b) extensive use of tariff and non-tariff




11


barriers to trade; (c) currency overvaluation to facilitate the import of goods needed
by domestic industries; (d) subsidized interest rates to make domestic investment
attractive; (e) direct government ownership or participation in industry; and (f)
provision of direct loans to firms as well as access to foreign exchange for imported
inputs (Mkandawire and Soludo, 2003; wangwe and Semboja, 2003).


The share of manufacturing in African gross domestic product (gDP) rose
substantially between 1970 and 1980 (table 1). However, it became evident in
the late 1970s that industrial development through the ISI model could not be
sustained for a variety of reasons. First, very few of the domestic firms supported
actually became fully competitive in international markets (wangwe and Semboja,
2003). Second, ISI has a high foreign exchange requirement in the early phase
since it involves imports of intermediate inputs and capital goods needed by
domestic industries. However, the implementation of ISI in most African countries
did not lay emphasis on the generation of foreign exchange. Agriculture was also
neglected. In particular, the focus of ISI was more on setting up factories rather than
building the entrepreneurial capabilities that would foster industrial dynamism and
the development of competitive export sectors. In addition, the domestic economic
policies adopted during the period implicitly taxed agriculture and exports thereby
reducing foreign exchange earnings. Consequently, in the late 1970s, the scarcity
of foreign exchange became a serious constraint on industrial development in the
region. It should be noted, however, that while the implementation of ISI in Africa
generally had an anti-export bias, there is evidence suggesting that in countries
such as Mauritius and Zimbabwe, the protection of the domestic market allowed
firms to accumulate resources and invest in the development of capabilities needed
for exporting (wangwe, 1995; lall and wangwe, 1998).


The structural adjustment programmes phase


The SAP phase in Africa began in the early 1980s and ended in the late 1990s. In
particular, its origin could be traced back to the early 1980s, when African countries
experienced severe balance of payments crisis resulting from the cumulative effects
of the oil crisis, the decline in commodity prices, and the growing import needs
of domestic industries. In response to the crisis, many countries sought financial
assistance from the International Monetary Fund (IMF) and the world Bank. The IMF/
world Bank interpretation of the crisis and Africa’s industrial development problems
were that it had to do with poor domestic policies and so the recommendation
was that African countries adopt SAPs (Soludo, ogbu and Chang, 2004). This


cHAPTER 2. Promoting Industrial Development in Africa




12 economic development in africa report 2011


interpretation and policy prescription was based on the findings of the Berg Report
on Accelerated Development in Sub-Saharan Africa: An Agenda for Action published
by the world Bank in 1981. The report argued that Africa’s economic and industrial
performance was poor because of policy inadequacies in the form of overvalued
exchange rates, interest rate controls, overemphasis on industry at the expense
of agriculture, and trade protectionism. In addition, the report was of the view that
Africa’s comparative advantage lay in agriculture and not industry. Consequently, it
did not share the popular view among African policymakers that industry should be
promoted through deliberate government intervention.


African countries that adopted SAPs were expected to implement certain
policy reforms as a condition for receiving financial assistance from the IMF and the
world Bank. The policy conditions included among other things: (a) deregulation
of interest rates; (b) trade liberalization; (c) privatization of State–owned enterprises
(parastatals); (d) withdrawal of government subsidies; and (e) currency devaluation.
one of the key objectives of SAPs was to reduce the role of the State in the
industrialization and development process and give market forces more room in the
allocation of resources. The assumption was that markets are more efficient than
the State in resource allocation and that the appropriate role of the latter should be
to provide an enabling environment for the private sector to flourish.


Critics of SAP argue that it placed Africa on a low-growth path, undermined
economic diversification efforts, and led to an erosion of the industrial base in the
region (Sundaram and von Arnim, 2008; Mkandawire, 2005; Soludo, ogbu and
Chang, 2004; Stein, 1992). In particular, the focus on liberalization of markets
coupled with the phasing out of various forms of interventionist policies supporting
manufacturing drove many domestic firms out of business. This resulted in the
destruction of what remained of the local industry base despite the potential of
technological upgrading in some of the existing domestic firms (lall, 1995). In
Mozambique, for example, the reduction in the strategic role of the State during the
SAP period undermined attempts to promote industrial development. There is also
evidence that in ghana, Nigeria and Zambia, trade liberalization under SAP exposed
domestic firms to import competition and led to the closure of some manufacturing
firms (lall and Mwangwe, 1998).


To summarize, the expectation that SAP would make African firms more
competitive, trigger industrial development, and lay the foundation for sustained
economic growth has not been realized. As was the case with ISI, the adoption




13


of SAP did not lead to the attainment of the objective of structural transformation
and export diversification in Africa. Against this backdrop, in the late 1990s African
policymakers began to reappraise their development strategies with a view to
avoiding some of the mistakes made in the ISI and SAP phases.


The PRSP phase


By the second half of the 1990s, many African countries had accumulated
enormous foreign debt and the burden of debt service became an obstacle to
growth and development. In response to this challenge, in 1996 donors launched
the Heavily Indebted Poor Countries (HIPC) initiative designed to provide relief to
severely indebted countries. Dissatisfaction with the slow progress of the HIPC
initiative in reducing the debt of poor countries led to the adoption of the enhanced
HIPC initiative in 1999 (Booth, 2003). As a precondition for participation in the
enhanced HIPC initiative, potential recipients were required to prepare PRSPs
detailing how the resources made available through debt relief would be used
to reduce poverty in the recipient country. In particular, recipient countries were
encouraged to invest the resources from debt relief in the social sectors such as
health and education (particularly at the primary and secondary levels). Consequently,
since 2000, most African countries considered eligible for participation in the HIPC
programme have prepared PRSPs, giving priority to spending on health as well as
primary and secondary education. Therefore, the year 2000 marked the beginning
of another phase of policy design and implementation that had implications for
industrialization in the region.


while the PRSP differs from the ISI and SAP in the sense that it was specifically
designed as a debt relief programme, it is evident that it did have consequences
for industrial development in Africa because the first generation PRSPs led to a
shift of resources from the production to the social sectors. The second generation
PRSPs have tried to address the social sector bias problem associated with the
first generation PRSPs. However, interest in the productive sectors in second
generation PRSPs in Africa tends to be in agriculture and its related industries,
reflecting largely the widespread view that African countries have a comparative
advantage in these industries and that agriculture is an important source of pro-
poor growth. For an in-depth analysis of the implications of the PRSP for Africa’s
economic development see UNCTAD (2006).


cHAPTER 2. Promoting Industrial Development in Africa




14 economic development in africa report 2011


b. the perFormance and characteristics oF
aFrican manuFacturing


This section examines the past performance and current characteristics of
Africa’s manufacturing sector with a view to identifying some stylized facts on the
development of manufacturing in the region. It should be noted however that there
is a high degree of heterogeneity across African countries and so manufacturing
performance will vary across countries. The main stylized facts identified in the data
are as follows.


The contribution of manufacturing to GDP peaked in 1990 and fell
thereafter


The share of African manufacturing in gDP rose from a low of 6.3 per cent in
1970 to a peak of 15.3 per cent in 1990 (Table 1). Since then, there has been a
significant decline in the contribution of manufacturing to gDP. In particular, the
share of manufacturing in gDP fell from 15.3 per cent in 1990 to 12.8 per cent
in 2000 and 10.5 per cent in 2008. It is interesting to note that the decline in
the contribution of manufacturing to gDP since 1990 has been observed in all
subregions of the continent. In eastern Africa, the share of manufacturing in gDP
fell from 13.4 per cent in 1990 to 9.7 per cent in 2008. In west Africa it fell from 13.1
to 5 per cent over the same period. Furthermore, in Southern Africa, it fell from 22.9
to 18.2 per cent and in Northern Africa it fell from 13.4 to 10.7 per cent.


Africa still accounts for a very low share of global manufacturing


As indicated by the small bubble sizes in figures 1 and 2, Africa continues to
be marginalized in global manufacturing production and trade. The share of the
region in global manufacturing value added fell from 1.2 per cent in 2000 to 1.1
per cent in 2008. In developing Asia, it rose from 13 per cent to 25 per cent and
in developing countries in latin America it fell from 6 per cent to 5 per cent over
the same period. There has also been no significant change in the region’s share
of global manufacturing exports in recent years. In particular, while Africa’s share
of global manufacturing exports rose slightly from 1 per cent in 2000 to 1.3 per
cent in 2008, in low- and middle-income countries in east Asia and the Pacific
it rose from 9.5 per cent in 2000 to 16 per cent in 2008. Furthermore, in low-




15


Table 1.Contribution of industry to gDP, 1970–2008


% share of gDP 1970 1980 1990 2000 2005 2008


World Industry 36.9 38.1 33.3 29.1 28.8 30.1
Manufacturing 26.7 24.4 21.7 19.2 17.8 18.1
Mining & utilities 3.9 7.1 5.2 4.5 5.5 6.2


Developing
economies


Industry 27.3 41.1 36.8 36.3 38.9 40.2
Manufacturing 17.6 20.2 22.4 22.6 23.3 23.7
Mining & utilities 5.7 14.7 8.9 8.3 10.1 10.9


African developing
economies


Industry 13.1 35.6 35.2 35.5 38.8 40.7
Manufacturing 6.3 11.9 15.3 12.8 11.6 10.5
Mining & utilities 4.8 19.3 15.2 18.4 23.0 25.8


Eastern Africa Industry 3.1 7.8 20.6 18.6 20.6 20.3
Manufacturing 1.7 4.9 13.4 10.4 10.3 9.7
Mining & utilities 0.8 1.5 3.3 3.1 3.6 3.7


Middle Africa Industry 34.2 38.4 34.1 50.4 57.9 59.8
Manufacturing 10.3 11.8 11.2 8.2 7.3 6.4
Mining & utilities 19.1 21.2 18.9 39.3 47.9 50.5


Northern Africa Industry 34.2 50.0 37.4 37.8 45.0 46.0
Manufacturing 13.6 9.7 13.4 12.8 11.3 10.7
Mining & utilities 15.7 33.0 17.2 19.5 28.2 29.8


Southern Africa Industry 38.2 48.2 40.6 32.7 31.7 34.5
Manufacturing 22.0 20.9 22.9 18.4 17.9 18.2
Mining & utilities 12.0 24.0 14.3 11.7 11.2 13.1


Western Africa Industry 26.7 43.3 34.5 39.8 36.7 37.4
Manufacturing 13.3 16.8 13.1 7.8 6.0 5.0
Mining & utilities 7.7 21.3 18.8 29.3 27.7 29.6


Source: UNCTAD/UNIDO.


and middle-income countries in latin America it fell from 5 per cent to 4.5 per
cent over the same period. These facts suggest that African countries have not
taken full advantage of the opportunities offered by manufacturing for growth and
development. They also suggest that the region continues to be marginalized in
global manufacturing trade.


cHAPTER 2. Promoting Industrial Development in Africa




16 economic development in africa report 2011


figure 1. structural transformation of africa’s economy vis-à-vis other developing regions


Latin America
<developing>
2000


Latin America
<developing>


2008


Asia
<developing>


2000


Asia
<developing>


2008


Europe
<developing>


2008


Europe
<developing>


2000
Africa


<excl. South Africa>
2000


Africa
<excl. South Africa>


2008


Africa
2008


Africa
2000


10


20


30


40


50


60


0 5 10 15 20 25 30 35 40
Share of MVA in GDP --- Bubble size indicates regions share of world MVA


S
ha


re
o


f m
ed


iu
m


/h
ig


h
te


ch
no


lo
gy


M
V


A
in


to
ta


l M
V


A


Source: UNCTAD/UNIDO.


figure 2. structural transformation of africa’s exports vis-à-vis other developing regions


Africa 2000


Africa 2008


East Asia & Pacific 2008


East Asia & Pacific 2000


Latin America 2000


Latin America 2008


South Asia 2000


South Asia 2008


0


10


20


30


40


50


60


70


30 40 50 60 70 80 90 100


S
ha


re
o


f m
ed


iu
m


a
nd


h
ig


h
te


ch
no


lo
gy


e
xp


or
ts


in
to


ta
l m


an
uf


ac
tu


rin
g


ex
po


rts


Share of manufacturing exports in total exports 2000 and 2008;
Bubble size indicates regions share of world


manufacturing exports


Source: UNCTAD/UNIDO.




17


Manufacturing in Africa is small relative to other developing-country
regions and has been falling as a share of both GDP and exports


It makes sense to analyse the relative degree of structural transformation of
African economies from the domestic as well as the international perspective in
more detail. on the one hand, from the domestic production perspective (figure
1), two levels of transformation can be distinguished: (a) an increase in the relative
contribution of manufacturing to the whole economy as well as (b) an increase in the
relative contribution of more technology intensive manufacturing activities to total
manufacturing. on the other hand, it is also necessary to look into the structure
of African manufacturing exports, in order to understand the competitiveness of
African manufactures in global markets (figure 2). From this perspective, we can
also distinguish between two levels of transformation: (a) an increase in the relative
contribution of manufacturing exports to total exports as well as (b) an increase in
the relative contribution of more technology intensive manufacturing exports to total
manufacturing exports.


one of the important features of manufacturing in Africa today is that, relative to
other developing economies, the sector plays a very limited role in African economies
(figure 1). In particular, the share of manufacturing value added (MVA) in Africa’s
gDP is small relative to what is observed in other developing-country regions. In
2000, manufacturing accounted for 12.8 per cent of gDP in the region and in 2008
it accounted for 10.5 per cent. Unlike the situation in Africa, manufacturing seems
to play a more important role in economic activities in both developing Asia and
latin America. In Asia, the share of MVA in gDP rose from 22 per cent in 2000 to
35 per cent in 2008 while in latin America it fell from 17 per cent to 16 per cent
over the same period.


The slow pace of manufacturing development in Africa is also evident at the
international level. Manufacturing exports represent a relatively low percentage of
total African exports and, more importantly, the share has declined over the years
(figure 2). while the share of manufactures in Africa’s exports was 43 per cent in
2000, it fell to 39 per cent in 2008. The decline in the importance of manufacturing
in Africa’s exports can be explained in part by the growing trade between Africa
and non-African developing countries, which has led to a substantial increase
in commodity exports in recent years. It should be noted that the share of
manufacturing exports in Africa’s total exports is also low when compared to other
developing regions. For example, in 2008, the share of manufacturing exports in


cHAPTER 2. Promoting Industrial Development in Africa




18 economic development in africa report 2011


total exports was 89 per cent in low and middle income countries in east Asia and
the Pacific, 61 per cent in low and middle income countries in latin America, and
85 per cent in low- and middle-income countries in South Asia.


But progress has been made in boosting medium and high technology
manufactures


Figures 1 and 2 indicate that Africa has made some progress in boosting medium
and high technology manufacturing activities in recent years. The share of medium
and high technology (MHT) activities in total MVA in the region increased from 25
per cent in 2000 to 29 per cent in 2008. Furthermore, the share of medium and high
technology exports in total manufacturing exports rose from 23 per cent in 2000 to
33 per cent in 2008. The growing share of medium and high technology activities
in both African MVA and manufacturing exports is important because technology-
intensive manufacturing sectors grow faster, have greater learning prospects, and
have more spillover effects on the rest of the economy. Furthermore, they generate
higher value added and impose higher entry barriers. In contrast, simple sectors
such as resource-based (RB) and low technology (lT) manufacturing generate
lower and less sustainable margins as competition is much tougher. These simple
sectors generally do not need a strong human capital base and have been the main
entry points in industry by most developing countries (UNIDo, 2009).


Despite the recent progress made, it should be noted that the shares of
medium and high technology activities in both Africa’s MVA and manufacturing
exports are still low relative to those of Asia and latin America (figures 1 and 2).
Furthermore, Africa’s medium and high technology manufacturing activities are
highly concentrated in the chemical industry. In particular, chemicals account for
almost one fifth of African MVA today, giving the continent a share of 2.2 per cent
of the world chemical manufacturing capacity (table 2). In contrast, other MHT
activities play a relatively minor role in African manufacturing. In terms of exports,
Africa is mostly active in the medium technology rather than the high technology
product groups. Table 3 shows that the top three products (pig iron, passenger
cars and fertilizers) in the medium technology category account for 10.3 per cent
of African manufacturing. on the other hand, the top three products in the high-
technology category (valves and transistors, telecommunication equipment, and
aircraft/spacecraft) account for only 1.9 per cent of African manufacturing.




19


Table 2. african manufacturing by sector and technological classification, 2000–2009 (%)


IsIC rev. 3 manufacturing sectors


african MVa structure african growth
african share
in the world


2000 share
of total


MVa


2009 share
of total


MVa


Compound
anual growth
2000–2009


share in
World MVa


2000


share in
World MVa


2009


15 – Food and beverages 20.0 16.6 1.1 2.4 1.9
16 – Tobacco 3.0 2.6 1.6 3.4 2.5
20 – Wood 2.8 1.8 -1.9 1.7 1.5
21 – Paper 3.1 3.0 2.9 1.3 1.5
23 – Refined petroleum and


coke
5.9 6.1 3.6 2.0 2.1


25 – Rubber and plastics 2.7 2.9 4.1 1.0 1.1
26 – Glass and other non


metallic minerals
6.8 10.1 7.9 2.2 3.3


27 – Basic metals 7.3 5.6 0.4 1.7 1.0


Subtotal RBM (resource-
based manufacturing)


51.6 48.8 2.6 2.0 1.8


17 – Textiles 6.8 4.7 -0.9 3.1 2.3
18 – Apparel 4.7 4.3 2.3 3.0 3.3
19 – Leather 1.5 1.2 0.8 2.7 2.3
22 – Publishing and printing 2.9 2.7 2.7 0.8 1.0
28 – Fabricated metal products 5.2 5.1 3.0 1.1 1.3
36 – Furniture and


manufacturing n.e.c.
1.8 1.8 3.2 0.7 0.7


Subtotal LTM (low technology
manufacturing)


22.9 19.9 1.6 1.5 1.5


24 – Chemicals 12.4 19.2 8.4 1.6 2.2
29 – Machinery and equipment 3.7 3.6 2.9 0.6 0.6
30 – Office machinery 0.3 0.3 3.9 0.1 0.1
31 – Electrical machinery 2.0 2.5 5.9 0.6 0.6
32 – Radio, TV and
communication equipment


0.9 0.8 2.2 0.1 0.0


33 – Medical, precision and
optical instruments


0.3 0.3 3.3 0.1 0.1


34 – Motor vehicles 4.9 3.8 0.4 0.9 0.7
35 – Other transport equipment 1.0 0.9 1.8 0.5 0.4


Subtotal MHTM (medium/high
technology manufacturing)


25.5 31.4 5.7 0.6 0.6


TOTAL Manufacturing 100.0 100.0 3.2 1.2 1.1


Source: UNCTAD/UNIDO.


cHAPTER 2. Promoting Industrial Development in Africa




20 economic development in africa report 2011


Table 3. structure of african manufacturing exports
(top 10 export products by technology category)4


Top 10 resource-based
manufactured export products


Top 10 low technology
manufactured export products


sITC
Product


code
Product


share in
total manu-


facturing
exports
(2008)


sITC
Product


code
Product


share in
total manu-


facturing
exports
(2008)


334 Heavy petrol/bitum oils 12.4 845 Articles of apparel nes 2.9


342 Liquid propane/butane 4.6 842 Women/girl clothing woven 1.8


667 Pearls/precious stones 4.5 841 Mens/boys wear, woven 1.7


522 Elements/oxides/hal salt 4.2 673 Flat rolled iron/st prod 1.0


287 Base metal ore/conc nes 2.8 699 Base metal manufac nes 0.9


281 Iron ore/concentrates 2.2 851 Footwear 0.8


335 Residual petrol. prods 1.0 675 Flat rolled alloy steel 0.8


283 Copper ores/concentrates 1.0 611 Leather 0.7


37 Fish/shellfish, prep/pres 0.9 893 Articles nes of plastics 0.7


112 Alcoholic beverages 0.8 821 Furniture/stuff furnishg 0.7


Concentration level (combined
share of top 10 products)


34.3 Concentration level (combined
share of top 10 products)


12.0


Top 10 medium technology
manufactured export products


Top 10 high technology
manufactured export products


sITC
Product


code
Product


share in
total manu-


facturing
exports
(2008)


sITC
Product


code
Product


share in
total manu-


facturing
exports
(2008)


671 Pig iron etc ferro alloy 4.2 776 Valves/transistors/etc 0.7


781 Passenger cars etc 3.3 764 Telecomms equipment nes 0.6


562 Manufactured fertilizers 2.8 792 Aircraft/spacecraft/etc. 0.6


773 Electrical distrib equip 2.4 542 Medicaments include vet 0.3


743 Fans/filters/gas pumps 2.3 874 Measure/control app. nes 0.3


793 Ships/boats/etc 1.5 771 Elect power transm equip 0.2


782 Goods/service vehicles 1.3 752 Computer equipment 0.2


772 Electric circuit equipmt 1.1 716 Rotating electr plant 0.1


784 Motor veh parts/access 0.9 759 Office equip parts/accs. 0.1


598 Misc chemical prods nes 0.7 525 Radio-active etc. material 0.1


Concentration level (combined
share of top 10 products)


20.6 Concentration level (combined
share of top 10 products)


3.3


Source: UNCTAD/UNIDO.




21


Africa is losing ground in labour-intensive manufacturing sectors


given the fact that most African countries are at an early stage of industrial
development, one would expect the region to have very good performance in lT
or labour-intensive manufacturing activities that tend to be especially important for
early industrializing countries. However, the labour-intensive sectors (e.g. textiles,
apparel and leather products) play a rather limited role in African manufacturing
today, both in terms of domestic manufacturing production as well as exports.
At the domestic level, lT manufacturing activities account for roughly one fifth of
African manufacturing value-added only and its share has decreased from 23 per
cent in 2000 to 20 per cent in 2009. A large part of this change is due to a decline
in the share of textiles, from about 7 per cent in 2000 to 5 per cent in 2009 (table 2).
The three most important lT manufacturing activities in Africa today are fabricated
metals, textiles and apparel.


In terms of exports, the share of lT manufacturing exports in Africa’s total
manufacturing exports has also decreased, from 25 per cent in 2000 to 18 per
cent in 2008 (figure 3). As a result of this decline, the region’s share of global lT
exports fell from 1.5 per cent to 1.3 per cent while the share of east Asia and the
Pacific rose from 17 per cent to 26 per cent over the same period. Table 3 shows


figure 3. Importance of low technology manufacturing exports and trade balance


East Asian & Pacific 2000


East Asian & Pacific 2008


Latin America 2000


Latin America 2008


Africa 2000


Africa 2008


South Asia 2000South Asia 2008


-100


0


100


200


300


400


10 20 30 40 50 60


Share of LT manufacturing exports in total manufacturing exports:
bubble size indicates region's share of world LT exports


LT
m


an
uf


ac
tu


rin
g


tr
ad


e
ba


la
nc


e
($


b
illi


on
s)




Source: UNCTAD/UNIDO.


cHAPTER 2. Promoting Industrial Development in Africa




22 economic development in africa report 2011


that the top 10 products in the lT category accounted for only 12 per cent of
Africa’s manufacturing exports. Furthermore, the largest three lT product groups
alone (i.e. various apparel products) accounted for about half of this share. given
that many developing countries in other regions have managed to experience
significant growth through exporting lT manufactures, it is also relevant to consider
Africa’s trade balance in lT manufactures. Although Africa’s exports and imports
in lT manufactures were balanced in 2000, the region had a trade deficit in lT
manufactures in 2008. The fact that Africa is increasingly dependent on other
regions for lT manufacturing products is significant for two reasons. First, the trade
deficit indicates that African economies have a sizeable domestic market for lT
products which could form a basis for the expansion of lT manufacturing activities
in some African countries. Second, lT sectors are a stepping stone towards MHT
sectors. Increased involvement and export growth in lT industries could stimulate
capital deepening and thus facilitate structural transformation into more advanced
sectors.


Africa is heavily dependent on resource-based manufactures


In 2009, resource-based (RB) manufacturing accounted for about 49 per cent of
total MVA in the region, compared with 20 and 31 per cent respectively for lT and
MHT manufacturing (table 2). The most important products in RB manufacturing in
Africa based on their contributions to MVA are food and beverages (17 per cent) and
glass and other non-metallic minerals (10 per cent). In terms of exports, Africa also
has a strong dependence on resource-based manufactures. In particular, the share
of RB manufactures in total manufacturing exports was 52 per cent in 2000 and 49
per cent in 2008. Furthermore, the top 10 RB manufactures accounted for 34 per
cent of Africa’s total manufacturing exports in 2008. Africa’s high dependence on
RB manufactures contrasts with the situation in latin America and east Asia and
the Pacific, where the shares of RB in total manufacturing exports were 34 and
13 per cent respectively in 2008. while RB manufacturing exports can contribute
to high growth rates (kjöllerström & Dallto 2007), they involve relatively low value
addition and also make exporting countries highly vulnerable to external price
shocks. Furthermore, natural resource-based sectors exhibit lower productivity
growth and have few linkages with the rest of the economy (lall, 2004c). In sum,
resource-based manufactures show only very limited product differentiation and
thus share several characteristics of commodities.




23


African manufacturing is dominated by small firms


An important feature of African economies is that the industrial structure is very
weak in terms of both the number of firms and of their average size. while there
are differences across countries, the large majority of industrial firms are small
or micro enterprises operating side by side with a few large-scale (often foreign
or State-owned) firms found mostly in the raw material and extractive sectors. It
should be noted that a significant proportion of the small or micro enterprises in
Africa are informal as opposed to formal firms. Furthermore, African economies are
characterized by a “missing middle” in the size distribution of firms in the sense that
there are very few medium-sized firms (Bigsten and Söderbom, 2006). The small
average size of African firms is a problem from the perspective of long-run growth
since the size of firms is correlated with export activity and productivity (Rankin et
al., 2006). In particular, small firms tend to be less productive than large firms.


In addition to the size distribution of firms in African countries, which is
highly skewed towards micro and small firms, there is the fact that firms are also
characterized by extremely low size mobility. In other words, it is difficult either for
micro and small firms to become medium-sized firms or for the latter to become
large firms (Sandefur, 2010; van Biesebroeck, 2005b). Furthermore, there is a high
degree of concentration in the sense that a few large and mid-sized firms account
for the bulk of manufacturing value-added and exports in Africa. For example, in
ethiopia, 31 large and mid-size firms account for about half of total exports (Sutton
and kellow, 2010).


with the exception of firms involved in industrial clusters, there is relatively very
low interaction among African firms. The lack of interaction is a concern because
linkages among firms have positive effects that enhance firms’ competitiveness.
Both cooperation (which allows exploitation of economies of scale as well as scope
and favours innovation, learning and skills development) and agglomeration (which
increases the local availability of skilled labour, inputs and machinery) are beneficial
to firms (Altenburg and eckhardt, 2006).


African firms have weak technological capabilities


Another interesting feature of manufacturing in Africa is that domestic firms
have weak technological capabilities and are embedded in fragmented learning
and innovation systems. oyelaran-oyeyinka (2006) suggests that African countries


cHAPTER 2. Promoting Industrial Development in Africa




24 economic development in africa report 2011


have weak capabilities in mechanical or engineering industries, are trade-based
commodity economies, and are largely users rather than developers of new
technologies. lall (2004b) attributes the weak technological capability of African
firms to lack of technological support and infrastructure for domestic enterprises.
Furthermore, he argues that most African enterprises do not make significant
investments in technological effort. Consequently, they have difficulties entering
into, as well as competing in, export markets for medium and high technology
manufactures.


Industrial clusters play an important role in African manufacturing


Industrial clusters play an important role in African manufacturing.5 An industrial
cluster may take different forms: in its simplest form it is an agglomeration of (usually)
small and medium-sized firms which belong to the same sector. one or more
large firms may also be part of the cluster. A major advantage of being part of a
cluster is that it reduces geographical and informational costs for firms. This type of
organizational form is particularly advantageous in the African context characterized
by poor infrastructure and weak information systems. Based on the international
experience, clusters are believed to play a significant role in the promotion and
development of small and medium-sized enterprises (SMes). In general, clusters
(a) make market access easier; (b) are characterized by labour pooling; (c) facilitate
technological spillovers; and (d) create an environment conductive to joint actions.
McCormick (1999) provides a detailed analysis of six clusters in three African
countries (kenya, ghana and South Africa). The cases considered show that
African clusters, far from being homogeneous, vary in both internal structure and
level of industrialization. Furthermore, research on African economies has shown
that belonging to clusters, particularly in the case of SMes, is associated with an
increase in firm’s competitiveness (Zeng, 2008). Interestingly, African clusters belong
to very different sectors, from natural resource-based activities, such as fishing, to
high-tech industries, such as auto parts and computer manufacturing.6


Informality is a feature of African manufacturing


Another characteristic of African manufacturing is the preponderance of informal
enterprises. while it is difficult to obtain recent and reliable data on informality
in the region, there is some evidence that it is quite high. For instance, Bigsten,
kimuyu and lundvall (2004) show that in kenya informal manufacturing enterprises




25


account for about 83 per cent of total manufacturing employment. Furthermore,
over the period 1998–2002, the informal manufacturing sector growth rate was
10.5 per cent compared to the growth rate of formal manufacturing sector which
was 1.5 per cent. Meagher (2009) provides an account of informal industrialization
of the Igbo States in Nigeria. She argues that the expansion of local manufacturing
in Nigerian cities (such as Aba and Nnewi) could be ascribed to the widening of
markets made possible by informal trading and transport networks.


The extent of informality is relevant to the issue of industrial development because
it has been shown that there is correlation between the legal status of a firm and
its production characteristics. la Porta and Shleifer (2011) provide an analysis of
informality in Africa. They define informal firms as those that are not registered with
the government. In other words, they operate outside the legal framework. Using
data from 24 African countries, they find that informal firms have lower productivity
than small formal firms. Furthermore, they are smaller in size, produce to order, are
run by managers with low human capital, do not have access to external finance,
do not advertise their products, and sell to largely informal clients for cash. The
analysis also highlights something very important from an industrial policy point of
view. Informal and formal firms occupy very different market niches and the former
rarely become formal since there is very little demand by formal firms for informal
products. Most importantly, it seems that informal firms do not become formal as
they grow.


It should be noted that the informal sector is not homogenous in the sense
that informal firms have very different characteristics. For instance, evidence for
Mozambique shows there are substantial differences among informal enterprises
in the country, which implies that effective policy interventions should take into
consideration the heterogeneity of firms (Byiers 2009). There are various reasons
for the informality of firms: it may offer a means of survival in the absence of social
security nets, it may be a way to earn income while searching for a formal job, or it
may be a strategy to compete with formal firms. A distinction should also be made
between informal firms that would prefer to be formal if they could (involuntarily
informal) and those that choose to be informal as a strategy (voluntarily informal).
Policy intervention should take into consideration these two very different types of
informality.


cHAPTER 2. Promoting Industrial Development in Africa




26 economic development in africa report 2011


Manufacturing performance varies across African countries


Heterogeneity amongst countries is an important feature of African manufacturing.
In particular, there is a wide variance across countries in terms of both the level and
growth of MVA per capita (table 4). In 1990, 6 of the 52 African countries for which
data are available had MVA per capita of at least $200 and in 2010 the number of
countries with an MVA per capita of at least $200 was 9. In terms of manufacturing
growth, 23 African countries had negative MVA per capita growth over the period
1990–2010 and 5 countries had an MVA per capita growth above 4 per cent. This
issue of heterogeneity is taken up in more detail in the next chapter.


c. lessons learned


The review of the history of attempts to promote industrial development in Africa
and the analysis of the performance of African manufacturing presented in this
chapter suggests that, in general, the strategies adopted did not achieve the broad
objective of inducing structural transformation and economic diversification in the
region. while some progress was made in several countries at the different industrial
development phases, this has not been enough to trigger and sustain significant
structural transformation in the region. In addition, the limited progress made so far
has not led to a significant change in the region’s share of either global exports or
manufacturing value-added. Consequently, the region remains marginalized in world
trade. Notwithstanding this drawback, there are important lessons to be learned
from the four decades of attempts to promote industrialization in the region.


The nature and implementation of domestic policies matter


one of the lessons from the industrial development experience of African
countries is that the form and the implementation of domestic policies affect
development outcomes. Policy failures both in design and implementation during
the ISI, SAP and PRSP phases did contribute to the poor industrial performance
of African countries (Soludo, ogbu and Chang 2004; lall and Mwangwe 1998). In
the ISI phase, government policies and efforts focused more on providing support
to entrepreneurs than on getting them to perform. Furthermore, the emphasis was
on setting up industries rather than on building dynamic capabilities that would
allow firms to be competitive and survive in export markets. with regard to SAP,
the withdrawal of government support even in the presence of pervasive market




27


Table 4. Manufacturing performance of african countries


Country


MVa
per


capita
(1990)


MVa
per


capita
(2010)


MVa
per capita


(Compound
annual


growth rate
1990–2010)


Rb manufac-
turing share


of MVa (2009)


LT manufac-
turing share


of MVa (2009)


MHT manufac-
turing share of


MVa (2009)


Algeria 179 136 -1.4 67 20 13


Angola 26 66 4.8 46 41 12


Benin 21 23 0.4


Botswana 124 171 1.6


Burkina Faso 26 37 1.9


Burundi 16 9 -2.9


Cameroon 126 148 0.8 75 24 2


Cape Verde 108 139 1.2


Central African Republic 21 16 -1.3 76 16 8


Chad 22 15 -1.8


Comoros 14 12 -0.9


Congo 62 83 1.5 81 6 13


Côte d'Ivoire 112 99 -0.6 70 13 17


Dem. Rep. of the Congo 16 5 -5.7


Djibouti 37 20 -3


Egypt 177 369 3.7 37 16 48


Eritrea 9 9 0.2


Ethiopia 8 9 0.3 67 20 13


Gabon 163 200 1 76 16 8


Gambia 19 16 -0.7


Ghana 20 28 1.6 86 7 6


Guinea 12 17 1.7


Guinea-Bissau 26 16 -2.2


Kenya 49 47 -0.3 68 19 13


Lesotho 44 103 4.3 36 55 9


Liberia 34 17 -3.6


cHAPTER 2. Promoting Industrial Development in Africa




28 economic development in africa report 2011


Country


MVa
per


capita
(1990)


MVa
per


capita
(2010)


MVa
per capita


(Compound
annual


growth rate
90-10)


Rb manufac-
turing share


of MVa (2009)


LT manufac-
turing share


of MVa (2009)


MHT manufac-
turing share of


MVa (2009)


Libyan Arab Jamahiriya 319 237 -1.5 81 8 11


Madagascar 30 25 -0.8 79 13 7


Malawi 21 17 -1 38 48 14


Mali 13 7 -3.3 28 61 11


Mauritania 27 22 -0.9


Mauritius 522 801 2.2 35 48 16


Morocco 180 246 1.6 45 30 25


Mozambique 15 52 6.2


Namibia 92 348 6.9


Niger 13 10 -1.5


Nigeria 15 24 2.4 26 53 21


Rwanda 56 17 -5.9


Sao Tome and Principe 34 50 1.9


Senegal 57 54 -0.3 80 6 14


Seychelles 692 1,193 2.8


Sierra Leone 9 6 -2.4


Somalia 8 7 -0.1


South Africa 551 581 0.3 52 17 31


Sudan 19 34 2.8 84 9 7


Swaziland 311 451 1.9


Togo 22 25 0.5


Tunisia 253 493 3.4 51 26 22


Uganda 9 26 5.6 58 29 13


United Republic of
Tanzania


19 29 2.2 68 6 26


Zambia 36 44 1.1 74 11 15


Zimbabwe 106 34 -5.5 44 44 12


Source: UNCTAD/UNIDO.


Table 4 (contd.)




29


failures and the liberalization of trade without taking account of the capabilities of
domestic firms are some examples of policy failures during this phase. In the case
of the PRSP, the main policy failure was the fact that it shifted resources away
from the productive sectors which are necessary for sustained growth and poverty
reduction.


Structural constraints have to be dealt with


Although policy failures and exogenous shocks did contribute to poor industrial
performance in Africa, structural factors also played a role and have to be addressed
to enhance the likelihood of success in industrial development. The structural
factors are manifest in the form of poor infrastructure, low human capital, small size
of domestic markets, and a low entrepreneurial base (lall 2004a). Infrastructure
is critical to the development of manufacturing. But African countries have very
poor transport, communication and energy infrastructure. Furthermore, Africa lags
behind other developing country regions in skills and vocational training, reflecting
largely the impact of the relative neglect of tertiary education. with regard to the
other structural factors, there is the recognition that more effort has to be geared
towards the development of entrepreneurship as well as building robust regional
markets to address the limitation imposed by the small size of domestic markets.


Ownership of the development process is important


Another lesson from the experience of African countries is that, if they are to
make significant progress in boosting and sustaining industrialization, they must
take effective leadership of the development process. Because of Africa’s high
dependence on official flows, external actors have had significant influence on the
choice of policies and development paths in the region and this has had serious
consequences for the attainment of national development goals (UNCTAD, 2006;
UNeCA and African Union Commission, 2008: oeCD, 2008). The experience of
the SAP and PRSP phases indicates that, when countries do not have the space
to adopt development policies and path they deem necessary, they are unlikely
to achieve their industrialization objectives. Promotion of industrial development
requires active government policies to build domestic capabilities and direct
investment and resources to priority areas. external influences in the form of policy
and process conditionalities limit the policy space available to governments and
make the achievement of industrial development more difficult (UNCTAD, 2009c).


cHAPTER 2. Promoting Industrial Development in Africa




30 economic development in africa report 2011


Exclusively inward-looking industrialization strategies have severe
consequences


The experience with ISI in Africa suggests that an industrialization programme
that focuses exclusively on the domestic market and does not have an export
promotion component is likely to run out of steam. The small size of domestic
markets in most African countries implies that they are unlikely to sustain an
industrialization programme without access to external (regional and global)
markets. external markets would provide an opportunity for African countries to
expand production as well as exports, and reap the benefits of scale economies.
It would also provide access to foreign exchange needed to import intermediate
inputs and capital goods for domestic industries. In this context, it is important that
industrial development in Africa be part of an overall process of integration into the
global economy rather than inward-looking as in the ISI period. This means that
both the domestic and external (regional and global) markets are important in the
industrialization process.


Technological capabilities of domestic firms have to be developed


Technology and innovation are important in building the capabilities of domestic
firms and preparing them to compete in export markets for medium and high
technology manufactures. one of the lessons from past attempts to promote
industrialization in Africa is that governments did not pay more attention to the
building of technological capabilities of domestic firms to enhance their ability
to produce medium and high technology goods (oyelaran-oyeyinka 2006). lall
(2004b) argues that African countries lag behind other regions in the provision
of technological support and infrastructure to domestic firms. Furthermore, he
suggests that the establishment of institutions for quality standards and testing,
support for research and development, and provision of services to improve
productivity are important government measures that could contribute to enhancing
the technological capabilities of domestic firms.


Linkages are needed between agriculture and industry


The need to enhance food security implies that agricultural development
should be part of Africa’s development agenda. Furthermore, given the region’s
current endowment structure and stage of development, it is evident that the




31


agriculture sector will continue to be a major source of revenue, employment and
foreign exchange in the short-to-medium term. Therefore, it is important that the
promotion of industry is not done at the expense of agriculture. The experience of
industrialization in Africa has shown that promoting industry through discrimination
against agriculture will ultimately lead to agricultural as well as industrial stagnation,
with dire consequences for growth and poverty reduction. There has been the
tendency for policymakers to treat agriculture and industry as competitive alternatives.
However, they are not necessarily substitutes and could be complements. In this
regard, African countries can exploit the potential complementarities between both
sectors through judicious use of policies to create mutually reinforcing linkages
between them.


Avoid a top-down industrialization process


The government and the executive branch of government in particular, has
been the main actor in the industrialization process of African countries. It allocates
resources and makes decisions on which activities or sectors should be accorded
priority, often with little or no consultation with the private sector. The experience of
African countries, particularly during the ISI period, suggests that effective State–
business relations are needed for effective design, implementation and monitoring
of industrial development programmes. Interaction and coordination between the
State and the private sector will ensure that policymakers have a good idea of the
constraints facing businesses which should have a positive impact on policy design
and implementation.


Political stability is a necessary condition


Another important lesson from the decades of implementation of industrial
development strategies in Africa is that political stability is a necessary condition
for the success of any industrial development programme. Addressing policy
failures and lifting structural constraints will not have any substantial impact on
industrialization if the political environment is not conducive to investment. In
particular, domestic and foreign entrepreneurs are unlikely to invest in a society that
is politically unstable. In addition, political instability hampers the development of
manufacturing because it is often associated with the destruction of infrastructure
and an increase in the cost of credit through rising risk premium.


cHAPTER 2. Promoting Industrial Development in Africa




32 economic development in africa report 2011


Sustainability is as important as initiating an industrial programme


The lesson from the ISI period is that it is easier to start an industrial programme
than to sustain it. Past attempts at industrialization in Africa and some parts of
latin America failed in part because they were based on a short-term view of the
industrialization process and paid less attention to enhancing capacity to generate
the foreign exchange needed to ensure sustainability. If industrial policy in Africa
is to achieve the twin objective of promoting and sustaining industrialization,
policymakers must adopt a long-term view of the development process. They
also have to make informed decisions and either have or develop the capacity to
effectively implement them.




3CHaPTER
towards a new


industrial policy in aFrica:
industrial diagnosis and


strategy design




34 economic development in africa report 2011


a. introduction


The analysis of Africa’s industrial performance in the previous chapters
suggests that most countries in the region are still struggling to develop a competitive
manufacturing sector. But there is at the same time a growing consensus that
African countries have to diversify their production and export patterns to reduce
vulnerability to shocks, to boost growth, to provide employment opportunities and
to enhance their integration into the global economy. Against this background,
there is an increasing interest amongst African policymakers in the potential role
of industrial policy in the region. But at the same time they are searching for a new
approach which does not repeat the mistakes of the past. The rest of this Report
discusses key elements of new industrial policy in Africa.


There is no convergence of views on what should constitute industrial policy.7 In
this Report, the term is used to describe government measures aimed at improving
the competitiveness and capabilities of domestic firms and promoting structural
transformation. Industrial policy involves a combination of strategic or selective
interventions aimed at propelling specific activities or sectors, functional interventions
intended at improving the workings of markets, and horizontal interventions directed
at promoting specific activities across sectors (lall and Tuebal, 1998). An important
aspect of a new industrial policy is that it should be part of a broader productive
development strategy which is concerned with enhancing capital accumulation and
knowledge accumulation. But the focus in this Report will be on developing the
manufacturing sector.


The present Report advocates a strategic approach to industrial policymaking
which is tailored to specific country circumstances. A one-size-fits-all approach has
not worked in the past and will simply not work in the future. Country specificities
necessitate flexibility in the strategy design and also the policymaking process. A
new industrial policy should not follow a universal blueprint approach. Instead, it
has to build on the initial conditions and deliberately target the country specific
economic constraints that are the key obstacles to a sustained industrial growth
path.


Taking into account the importance of country specificities, an industrial strategy
has to be designed on the basis of the country’s current situation or starting position.
Most importantly, the already existing manufacturing activities have to be taken
into consideration as well as differing development stages, endowment structures,
country and population size, etc. This implies that the design of an industrialization




35


strategy has to be based on a thorough evaluation of the country’s present industrial
base, i.e. an industrial diagnosis.


Figure 4 summarizes this policymaking process. It starts with an industrial
diagnosis and the design of an industrialization strategy, and then moves to
consider the industrial policies needed to implement the strategy. The figure also
indicates that industrial policies have to be aligned with other policy areas that
should complement the decisions taken, in particular macro-economic policies and
financial policies. Another important feature of this strategic approach to industrial
policymaking relates to the feedback loop from policymaking to the diagnosis stage.
essentially, it has to be ensured that a critical examination of prior policy decisions
(i.e. an independent monitoring and evaluation process) identifies success stories
and failures that can inform the next policymaking cycle. Through such monitoring
and evaluation, a systematic process of policy learning can take place, enabling


figure 4. a strategic approach to industrial policymaking in africa


Industrial Diagnosis
Industrialization path


Structural stage
Comparative assessment


Monitoring & Evaluation
Critical examination


Success stories vs. failures
Sunset clauses


Complementary Policies
Alignment with macro policies


Financing
Regional integration


Industrial Policy
Selectivity


Prioritization
Experimentation


Industrial Strategy
Capacity expansion


Diversification
Deepening


New Global
Environment


Trade &
Investment


Rules


Global
Value


Chains


Green
Industry


South-
South Co-
operation


Source: UNCTAD/UNIDO.


cHAPTER 3. Industrial Diagnosis and Strategy Design




36 economic development in africa report 2011


adaptation and better performance. on top of that, the decision-making process
needs to take serious account of the challenges and opportunities of the new global
environment.


The rest of this chapter focuses on the first two stages of the strategic approach
to industrial policymaking – industrial diagnosis and industrial strategy. This is
concerned specifically with the strategic or selective dimension of industrial policy.
Chapter 4 considers the why and how of industrial policy, including monitoring
and evaluation, and also the importance of complementary policies. Chapter 5
discusses the new global environment and considers how the strategy and policy
might take into account new trade and investment rules, climate change challenge,
South–South cooperation and the potential of integrating into global value chains.


b. the question oF strategic choice and
selectivity in Facilitating structural change


Following lall (1996) and lall and Teubal (1998), industrial policy can take three
forms: functional, vertical and horizontal. Functional policy refers to government
interventions aimed at improving the operation of markets, in particular factor
markets, without favouring activities. examples would be interventions to prevent
collusion and facilitate entry by entrepreneurs into markets, or measures to reduce
the transaction costs of doing business. Vertical policy, on the other hand, refers to
interventions that favour specific sectors, industries or firms. examples are sector-
specific subsidies and giving certain firms or sectors preferential access to capital. In
contrast with vertical policy, horizontal policy is geared towards promoting specific
activities across sectors. For example, the provision of support for research and
development or finance for innovative activities is a horizontal policy.


efficient industrial policies normally include some mix of functional, horizontal
and vertical elements. However, if African governments want to steer productive
activities in a particular direction, they must decide on a specific way forward.
Selectivity of course raises difficult issues which are often summarized with the
advice that governments are wrong to “pick winners”. But African countries face
serious technical, capacity and time constraints. Thus, it is impossible for them
to tackle all economic constraints in all industries simultaneously. Also, whilst
financial capital is quite fungible, much fixed physical capital and human capital
is often specific to certain products and sectors. one cannot grow pineapples
on cocoa trees. Moreover, while the upgrading of the food industry will definitely




37


require advanced capabilities in food processing, testing, etc., that only agricultural
engineers possess, a diversification into electrical machinery will most probably be
impossible without a critical number of electrical engineers. It is therefore necessary
to make strategic choices and to prioritize the identified needs for action. How that
is done is then the critical issue.


one approach which has been proposed by lin and Monga (2010: 17–19)
involves six steps:


• First,thegovernmentidentifiesthelistoftradablegoodsandservicesthat
have been produced for about 20 years in dynamically growing countries
with similar endowment structures and a per capita income that is about
100 per cent higher than their own;


• Second,amongtheindustriesinthatlist,thegovernmentmaygivepriority
to those in which some domestic private firms have already entered
spontaneously and try to identify (a) the obstacles that are preventing these
firms from upgrading the quality of their products; or (b) the barrier that limit
entry to those industries by other private firms;


• Third,forthoseindustrieswhicharecompletelynewtodomesticfirms,the
government could adopt specific measures to encourage FDI from higher-
income countries and incubation programmes to catalyse private domestic
firms into these industries;


• Fourth,supportshouldalsobegiventoindustriesnotonthislistbutwhich
are successful self-discoveries by private enterprises in the country to enable
the scale up of these industries;


• Fifth,incountrieswithveryweakinfrastructure,andanunfriendlybusiness
environment, the government should invest in industrial parks or export
processing zones and attempt to attract domestic firms and foreign firms
that are willing to invest in the targeted industries;


• Sixth, the government can provide time- and cost-limited incentives to
pioneer firms or foreign investors that work within the industries identified
in step 1 to compensate for non-rival public knowledge created by their
investments.


whilst this approach is quite sophisticated in many respects, it focuses
particularly on identifying the most promising activities that match a country’s


cHAPTER 3. Industrial Diagnosis and Strategy Design




38 economic development in africa report 2011


current comparative advantage. whilst this is certainly an important aspect of
industrial policy, successful industrial policies have often involved a combination of
“leading the market” and “following the market”. In the former case, government
encourages investment decisions that private actors would not make, whilst in
the latter, the government supports some of the investments and innovation of
private firms to encourage a marginal extension of the production frontier in specific
areas of production. leading the market seeks to anticipate the future, in which
existing comparative advantages in natural resource based and cheap labour are
used up, and also seeks to create comparative advantages in particular products
and sectors by building technological capabilities at the firm level and clusters
of activity. In such cases, the government not only exploits current comparative
advantage but also, in certain sectors, seeks to “defy” current comparative
advantage at a particular moment in time in order to ensure that gradually, over
time, its comparative advantage is extended and upgraded (see debate between
lin and Chang, 2009).


what this implies in practice is, as lauridsen (2010) points out, the nurturing
of a new generation of industries. This can be done in various ways, including
in particular (a) fostering new industrial capacity, (b) diversifying production, (c)
creating inter-sectoral and inter-industry linkages, (d) promoting learning, (e)
improving productivity, (f) shifting economic activity towards higher value added
activities that provide access to more dynamic and rewarding niches in the world.
Although it is not easy to draw the exact boundaries between these dimensions
in reality, lauridsen broadly distinguishes three complementing and interlinked
strategic approaches:


• Industrial diversification implies the creation of new industrial capacity
through the nurturing of hitherto non-existent manufacturing activities, thus
leading to sectoral diversification;


• Industrial deepening aims at the creation of more backward- and forward-
linkages and complementarities within a country between sectors and
industries;


• Industrial upgrading aims at fostering a more advanced and competitive
industrial structure through product upgrading, process upgrading and
functional upgrading.


In other words, when designing industrial strategies, governments have to
decide which existing manufacturing industries they want to strengthen, which new




39


industries they want to stimulate and in which industries they want to improve the
internal integration of existing involvements.


As indicated earlier, this cannot be done according to a recipe. But Africa can
learn from the experiences of earlier industrialization success stories, at least to
some extent. one promising way to use this historical knowledge relates to the
anticipation of the structural change process (Altenburg, 2011). Although Africa’s
future will obviously not resemble the industrial development path of other regions,
earlier successful industrial growth trajectories can certainly provide reference
points. A comparative analysis with suitable comparators can thus shed light on
options for proactive measures to shape Africa’s industrialization.


c. a Framework For industrial
strategy design


Figure 5 provides a framework for identifying industrial development priorities,
which takes account of the potential of current comparative advantage and also
activities that can become viable in the medium and long run. The framework is based
on two dimensions. Firstly, it has to be acknowledged that the relative potentials
that different industries offer to a certain country depend on their feasibility, namely
the requirements that these industries have with regard to technological capabilities
and endowment structures. Secondly, the decision on which industries to support
should be based on a detailed understanding of the relative attractiveness of
individual manufacturing sectors for the country in question, at its current and future
stages of development.


The attractiveness of industries can be evaluated in several dimensions. The
growth dimension of attractiveness looks at the economic growth potentials that
certain sectors offer to countries that are at a certain development stage and have
certain endowment structures as well as technological capabilities.8 In addition,
global market factors such as market size, market growth and the intensity of
competition also influence this dimension. For example, the fact that China is
extremely dominant in the world market for several products today certainly reduces
the attractiveness of these activities for African countries. However, industrial policies
for African low-income countries should always balance economic with social and
environmental goals and thus need to comprise a social and environmental impact
assessment (Altenburg et al., 2008).


cHAPTER 3. Industrial Diagnosis and Strategy Design




40 economic development in africa report 2011


In order to ensure a poverty reduction focus, the attractiveness evaluation
should include a pro-poor dimension. with the aim of ensuring equal opportunities
for the African poor to participate in manufacturing, the employment effect of
individual sectors as well as growth inclusiveness aspects have to be factored
in. In this respect, it is important to highlight the finding that resource-based
industrialization usually goes hand in hand with a more unequal growth path
than labour-intensive manufacturing (UNIDo, 2009). As far as the environmental
dimension is concerned, the ecological impact of individual industries has to be
considered because environmental concerns and especially climate change will
increasingly affect the industrialization path of African countries in the near future.
one promising way to take the environmental implications of structural change into
consideration is to compare the energy efficiency (UNIDo, 2011), material efficiency
as well as resource depletion effects of the relevant sectors. In sum, it has to be
acknowledged that industrial strategies will always face the trade-off between
economic, social and environmental targets. Although a detailed comparative
analysis of the attractiveness of industries in the three dimensions can certainly
inform policy decisions, the ultimate necessity to execute a judgement will never
disappear.


Apart from the attractiveness assessment, industrial strategies have to take
the strategic feasibility of manufacturing activities into consideration. while some
activities are immediately viable because they are in line with the country’s current
endowments, capabilities, etc., other activities will only be feasible in the future, e.g.
because they require a substantial enhancement of the technological capabilities.
Some opportunities within current comparative advantage might also not be fully
utilized. A major error which countries can make in formulating industrial policies is
that they rush to promote sophisticated industries without the requisite accumulation
of skills and scale economies. while lin & Monga (2010) do not consider potentials
in industries that are not in line with a country’s current comparative advantage
in their identification framework, this approach provides additional insights into
activities that might require “defying” the current comparative advantage in order to
build the necessary technological capabilities for activities that will be viable in the
medium to long-run (lin & Chang, 2009).


on the basis of this framework, it is possible to compare the relative attractiveness
and strategic feasibility of various manufacturing industries for a specific country
case. In addition, it is also necessary to get an idea of the scale of the output
potentials that these industries have for the respective country.




41


Figure 6 illustrates the current as well as future potentials in individual
manufacturing industries for a hypothetical country. A large bubble represents a
relatively high immediate or future output potential, while a small bubble represents
an industry in which the output potential is rather limited. on top of that, the brown
share of the bubbles indicates the potential that is already being exploited, while
the grey share indicates the potential that is not being exploited yet.9 generally, the
following assertions can be made with regard to potentials at the four combinations
of high and low industry attractiveness as well as immediate and future strategic
feasibility that can be distinguished:


1. Industries that have an immediate strategic feasibility but a relatively low
attractiveness, e.g. because of their limited growth potential. In these
sectors, the short-term exploitation of currently unused potentials should
be the focus. If there are still large potentials that are not being exploited
at the moment, capacity expansion measures play a major role here. If the
exploitation ratio is already very high, process and product upgrading as
well as deepening measures could be considered. However, given their low
attractiveness, these activities have a low priority in African industrialization
strategies;


figure 5. framework for the comparative assessment of the relative attractiveness and
strategic feasibility of manufacturing activities for african countries


Attractiveness of
industry


Strategic feasibility


Immediate exploration
of easy gains


Definition of
long-term targets


Short-term
exploitation


Long-term
direction


Immediate action


Out of focus


Immediate Future


High


Low


Growth dimension


Industry specific economic


growth effect (+)


World market size (+)


Market growth (+)


Competitive pressure (-)


Pro-poor dimension


Industry specific


employment effect (+)


Inclusive growth (+)


Environmental
dimension


Energy & material


efficiency (+)


Resource depletion (-)


Technological capabilities and other policy relevant country
factors (education, technology, incentives, institutions, etc.)
Static country factors (country size, factor endowments,
population density, etc.)


Source: UNCTAD/UNIDO.


cHAPTER 3. Industrial Diagnosis and Strategy Design




42 economic development in africa report 2011


2. Industries that have an immediate strategic feasibility and a high
attractiveness, e.g. because of their rapid growth prospects. If countries
are underrepresented in these sectors, i.e. they have a latent comparative
advantage (lin & Monga, 2010), immediate action is required to take
advantage of the potential. when the country already covers these activities
to a certain extent, capacity expansion and upgrading as well as deepening
measures are highly relevant. If these sectors are not existing yet, short-
term diversification measures towards these industries could be considered.
essentially, governments have to remove the constraints that impede the
expansion of the identified industries to create the conditions that allow
them to become the country’s actual comparative advantage.10 given their
high attractiveness, African governments should give a high priority to these
activities in their industrialization strategies;


3. Activities with high attractiveness but which are only feasible in the future,
e.g. because they require advanced technological skills. Although the
country does not have a current (latent/static) comparative advantage
in these sectors, African countries cannot afford to disregard the future
potentials that these industries can offer. Instead, they should carefully
select the most promising industries as long-term targets and deliberately
invest in developing the lacking technological capabilities that are crucial to
succeed in these sectors in the future. long-term diversification measures
are obviously essential in this respect. Deepening measures can also be
considered at a certain stage – e.g. the creation of clusters to foster linkages
between the new entrepreneurs and already existing relevant domestic
suppliers of key inputs. Several authors argue that government intervention
should exclusively focus on sectors with latent comparative advantage. This
more dynamic approach to the design of industrialization strategies will also
give a high priority to the definition of long term targets instead;


4. Industries which are only feasible in the future and have a low relative
attractiveness, e.g. because they do not have major growth prospects. These
industries are obviously no priority for African industrialization strategies.
However, the distinction between these sectors and the long-term target
sectors is perhaps the most crucial exercise for the long-term direction of an
industrialization strategy.




43


d. applying the Framework: a typology oF
aFrican countries’ industrial perFormance


In order to discuss and assess future industrialization possibilities and
opportunities, country-specific details have to be taken into account. In practice,
this must be done on a country-by-country basis. However, recognizing the
heterogeneity of African countries, this section presents a typology of industrial
performance of African countries which might be used at an initial stage to consider
possible strategic options for different countries.


The typology is based on two indicators: their industrialization level in 2010 and
industrial growth performance 1990-2010:11


• The industrialization level of each country is captured by its manufacturing
value added per capita. This indicator allows us to identify African countries
which have a substantially higher manufacturing capacity than the regional
average as well as those that do not possess any sizeable manufacturing
activities yet. Since the regional average MVA per capita is $100, African
countries that have an MVA per capita level of $200 and above are considered


figure 6. Illustration of the relative attractiveness and feasibility of unused potentials in
various manufacturing industries


A
tt


ra
ct


iv
en


es
s


o
f


in
d


us
tr


y


Strategic feasibility


Short-term exploitation


Highly attractive and
large immediate


potential, low
exploitation so far


Less attractive but
large immediate
potential, high


exploitation already


Less attractive future
potential, limited


exploitation so far


Highly
attractive and
large future
potential, no


exploitation yet


Limited future
potential, low


exploitation so far


Limited immediate
potential, high


exploitation already


Out of focus


Immediate Future


High


Low


Easy gains Long-term targets


Source: UNCTAD/UNIDO.


cHAPTER 3. Industrial Diagnosis and Strategy Design




44 economic development in africa report 2011


to have a relatively advanced industrialization level. It should be noted that
the threshold level used is twice the regional average;


• The industrial growth performance is captured by the compound annual
growth rate of MVA per capita. This indicator allows us to identify the most
dynamic African industrializers as well as stagnating and de-industrializing
countries. Countries that have an MVA per capita growth rate higher than
2.5 per cent are regarded as having relatively very high growth performance.
The 2.5 per cent threshold is about 3.5 times the African average MVA per
capita growth of 0.7 per cent.


Based on these indicators, African countries can be divided into five groups
(figure 7):


• Thefirstgroupofcountries (Forerunners) is on a long-term sustained-growth
path with an industrialization level at least twice the African average and an
industrial growth performance that is at least 2.5 per cent;


• The second group of countries (Achievers) also attained a comparatively
high industrialization level in per capita terms. However, their industrial
growth performance is below the 2.5 per cent threshold;


• Thethirdgroupofcountries(Catching-up) is on a fairly promising fast growth
path which, if sustained, has the potential to take them to a substantially
higher industrialization level in a relatively short timeframe;


• Thefourthgroupofcountries(falling behind) has a relatively low industrialization
level and unlike the catching-up countries did not manage to achieve an
industrial growth rate high enough to significantly improve their situation;


• The final groupof countries (Infant stage) has a very low industrialization
level as well as very poor industrial growth performance. Many countries
in this group have had negative MVA per capita growth in recent years. It
is not clear whether or not they can manage to initiate an industrialization
process successfully. So far, their manufacturing capacity amounts to less
than one tenth of the achievers and forerunners and there are very little signs
of improvements in manufacturing growth performance.


Figure 8 shows where individual African countries fit in the five groups discussed
above. It indicates that, while some countries have made significant progress in
both industrialization level and industrial growth performance, the majority of African
countries are seriously struggling to industrialize. only 10 African countries have a




45


relatively more advanced manufacturing base. Among these, 4 countries had an
average annual MVA per capita growth rate of at least 2.5 per cent and are thus
classified as forerunners while the remaining 6 are in the less dynamic achiever
group. In addition, 5 are classified as catching-up countries. They have high
industrial growth rates but have not reached the $200 MVA per capita threshold
level yet. Finally, 70 per cent of African countries (36 countries) have not made
significant progress. Among these countries, 18 are in the falling-behind category
with at least some existing manufacturing activities that they could build on while
the others have MVA per capita of less than $20 and hence no industrial base to
build on. The geographical location of the countries in the different groups is shown
in figure 9.


Forerunners


Based on the data presented, egypt, Namibia, Seychelles and Tunisia
are the countries classified as Forerunners. of the four countries, the experience
of Seychelles is quite interesting. It has the highest MVA per capita level in the
region and although it had an MVA per capita growth rate of 7.7 per cent in the
period 1990–2000, its industrial growth was negative for the period 2000–2010.
Consequently, its growth rate over the full period 1990–2010 was about 2.8 per
cent. of the four countries in this category, Namibia has the best industrial growth


figure 7. Typology of african countries based on industrial performance


Achievers


Infant stage


Falling
behind Catching-up


Forerunners


Low High


High


Low


Industrial growth performance


In
d


us
tr


ia
liz


at
io


n
le


ve
l


(M
V


A
p


c)


Source: UNCTAD/UNIDO.


cHAPTER 3. Industrial Diagnosis and Strategy Design




46 economic development in africa report 2011


figure 8. an overview of african countries’ industrialization level and growth performance


Seychelles


Tunisia


Egypt Namibia


Lesotho


Mauritius


South Africa


Swaziland


Libya
Gabon


Morocco


Angola


Mozambique


Uganda


DRC


Sudan


Rwanda


Zimbabwe


Madagascar
Mauritania


Liberia


Benin Nigeria
Ghana


Tanzania


CAR


Djibouti


Algeria


Botswana
Cameroon


Cape Verde


Congo


Senegal
Kenya Zambia


Burkina Faso


Sao Tome and Principe


Côte d’Ivoire


Sierra Leone
Mali


Chad


Burundi


Guinea
Guinea-Bissau


Gambia
Malawi


Somalia


Niger
Comores


Ethiopia
Eritrea


Industrial growth performance (annual MVA per capita growth 1990-2010 in %)


In
du


st
ria


liz
at


io
n


le
ve


l (
20


10
M


V
A


p
er


c
ap


ita
in


$
)


20


200


500


1000


1500


-5 5 100 2.5


Source: UNCTAD/UNIDO.


performance, with an average growth of 7 per cent between 1990 and 2010. In 1990,
it had an MVA per capita of $92, which was less than the figures for Morocco, the
libyan Arab Jamahiriya and gabon. However, as a result of its impressive industrial
growth, it has managed to surpass the MVA per capita level of these countries.
Although Namibia has had an impressive industrial growth performance, it is heavily
dependent on a few resource-based manufacturing activities. In particular, pearls
and precious stones as well as uranium products account for almost two thirds of
Namibia’s manufacturing exports today. Consequently, a challenge for this country
is how to move into medium and high technology manufacturing activities and or
increase value addition in existing activities (Rosendahl, 2010).


The two North African countries (egypt and Tunisia) have also made significant
progress in industrialization. Their experience shows that it is feasible for African
countries to substantially increase their manufacturing activities and eventually catch-
up with more successful developing countries. egypt expanded its manufacturing




47


figure 9. african countries’ industrial performance


Infant stage


Falling behind


Catching-up


Achievers


Forerunners


Angola


Nigeria


Cameroon


Equatorial Guinea


Sao Tome
and Principe


Djibouti


Eritrea


Mauritius


Comoros


Seychelles


Congo
Gabon


Chad
Niger


Benin


Togo
Ghana


Liberia


Guinea


Mauritania
Mali


Burkina
Faso


Sierra Leone


Guinea-Bissau


Cape Verde


Gambia
Senegal


Côte
d’Ivoire


Ethiopia


So
ma


lia


Kenya


Sudan


Egypt
Libyan Arab
Jamahiriya


Algeria


Moro
cco


Tunisia


Uganda


United Rep.
of Tanzania


Malawi
Zambia


Zimbabwe


Bostwana
Namibia


South Africa


Mozambique


Lesotho


Madagascar


Central African
Rep


Congo,
Dem. Rep.


Rwanda
Burundi


Source: UNCTAD/UNIDO.


capacities rapidly during the last 20 years and thus increased its share of African
MVA by more than 10 per cent. In the case of Tunisia, it almost doubled its
manufacturing capacity in per capita terms during the last two decades and thus
has an MVA per capita level close to that of South Africa. A critical challenge facing
these North African countries is how to sustain and improve on their industrial
performance, given the recent political turmoil in the subregion.


egypt and Tunisia managed to develop a manufacturing sector with a relatively
high share of gDP and also have an above average diversification into medium and
high technology manufacturing and exports. In the case of egypt, the chemical


cHAPTER 3. Industrial Diagnosis and Strategy Design




48 economic development in africa report 2011


industry is by far the most important sector among MHT manufacturing activities
and accounts for more than one third of the country’s MVA today. In addition, the
machinery and electrical machinery industries also account for a considerable share
of egypt’s manufacturing capacities (table 5). However, the country has made less
progress in terms of structural transformation towards MHT manufacturing exports.
In 2008, one third of egypt’s manufacturing exports stemmed from petroleum
products, which are the country’s major resource-based manufacturing exports.
Fertilizers and other chemicals accounted for more than 10 per cent and electrical
distribution equipment accounted for 3.5 per cent.


Due to the fact that Tunisia has a relatively large textile and apparel industry, its
manufacturing activities are less focused on MHT industries than egypt’s. on the
other hand, Tunisia is less reliant on petroleum products, which account for only 5
per cent of the country’s manufacturing exports (dominated by apparel as well as
several more technology intensive products such as fertilizers, electrical distribution
and electric circuit equipment). erdle (2011) ascribes Tunisia’s progress in industrial
development to its industrial policy as well as its geographical proximity to the
european market. Despite the progress that has been made by the Forerunners, it
should be noted that they still have to make up a lot of grounds in order to catch-up
with the more advanced developing countries in Asia and latin America.


Achievers


South Africa is one example of the countries classified as Achievers. It
accounted for about a third of African manufacturing capacities during the 1990s.
In addition, with a 2010 MVA per capita level of $581 it has a substantially higher
industrialization level than other African countries, except Seychelles and Mauritius.
Despite these achievements, it has had a very poor industrial growth performance
the last two decades. In particular, its MVA per capita growth rate over the period
1990–2010 was 0.26 per cent, reflecting largely the fact that it suffered significant
declines in industrial growth over the period 1990–2000. with regard to the other
Achievers, Swaziland had MVA per capita growth rates of about 1.9 per cent over
the last two decades while Morocco and gabon had growth rates of 1.6 and 1
per cent respectively. The libyan Arab Jamahiriya is the only Achiever that had a
negative growth rate over the period 1990–2010. Although Mauritius had an MVA
per capita growth rate of 4 per cent in the 1990s, its average growth over the period
2000–2010 was only 0.3 per cent. Consequently, its growth performance of 2.2 per
cent over the full sample period 1990–2010 was not as strong as in the group of
Forerunners.




49


Table 5. Industrial structure of selected african countries, 2009


Low Technology
manufacturing country


(LT share of MVa)
LT industry 1 LT industry 2 LT industry 3


Mali (61%) Apparel (47%) Furniture and n.e.c.
(9%)


Fabricated metal (5%)


Lesotho (55%) Apparel (18%) Leather (11%) Printing (4%)
Nigeria (53%) Furniture and n.e.c.


(16%)
Fabricated metal
(14%)


Textiles (10%)


Mauritius (48%) Apparel (27%) Textiles (8%) Fabricated metal (7%)
Malawi (48%) Fabricated metal


(20%)
Printing (16%) Textiles (8%)


Angola (41%) Textiles (25%) Fabricated Metal (6%) Printing (6%)


Medium and high
technology manufac-


turing country
(MHT share of MVa)


MHT industry 1 MHT industry 2 MHT industry 3


Egypt (48%) Chemicals (36%) Machinery (5%) Electrical machinery
(4%)


South Africa (31%) Chemicals (13%) Motor vehicles (7%) Machinery (6%)
Morocco (25%) Chemicals (16%) Machinery (3%) Electrical machinery


(2%)
Tunisia (22%) Electrical machinery


(9%)
Chemicals (7%) Radio, TV, com.


equipment (2%)
Tanzania, Untied Rep.
of (26%)


Chemicals (25%) Radio, TV, com.
equipment (0.2%)


Electrical machinery
(0.2%)


Nigeria (21%) Motor vehicles (16%) Chemicals (2%) Electrical machinery
(2%)


Resource-based
manufacturing country


(Rb share of MVa)
Rb industry 1 Rb industry 2 Rb industry 3


Ghana (86%) Food (44%) Refined petroleum
(13%)


Wood (13%)


Sudan (84%) Food (61%) Refined petroleum
(15%)


Rubber & plastics
(2%)


Libyan Arab
Jamahiriya (81%)


Refined petroleum
(25%)


Tobacco (22%) Food (19%)


Madagascar (79%) Food (55%) Refined petroleum
(11%)


Tobacco (6%)


Gabon (76%) Food (44%) Refined petroleum
(17%)


Wood (10%)


Kenya (68%) Food (28%) Glass & non-metallic
minerals (16%)


Refined petroleum
(15%)


Source: UNCTAD/UNIDO.


cHAPTER 3. Industrial Diagnosis and Strategy Design




50 economic development in africa report 2011


The case of the libyan Arab Jamahiriya illustrates the specific challenges that
Achievers face. Although it managed to build a sizeable manufacturing capacity in
the past, it is falling behind most of the other North African countries because it has
had negative manufacturing growth over the last two decades. This indicates that
African Achievers definitely have to rethink their industrialization strategies if they do
not want to fall behind more dynamic African countries and rapidly industrializing
nations from other developing regions. while manufacturing activities already
account for a relatively high share of the economies of Mauritius and Swaziland,
they have not diversified their manufacturing base into medium and high technology
sectors to a large extent yet. Thus, they need to seriously consider supporting
entrepreneurial activities in more technology-intensive sectors in the future as this
might be the only way to accelerate the expansion of manufacturing capacities. In
this context, it has to be noted that Mauritius has already made some progress in
expanding its activities in chemicals and machinery, as well as medical, precision
and optical instruments manufacturing over the last decade. This has reduced its
dependence on low technology (textile and apparel) sectors to a certain degree.
Nevertheless, Mauritius still has a very strong focus on apparel as well as sugar
and fish products, and telecommunication equipment is the only sizeable high
technology product group in the country’s manufacturing export basket. In summary,
further industrial diversification efforts as well as the deepening of involvement in
technology-intensive sectors is needed to re-accelerate the industrial growth of
African achievers.


Catching-up


while the Achievers and Forerunners already possess noteworthy manufacturing
bases, many African countries are still at a catching-up stage of industrialization.
Thus, they are more vulnerable to a sudden deterioration of their industrial growth
path. For instance, despite its rapid industrial growth over the period 1990–2010,
Sudan remains one of the least industrialized countries in the world and it is facing
challenges because of its dependence on RB manufacturing as well as a slowdown
in industrial growth in recent years. Angola also witnessed one of the most dynamic
manufacturing growth processes of all African countries during the last two decades.
However, with an MVA per capita of $66, its industrial base is still very low. Thus,
Angola’s situation is similar to that of Sudan’s in many respects. The government
is facing the challenge of how to promote industrial development given the fact
that it has a thriving oil sector that largely overshadows manufacturing. A careful




51


monitoring of industrial progress and a change in industrial strategy are needed to
respond to the challenges and opportunities facing the country.


Industrial growth in Mozambique and Uganda has also been fast, although both
countries still have very low MVA per capita. As in the case of Angola and Sudan,
a continuation of the growth path of these countries cannot be taken for granted.
In particular, efforts are needed to transform the few existing manufacturing
activities into a well-established industrial base. lesotho’s industrialization
progress is also relatively stable and is based on a strong labour-intensive, low-
technology manufacturing sector. It is not clear whether it will manage to diversify
its manufacturing activities towards more technology-intensive sectors that could
complement the success of the apparel and leather industries in the future (table
5). Apart from achieving substantially higher MVA per capita growth rates than the
African average, several catching-up countries also managed to further increase
their growth rate during the last ten years compared to the period 1990–2000.
For example, in the last 10 years, Angola and Mozambique had industrial growth
rates of 13 and 8 per cent respectively. This indicates that these countries not only
created the essential basic prerequisites to develop their manufacturing sectors
but also successfully fine-tuned their approach as the industrialization process
proceeded.


In summary, it should be noted that, despite their relatively good industrial
growth performance, African catching-up countries have an MVA per capita level
less than $100. This means that they still need some time to develop a strong
manufacturing sector. Currently, manufacturing does not account for a major part
of their economies and medium and high technology activities do not play a major
role in their manufacturing exports. In general, these countries have to monitor
their progress and adapt to emerging challenges and opportunities in order to
establish themselves as competitive industrial nations. The diversification of their
manufacturing activities to encompass additional sectors and higher value-added
processes will play a crucial role in accomplishing this goal.


Falling behind


A large group of African countries are increasingly falling behind the more
successful groups discussed above. Most of these countries have an MVA per
capita level below the African average of $100 and did not show considerable
industrial growth during the last 20 years (figure 8). In general, these countries are


cHAPTER 3. Industrial Diagnosis and Strategy Design




52 economic development in africa report 2011


characterized by a strong reliance on unprocessed natural resource exports and
low contribution of manufacturing activities to gDP. In addition, food production
and petroleum refining dominate the industrial activities of these countries.


The countries in this group have not made significant progress in industrialization.
In both kenya and Senegal, for instance, MVA per capita stagnated at about $50
during the last 20 years. In addition, manufacturing value added accounts for about
one tenth of their gDP and the existing manufacturing activities are almost exclusively
in resource-based sectors. while Senegal is strongly dependent on the export of
manufactured petroleum products, kenya’s MVA and manufacturing exports are
strongly concentrated in the food and non-metallic mineral sectors. Although
Botswana stands at a slightly higher industrialization level and has had moderate
industrial growth, it is also heavily dependent on resource-based manufacturing.
In fact, MVA accounts for only 4 per cent of its gDP and more than 90 per cent
of its manufacturing exports stem from diamonds and nickel processing. In order
to reap the full benefits of industrial development, these countries should consider
substantially increasing their efforts to support manufacturing activities in general.
However, they also need to simultaneously start to build the basic technological
capabilities that are essential to move to more technology intensive sectors at a
later stage.


The experience of Cameroon shows that it is possible for African countries
in this category to reduce their dependence on resource-based manufacturing.
Cameroon has developed its textile industry during the last couple of years and
reduced its dependence on wood products substantially. with regard to their
growth performance and industrial structure, the United Republic of Tanzania and
Nigeria are exceptions in this group of countries. Although both countries had MVA
per capita growth slightly below 2.5 per cent over the period 1990–2010, they
had rapid industrial growth in the last decade. In particular, the United Republic of
Tanzania had a growth rate of 4.8 per cent and Nigeria 6.2 per cent in the period
2000–2010. Furthermore, both countries are more active in technology-intensive
sectors than other countries in the same group. while the United Republic of
Tanzania diversified into the chemical industry, which now accounts for one quarter
of its total MVA, Nigerian activities in the motor vehicles, chemicals and electrical
machinery sectors account for about one fifth of its total MVA.


In summary, this group of countries is characterized by several cases of
deteriorating growth performance and some cases of de-industrialization. Cote
d’Ivoire, Senegal and Mauritania have a lower MVA per capita level today than




53


they did 20 years ago. But the most serious case of de-industrialization in this
category is Zimbabwe, which seems to be caught in a downward spiral with a
substantially lower MVA per capita today than 20 years ago. Furthermore, in the last
10 years, its manufacturing output per capita decreased by more than 8 per cent.
The case of Zimbabwe points to the importance of political stability in the industrial
development process.


Infant stage


The last group in the typology (the Infant stage) comprises a large number of
countries that have either relatively insignificant or no manufacturing base. These
countries have an MVA per capita of less than $20 and are mostly countries
classified as least Developed Countries (lDCs). Some of the countries in this
category include Rwanda, the Democratic Republic of the Congo, Burundi, Mali,
Sierra leone, liberia, Niger, guinea, guinea-Bissau, and Djibouti. These countries
face the risk of being further marginalized in the global as well as the African
manufacturing landscape.


In general, manufacturing firms do not play a significant role in domestic
value addition or export activities during the Infant stage. However, in Niger and
guinea, the share of manufacturing exports in total exports is quite high. In the
case of Niger, the high share of manufactures in exports stems almost exclusively
from the export of uranium products, which account for more than 86 per cent
of manufactured exports. In guinea, aluminium products account for over 90 per
cent of manufactured exports. Although these product groups are classified as
resource-based manufacturing exports, they still resemble primary commodities in
the sense that their value stems mostly from the raw material rather than the limited
manufacturing value addition. This also explains the fact that both countries have
very small shares of MVA in gDP.


There are also positive developments in manufacturing development in some
countries in this group. For example, ethiopia has made progress in the development
of the horticulture industry. Its rank among top exporters of cut flowers improved
from 24th in 2001 to 5th in 2007 (Sutton and kellow, 2010). Malawi has also made
some progress in the development of the textile and apparel sector. Despite these
positive developments, it is evident that countries in this group are facing serious
challenges in initiating and developing manufacturing industries. It is unlikely that
they will make significant progress in this area without deliberate government action
to give industrial development a big push.


cHAPTER 3. Industrial Diagnosis and Strategy Design




54 economic development in africa report 2011


e. applying the Framework: linking countries
with diFFerent strategic choices


with the help of this framework, industrial policymakers can understand their
countries’ relative position in the relevant industries in order to define an industrial
strategy that covers industrial expansion/upgrading, diversification and deepening
measures. Although this Report does not include a detailed diagnosis of individual
African countries’ industrialization patterns, it is possible to suggest some general
policy directions based on this typology. In short, different types of African countries
need to consider different alternatives with regard to the mix of expansion, upgrading,
diversification and deepening measures. Thus:


• AfricanForerunnersalreadydevelopedsizeablemanufacturingactivitiesand
are on a sustained industrial growth path. This indicates that measures to
expand the existing production capacities will probably have a lower priority
than deepening measures that aim at creating linkages and complementarities
among the individual firms within the key industries. Thus, measures to improve
coordination between large and small firms as well as domestic and foreign
or State-owned and private firms in the most attractive industries deserve
particular attention in the strategy design process. In addition, medium-
term diversification measures aiming at industries with higher technological
intensity and value addition have to be taken very seriously. Considering
the countries’ comparatively more advanced stage of development, early
sectors such as apparel and resource-based manufacturing will probably
reveal diminishing growth potentials in the near future. In this case, it will be
crucial to accomplish the shift towards sectors that still offer considerable
growth prospects – e.g. late sectors such as machinery and equipment or
precision instruments. This re-allocation process will, however, be contingent
on extensive improvements in the countries’ technological capabilities, which
in turn require time. Accordingly, the governments have to consider these
long-run prospects already now in order to warrant a smooth transition in
the future. The specific attractiveness of individual industries will, however,
depend on country characteristics as well as a judgement on the trade-
off between economic, social and environmental considerations. A close
dialogue between the government and private sector, as well as academia
and market experts – possibly facilitated by an independent mediating
organization – is an essential success factor for this undertaking;


• African Achievers are in a somewhat similar situation as far as their
industrialization level is concerned. Thus, diversification measures to




55


accelerate the shift from early to late sectors that has been discussed in
the context of Forerunners are at least equally important. Actually, the fact
that they did not accomplish this transition to a large degree yet might be
one of the explanatory factors for their deteriorating growth performance
in recent times. For this reason, measures to facilitate the advancement of
technological capabilities and entrepreneurial activities in new manufacturing
sectors should be addressed with high priority in these countries. To
complement these diversification efforts, measures to foster more complex
activities within core industries through processes of technological advance
and organizational learning could be considered. Bearing in mind that the
per capita output did mostly stagnate in these countries recently, industrial
upgrading efforts have the potential to enhance productivity which in turn
translates into increased output performance. Next to product and process
upgrading, functional upgrading to enter into high-margin segments of the
production chain that domestic firms are not covering yet – e.g. design,
marketing and logistics – seems particularly promising in this respect;


• African Catching-up countries stand at a considerably earlier stage of
industrial development and might thus consider a somewhat differing focus
in their industrialization strategy. while they recorded remarkable growth
rates in certain industries over the past two decades, these successes are
mostly based only on the activities of a small number of firms. Thus, it seems
likely that the countries are not exploiting their full potential in these sectors
yet – making capacity expansion measures a promising strategic option.
on top of that, it is also critical to estimate the prospects of deepening
measures to create linkages between the few dynamic large firms on the
one hand and the large number of mostly unorganized or informal small
companies on the other. In contrast, although upgrading measures could
also be considered, it needs to be ensured that highly sophisticated process
or functional upgrading targets will not overburden the private sector, which
does not have advanced technological capabilities at its disposal yet. As
far as diversification strategies are concerned, the respective stakeholders
have to assess the potentials that new sectors could offer and critically
examine their strategic feasibility. However, while activities in the machinery
or precision instruments industries are possibly in relatively easy reach for
Forerunners or Achievers, they will require substantial and prolonged efforts
from Catching-up countries. Presumably labour-intensive activities could
be identified as medium-term targets while selected technology-intensive
sectors might offer long-term prospects;


cHAPTER 3. Industrial Diagnosis and Strategy Design




56 economic development in africa report 2011


• AfricancountriesthatareFallingbehindaswellasInfantstagecountriesare
in general facing more fundamental challenges than the groups discussed
above. For example, given the fact that there is not a critical number of firms
in most manufacturing industries, it has to be called into question whether
deepening measures should have a high priority at this stage. Instead,
strong government initiatives to support the emergence of entrepreneurial
activities as well as the generation of basic technological and managerial
capabilities could be considered. while diversification strategies that target
more complex sectors are definitely important to develop a long-term vision,
immediate action could be perceived to deserve a higher priority in these
countries. In this case, it will be particularly important to identify unused
potentials in manufacturing activities that are attractive and feasible for these
countries in the short-run. Accordingly, it is promising to learn from the past
experiences of more advanced industrializers that have similar characteristics
in order to identify potential easy diversification gains. In addition, it is
conceivable that the existing resource-based manufacturing activities are
already exploiting the existing output potentials to a relatively large extent.
Thus, on the one hand, mere capacity expansion measures in these less
attractive sectors might not be sufficient. However, on the other hand, it is
still advisable to investigate opportunities for upgrading in these sectors. For
example, moving from natural resource extraction or agricultural commodity
production to a higher degree of processing could be a promising starting
point.


F. steps in the industrial strategy
design process


Based on this international benchmarking framework, industrial policymakers
have to understand their countries’ relative position in order to define an industrial
strategy that covers manufacturing capacity upgrading, diversification and
deepening issues. Thus, the following five steps are essential for the design process
of a forward-looking strategy that aims at sustainable industrial development:


1. The identification of the most relevant comparators (country-benchmarks)
for the given country case


In most cases, policymakers tend to look at the most successful cases
of industrial development when designing national industrial development
strategies. This means that many African countries aim to imitate the




57


development paths of countries such as the Republic of korea or China.
However, from an economic perspective, it makes more sense to carefully
select benchmarks that more closely resemble their country. Structural
change analysis is an approach to pursue this exercise. So far, the selection
is based on three exogenous variables (country size, resource endowments
and population density). UNIDo is currently developing a more detailed
classification based on additional variables.


2. The identification of the most relevant industries for the given country case
at its current and future stages of development


So far, this identification is based on industries’ relative growth potential
(i.e. sectoral growth elasticity), considering stage of development and
endowments (country size, resource endowments and population density).
Potentially, additional information will have to be included in the analysis
in order to provide a more accurate picture and cover other aspects of
development as already indicated in the general framework in this Report
– for example, industries’ relative effect on a country’s employment creation
(i.e. sectoral employment elasticity), environmental sustainability, gender
mainstreaming, and so forth.


3. A comparative assessment of a country’s relative performance in the
identified most relevant industries (i.e. the level of efficiency in each industry)
in relation to the identified comparators


This analysis helps us to understand a country’s performance in a selected
industry relative to its country-comparators with the same endowment
structure and development stage as well as the global average. In this way, it
helps us to understand whether countries are using their current potential in
these industries in an efficient way. essentially, the currently unused potentials
or, in other words, the latent comparative advantages of a country, as well as
future potentials can be identified.


4. A comparative assessment of the structure of a country’s manufacturing
portfolio in relation to its identified comparators


Apart from the comparison of a country’s production capacity in individual
industries, it is also important to compare the structure of MVA of a given
country case with the manufacturing structure of its comparators, when they
were at the same stage of development. This exercise enables us to identify
the sectors which can be considered the most severe impediments to this


cHAPTER 3. Industrial Diagnosis and Strategy Design




58 economic development in africa report 2011


country’s manufacturing performance, or in other words, the country’s most
serious structural bottlenecks. In the above framework, this means that we
compare all sectors at a single strategic feasibility level (e.g. “immediately”)
and identify the sectors which are most severely underrepresented.


5. The prioritization of the actions needed to facilitate a sustainable
industrialization, both in the short and long run


Due to resource constraints, African countries are not able to focus on all
lagging manufacturing activities simultaneously. Thus, they have to consider
the sectoral evolutionary path12 (growth and decline) of individual sectors
and conduct a feasibility study to prioritize their actions based on their
current capabilities and endowments. Based on the country’s capacity and
structural performance in the most relevant sectors (steps 3 and 4), it is
possible to prioritize the most urgent actions. This can cover a prioritization
of the immediate as well as the long-term demand for action.


The next chapter will take up in more detail the why and how of industrial policy
design. But to conclude this chapter, it must be stressed that the processes of
industrial diagnosis and industrial strategy design, which have been discussed
here, need to be embedded within a pragmatic approach to policy formulation
which gives priority to policy learning and consultation. one of the most critical
success factors for this undertaking is collaboration among the key stakeholders.
on the one hand, a top-down approach with the government dictating the priorities
is not advisable because African governments do generally not have all the relevant
information about potentials in all manufacturing activities at their disposal (Altenburg,
2011). Furthermore, from a political economy perspective, rent-seeking behaviour
and adverse incentives should never be underestimated (Robinson, 2009). on the
other hand, a collective decision-making process still requires a committed and
visionary leader as well as a supporting technocratic elite that takes responsibility
for the industrialization path of the country. This leadership is also essential for the
coordination of the relations among all stakeholders, including various ministries
and agencies, central and local governments, the private sector as well as donors
(ohno, 2009; UNCTAD, 2009c). In sum, the design of an anticipatory and selective
industrial strategy can only be successful if the search and prioritization process is
participatory, transparent and collaborative. Industrial diagnosis and international
benchmarking need to be integrated with close consultation between the
government and private sector.




4CHaPTER
towards a new


industrial policy in aFrica:
the why and the how


oF policy-making




60 economic development in africa report 2011


This chapter focuses on the justification for industrial policy, particularly on its
functional and horizontal dimensions, and how it can be implemented. It draws on an
extensive recent literature to distil lessons from past experience in industrial policy,
identify principles behind success and define the most effective new approaches
to implementation. In general the debate on industrial policy has over the years
evolved from a focus on the rationale (the why) to a focus on how it could be made
to work (the how). However, these two are interrelated, as the content of policy is
inevitably linked to its justification.


a. the rationale For industrial policy


The case for industrial policy rests firstly on the proposition that structural
transformation, and in particular the development of competitive manufacturing
activities, is a necessary condition for sustained and inclusive economic growth
rather than simply a side-product of this process, and secondly, on the argument
that government action is necessary to promote structural transformation.


The first step in this rationale was addressed in the introduction to this Report
and will not be repeated here. However, it is important to note that those who are
sceptical of the benefits of industrial policy see the economic growth processes
in terms of an aggregate production function in which added inputs of various
kinds (capital, labour) and productivity growth (through disembodied technological
progress) lead to economy-wide increments to output. They do not think economic
structure matters, do not see some leading sectors as having more propulsive
effects on aggregate activity than others and do not conceptualize economic
change as a process of creative destruction in which some activities are in decline,
while other new activities are introduced into the economy through the innovative
activities of entrepreneurs. From this perspective, industrial policy is perceived as
irrelevant from the outset because structural transformation is not an integral aspect
of a successful growth process.


This Report is not based on this view, but then the question arises as to
why government action is necessary to promote structural transformation and
in particular the development of manufacturing capabilities. In the past, the
justification for industrial policy in developing countries rested on the need to protect
infant industries (Soludo, ogbu and Chang, 2004). However, in recent years, the
economic case for industrial policy has focused on either the need to counteract
market failures, or more broadly the need to address systemic failures and build
capabilities.




61


one important market failure identified in the literature is the presence of
information, learning and production externalities (Harrison and Rodriguez-Clare,
2009; lin and Chang, 2009). For example, Hausmann and Rodrik (2003) show
that when there is information spillover associated with discovering which goods
could be profitably produced in a country, entrepreneurial entry will be suboptimal
because the first entrepreneur to invest in cost discovery bears the cost, but
cannot appropriate the full social benefits. In such an environment, industrial policy
is called for to encourage entrepreneurial entry and promote self-discovery. The
need to overcome coordination failure also provides justification for industrial policy
(Aiginger, 2007; Rodrik, 2008). Coordination failure could arise, for example, when
the profitability of an activity depends on whether or not there are simultaneous
investments by other agents acting independently. In such settings, social welfare
could be enhanced through collective action. Another type of market failure that
is becoming more significant is the existence of environmental externalities, which
imply that environmental goods such as clean air or biodiversity are not taken into
account in private investment decisions. In the presence of market failures, markets
alone cannot be relied upon to promote industrial development because they
are either unable or too slow to bring about structural change and technological
progress, or do so in a way that ignores environmental costs.


while there is a strong theoretical case for industrial policy based on the
existence of market failures, it has been very difficult to provide conclusive and
robust econometric evidence on the impact of industrial policy due in part to
estimation problems and the absence of counterfactuals (Harrison and Rodriguez-
Clare, 2009). In this context, some analysts have presented a broader case for
government action that does not identify market failures according to deviations
from some abstract equilibrium in economic theory but rather identify such failures
in terms of the inability of the free play of markets to provide the goods and services
that are deemed necessary by society. Moreover, some authors have gone even
further and suggested that the issue is not market failure per se, but rather system
failure. System failure arises when the economic system as a whole fails to achieve
the development goals set by the government. This view draws attention not simply
to market institutions, but also to the weaknesses of non-market institutions, for
example, the capabilities of the firms and the networks in which they are embedded
(see Cimoli, Dosi and Stiglitz, 2009).


There are particularly strong arguments why the technological capabilities of
firms do not develop automatically through market forces. Firms do not have full
knowledge of technical alternatives and developing the requisite know-how, much


cHAPTER 4. The why and the How of Policy-Making




62 economic development in africa report 2011


of which comes as tacit knowledge that is gained through experience and practice,
is both costly and time-consuming. For firms in developing countries at early
stages of industrialization, mastering existing technologies is more significant than
introducing products and processes that are new to the world. However, firms may
not even know how to search and learn about global technological opportunities.
There are also major externalities in technological learning that mean that inter-firm
linkages are important to the process (see lall and Teubal, 1998).


Until recently, the conventional wisdom was that African countries and
developing countries in general, should not attempt to induce structural change
through industrial policy. The idea is that industrial policy is susceptible to capture
by vested interest groups. Furthermore, it is argued that governments cannot
successfully pick winners in fast-growing industries and that they do not have the
information and capacity necessary to conduct effective industrial policy. The view
that governments should not use industrial policy is based on the assumption that:
(a) self-regulating markets produce efficient outcomes and (b) government failure is
more costly than market failure. However, the recent financial and economic crisis
suggests that self-regulating markets can result in socially undesirable outcomes
and that the private sector is not necessarily more efficient than the government.
The capacity of African governments to successfully implement industrial policy
is an important issue that will be discussed below (see 4.D., Institutional and
governance issues).


Critics of industrial policy often argue that governments should move away from
targeting specific sectors and focus on providing an enabling environment for firms
to flourish. There are also economists who recognize the need for industrial policy
in developing countries, but stress that the role of governments in such endeavours
should be to create incentives for the private sector to exploit the country’s current
comparative advantage (lin, 2009; Harrison and Rodriguez-Clare, 2009). There are
both theoretical and empirical problems with this line of thought. At the theoretical
level, it treats comparative advantage as a static rather than a dynamic concept.
It assumes that a country cannot change or create comparative advantage in
products other than those it currently produces. Redding (1999) shows that
comparative advantage evolves over time and that selective trade and industrial
policies that move an economy from low to high productivity exports may be welfare
improving.


empirically, the history of industrialization of currently advanced countries as
well as emerging economies suggests that export specialization is determined
not only by factor endowments but also by policy. In other words, policy matters.




63


Comparative advantage can indeed be created in new products through industrial
policy. examples are legion, but a few cases will suffice. Before the 1970s, Chile
was not an exporter of salmon. However support provided by a public agency
(Fundación Chile) since the late 1970s, has made it one of the world’s leading
salmon exporters. In the 1960s, the Republic of korea was not deemed to have a
comparative advantage in production of steel. However, in 1973 the government
established the Pohang Iron and Steel Company (PoSCo) and offered it various
forms of assistance. Consequently, by 1985 the Republic of korea became a major
producer of steel with lower unit costs of production than Japan and the United
States of America (Redding, 1999). In Brazil, public ownership of the domestic
aircraft company eMBRAeR and government support in the form of subsidized
credit and investments in R&D played an important role in the development of
the aircraft industry (Rodrik, 2008). There are also cases in Africa where industrial
policy has led to success in either developing new export products or adding value
to existing products. For instance, in ethiopia, State activism played a critical role
in the successful development of the cut flower industry (box 1). In Côte d’Ivoire,
government support led to an increase in the share of cocoa grinding in cocoa
exports, making the country the world’s third largest cocoa processing country
since 1998/99 (kjollerstrom and Dallto, 2007).13


box 1. floriculture in Ethiopia: an african success story


Ethiopia is a major exporter of primary commodities. However, with government support,
it has successfully developed a globally competitive floriculture industry. The country’s
rank among top exporters of cut flowers improved from twenty-four in 2001 to fifth in 2007.
The domestic floriculture industry began in the 1980s with exports by two State-owned
enterprises: Horticultural Development Enterprise and Upper Awash Agro-Industry En-
terprise. Since then, foreign investors (particularly, British, Dutch, and Kenyan) and local
entrepreneurs have entered the industry.


The Government provides incentives to exporters in the industry through various chan-
nels, including export credit guarantees and foreign exchange retention schemes. The
industry employs about 50,000 people but the government’s target is to increase it to
70,000. In 2008/09, Ethiopia exported 1.3 trillion flower stems and earned $130.7 million
in export revenue. The main export destinations for Ethiopia’s flowers are the Netherlands,
Germany, the United States and Japan.


In terms of flower type, roses are the most important, accounting for over 80 per cent of
firms and 60 per cent of total cultivated land. Field flowers account for 26 per cent of total
cultivated land and flower cuttings represent 14 per cent of total cultivated land.


Source: Sutton and Kellow (2010).


cHAPTER 4. The why and the How of Policy-Making




64 economic development in africa report 2011


b. key principles oF new industrial policy


A consensus is slowly emerging in the literature on the key principles which
policymakers should consider in the formulation and implementation of industrial
policy to enhance the likelihood of success. These include:


Supporting and challenging entrepreneurs


There is the understanding that government support to private firms is
necessary to influence and direct their investments to activities or sectors deemed
critical for long-term economic growth and development. However, new thinking
on industrial policy also recognizes that the role of the government is not only to
support entrepreneurs. It is also to challenge them to perform better and become
more competitive in export markets. This implies that any support that businesses
receive from the government is made conditional on the achievement of certain
overall policy goals, such as increased investment or exports. governments that
have had success in using industrial policy to enhance competitiveness and
promote industrialization are those that have been able to enforce discipline and
terminate assistance to firms when there is evidence that they are not performing.
In this context, there is a need for sunset clauses to ensure that inefficient firms are
not supported indefinitely. This reflects the view that industrial policy is not about
picking winners per se, but also about letting the losers exit the market.


Encouraging experimentation, search and learning by both governments
and the private sector


An important feature of the new thinking on industrial policy is the emphasis
on industrial policy as a social learning or search process in which the government
interacts with the private sector to identify the key constraints facing domestic
firms and how to overcome them (wade, 2009; Rodrik, 2008). The idea here is
that governments do not have enough information about the market failures that
constrain industrial development and would need to interact with the private sector
on an ongoing basis to elicit the relevant information. In doing so, however, there is
a need for transparency and accountability on the part of the government to ensure
that its involvement with the private sector does not encourage rent-seeking and
corruption. The new emphasis on industrial policy as a learning process rather than a
list of policy instruments differs from the traditional top-down mode of implementing
industrial policy, in which the government sets sectoral priorities and uses certain




65


policy instruments to support the preferred sectors. Industrial policy is also oriented
to encourage search processes by the private sector so that it can discover what
can be competitively produced and it can maximize the diffusion of best practices.
Unforeseen development trajectories can emerge through this process.


Adopting a mix of functional, horizontal and vertical measures


Functional measures, such as improving the general investment climate and
upgrading infrastructure, remain an important strand of industrial policy. However,
successful industrial policies generally also include horizontal measures, which
include the promotion of socially desirable activities across sectors, such as
the institutionalization of technological learning routines or the organizational
competences required for exporting, as well as vertical policies that focus on
particular products or sectors or clusters of activities. The horizontal activity of
firm formation is particularly important in very low-income countries. The relative
importance of these different types of measures may also change over time as
governance capabilities develop.


Focusing on lifting binding constraints


There is a tendency for governments to put in place ambitious industrial
development programmes without recognizing limits imposed by available
resources. This generally results in poor development outcomes. A credible
and effective industrial policy should target specific constraints facing domestic
entrepreneurs. This requires identifying the key binding constraints facing domestic
firms as well as possible measures that could be put in place to lift or relax them.


Monitoring, evaluation and performance criteria


Because of the scarcity of public resources, the risk of political capture and the
need for public legitimacy, it is vital that decisions about sectors and activities to be
supported be made in a transparent manner, based on research and consultation
with firms and other relevant stakeholders. Furthermore, once decisions have been
made regarding which activities to support, there should be clear benchmarks or
criteria for judging success or failure. For example, the performance of supported
firms in export markets could be used as an indicator of success, as was the
case in east Asia. There is also a need for continuous monitoring and independent
evaluation of the activities of supported firms to ensure that non-performing firms


cHAPTER 4. The why and the How of Policy-Making




66 economic development in africa report 2011


do not continue to receive support. This is important because the implementation
of industrial policy is a learning process fraught with errors and mistakes. It is
important that quick and appropriate action is taken when errors are identified.


Leadership, coordination and accountability


effective industrial policymaking requires political leadership at the top, as well
as coordination across ministries and departments. It also requires the allocation
of clear tasks and responsibilities across government departments. lack of a
clear division of labour and coordination across departments often leads to inter-
ministerial competition and policy incoherence with negative consequences for the
effectiveness of industrial policies. Rodrik (2008) stress the importance of political
leadership in fostering accountability in the industrial policymaking process. In
particular, it is crucial that a high-ranking government official be responsible for
industrial policy and can be held accountable when things go wrong. Transparency
of the industrial policymaking process is also necessary to check rent-seeking
behaviour.


Recognizing domestic political conditions


In the design and formulation of industrial policy, it is important for policymakers
to recognize the political circumstances and environment in which it will be
implemented because any industrial strategy or programme that does not take into
account the political feasibility of proposed policy actions is bound to fail. Robinson
(2009) argues that the main reason industrial policy was successful in east Asia but
failed in Africa has to do with differences in the political equilibrium of these societies.
Promoting industrialization is not only about economic policies. It is also about
the politics of policy. The power structure, political institutions and environment
prevalent in a country affect the set of feasible policy actions. Consequently,
whether or not industrial policy succeeds or fails in promoting industrialization in a
country depends in part on the degree in which the incentives of political leaders
are aligned with those of society.


Recognizing country heterogeneity


There is an understanding that industrial policy should be tailored to the
needs and challenges facing each country. A one-size-fits-all approach will be
counterproductive and unlikely to achieve desirable outcomes. As a result, country-




67


and context-specific measures are necessary, and policymakers should be mindful
of this fact in the design and implementation of industrial policy. Copying the
policies and strategies used by other countries without regard for the differences in
structure, endowments, political situation and global environments will lead to poor
outcomes. The content of policy needs to be calibrated to the industrialization path
chosen, resource requirements and availability, geography, and domestic political
realities (Rodrik, 2008).


c. the areas and instruments oF
new industrial policy


The new approach to industrial policy recognizes that industrial policy
is implemented through coordinated action in a number of different policy areas.
Policy goals are essentially achieved through private enterprises though there
may be a need for public enterprise pragmatically to fill gaps as needed and to
enter exceptionally risky areas, for example, the provision of long-term finance.
given the private sector focus of policy, the basic instruments should be used
to change the signals and incentives that agents face to stimulate economic
activity in priority sectors and priority activities. essentially this should not be a
matter of telling the private sector what to do. Rather it is a question of providing
information, incentives and resources in such a way that the private sector, through
the pursuit of profit, behaves in such a way that the national development vision
can be gradually achieved. The policy instruments should nudge entrepreneurs
in the desired directions, for example through the formation of new networks of
producers (wade, 2010). what is thus required is a smart industrial policy rather
than brute dirigisme.


Different policy instruments are relevant in different policy areas.


Policies to promote entrepreneurship. entrepreneurs play an important role in
the development process. Consequently, measures to promote entrepreneurship,
in particular management skills and the ability to perceive and exploit profitable
opportunities, are important. governments should provide incentives to firms to
encourage them to enter into foreign markets and invest in exploring new activities.
This could be in the form of tax breaks for investment in new products. It could also
take the form of subsidized credit.


cHAPTER 4. The why and the How of Policy-Making




68 economic development in africa report 2011


Technology and innovation policies. Technological upgrading should play an
essential role in all African industrialization efforts. It is only with the accumulation of
technological capabilities that African manufacturing can contribute to the sustained
economic development of the continent. Increased attention to the promotion of
science, technology and innovation is a hallmark of recent discussions of industrial
policy. The importance of scientific and technological innovation is evidenced by
the fact that countries that have well-developed and successful manufacturing
sectors tend to be those that have invested in the accumulation of technological
knowledge and capabilities. Industrial policy is crucial to enhancing access
to technological knowledge. This could take the form of stimulating domestic
production of technological knowledge as was the case in the Republic of korea.
But it can also take the form of accessing existing technology through FDI, licensing
or the purchase of capital equipment. Unlike the Republic of korea, Singapore
has relied on FDI as a source of access to foreign technology. The use of local
content rules as an integral element of FDI policy, the granting of subsidies for
technology imports, and the support of local knowledge creation by setting up
science parks are measures that have been taken by some countries to enhance
technological knowledge and capacity. Incentives provided to entrepreneurs should
also be geared towards inducing technological learning and innovation. Moreover,
an effective technology infrastructure is invaluable for upgrading the competitive
capabilities of industries, particularly in developing countries (kraemer-Mbula and
wamae, 2010).


Education and skill-formation policies. education and skill-formation policies
should go hand in hand with technology and innovation policies because human
capital and specific technological knowledge are essential inputs to innovation.
In addition, manufacturing firms need reliable access to labour with appropriate
skills in order to produce high-quality goods that can survive competition in
international markets. Clearly, the type of education promoted by governments
has consequences for industrial development. For example, an education system
that places priority on scientists and engineers is likely to have a better chance
of promoting industrial progress than one that focuses on producing artists. In
this regard, the new approach to industrial policy recognizes the need to redirect
policy and resources towards the development of appropriate human capital.
Polices aimed at increasing human capital should be designed so as to improve
the quality of human capital as well as respond to the needs of industry in terms of
technological capabilities and knowledge.




69


An analysis of the current African experience suggests that more selective
action should be used in education and skill formation. Policies should aim at
enhancing tertiary education, establishing national training institutes and providing
incentives for firms to increase in-house training. The experience of east Asian
newly industrialized countries has shown that the availability of an educated labour
force is central to the development of an industrial structure. But higher education
is not enough: education in technical and scientific subjects is what makes the
difference. government should use targeted incentives to facilitate entry into
technical and scientific education that provides the skilled labour force crucial for
industrialization.


Finance support policies. governments should implement policies designed to
ease access to credit for SMes, which suffer considerably from a lack of internal
resources. They should also improve such access for innovative firms because
these may become the leading drivers for the followers. In particular, governments
should intervene to link the informal credit systems to the formal ones in order to
enhance access to financing for innovation and production upgrading. one way to
make these policies particularly effective is to make access to loans and grants for
firms conditional, for instance, on the effective implementation and maintenance of
quality and sanitary standards.


Developing countries can also use discretionary credit lending and fiscal policy
to influence the evolution of economic activity, direct resources to priority sectors
and condition the behaviour of private firms. For example, several countries in
east Asia and latin America have effectively used development banks to provide
preferential credit to industry. These banks are useful in ensuring that domestic firms
have access to stable sources of long-term finance for investment. It is important,
however, for the provision of preferential credit by development banks to be linked
to firm-specific performance requirements to ensure better development results.
Furthermore, to reduce the incentives for rent-seeking behaviour, the provision of
credit should target industries with high linkage effects, high value added, high
technology intensity and high market potential.


Trade policies. Trade policies are also an important component of industrial
policy. while industrial policy has been associated in the past with protection and
import substitution, the orientation now is towards an open-economy industrial
policy. Such a policy is not simply focused on exports but also recognizes the
existence of opportunities in import replacement. There is an understanding that
increasing trade integration and promoting regionally integrated value chains may


cHAPTER 4. The why and the How of Policy-Making




70 economic development in africa report 2011


enhance industrial competitiveness, favour regional economic transformation
and increase production diversification in Africa (UNeCA, 2010). But it is also
recognized that the process of liberalization should be gradual and that it should
be accompanied by a strategy of industrial restructuring and upgrading in order
to allow firms to prepare for the challenges arising from liberalization. That said,
African countries should pay attention to export promotion because there is some
evidence that exporting increases firm productivity in the region (Van Biesebroeck,
2005a). Recent evidence suggests that the collection of market information, the
search for specific market niches and fostering collaboration between export
enterprises are government measures that are positively correlated with firm export
performance. African governments should make use of these measures to promote
exports. They should also consider creating export processing zones to reduce
transactions costs for exporters. while there is no unique model for zone design and
development, Farole (2011) describes two elements that characterize successful
export-processing zones. First, they should be used as part of a broader package
of industrial development in which both government and private sector should be
involved. Second, incentive schemes have to be maintained stable over time and
monitoring of the activities of export-processing zones is needed. The next chapter
contains further discussion on trade policies within the wTo framework.


Cluster policies. Supporting industrial cluster creation and development is seen
by many scholars as a particularly promising strategy to foster industrialization
and growth. The cluster level appears to be appropriate for the design and
implementation of technology policies. In particular, there are important economies
of scale in service delivery and in the development of local systems capabilities
that make implementation at the cluster level of the various policies more efficient.
Mytelka (2007) emphasizes that government intervention should not try to create
industrial clusters from scratch but instead it should create – through appropriate
policies – an environment in which a cluster could eventually emerge. Zeng (2008)
argues that there cannot be general policy suggestions for cluster development
given the heterogeneity of countries in Africa. Nevertheless, government measures
should include efforts to (a) encourage further knowledge acquisition, adaptation
and diffusion; (b) strengthen educational institutions and technology institutes and
their link with the business sector; (c) strengthen and upgrade skill training; and
(d) provide sound infrastructure. In particular, the government should design and
implement policies to support SMes in the process of improving their supply in
terms of characteristics, quality and timing. In this regard, public procurement and
government demand may serve as an important stimulus.




71


d. institutional and governance issues


An important constraint on effective industrial policy in Africa is weaknesses
in governance capacities. experience from east Asia has suggested two critical
institutional ingredients for success. The first was the existence of an effective,
dedicated and capable bureaucracy. The second was that State institutions
operated in a situation of embedded autonomy in the sense that they were closely
collaborating with the private sector to formulate and implement policy, but at the
same time they were not influenced to favour particular interests. In Africa, State
capacities for development policy formulation and implementation have been
severely eroded and after years of neglect, ministries of industry are often weak.
Against this background, some argue that however desirable an industrial policy is
in Africa, it will only lead to huge societal costs owing to government failure.


while it is important to be cognizant of the governance challenge of industrial
policy, it is too pessimistic to argue that it is impossible. Firstly, it is clear from the
east Asian success story that there was a deliberate strategy to build up a few
strategically important agencies rather than to improve government effectiveness
across the board. Also the capabilities of bureaucracies were built up over time,
with an emphasis on policy learning.


This implies that an important feature of the development of industrial policies
in Africa should be the adoption of policies to enhance government capabilities in
managing the industrialization process. In addition, since most of the strategies
and measures discussed imply some form of government intervention, there is
a need to take into account government capabilities in making decisions on the
scope of intervention in an economy. In this regard, and given their limited capacity,
African governments should not attempt the kind of pervasive interventions used in
the past in the newly industrialized countries. They should be pragmatic and give
priority to improving government capabilities for industrial diagnosis and strategy
design, as well as policy formulation, implementation, monitoring and evaluation.


e. the importance oF complementary policies


Industrial policy is likely to be ineffective in the absence of complementary policies
that support its objectives. In this regard, macroeconomic stability is critical, and in
successful cases, the macroeconomic environment is characterized by domestic
investment, domestic savings and exports all growing in absolute terms and as a


cHAPTER 4. The why and the How of Policy-Making




72 economic development in africa report 2011


share of gDP. In effect, the process of structural transformation is underpinned by
a strong investment-profits nexus and a strong export-investment nexus (UNCTAD,
2008).


The need for policy coherence calls for consistency between industrial policy
and other domestic measures, such as exchange rate policy, monetary and fiscal
policies and policies that affect infrastructure development and the investment
climate. Some priorities in this regard are highlighted in this section.


Avoiding exchange rate overvaluation


exchange rate policy affects the development of manufacturing firms, as well
as their ability to compete in international markets. In particular, a competitive
exchange rate promotes exports and allows domestic firms to seize opportunities
created in international markets. when the exchange rate is overvalued relative to its
equilibrium value, it represents an implicit tax on exports and a disincentive for firms
to invest in the export sector. If African countries wish to make significant progress
in achieving their industrialization objectives, they will have to avoid exchange rate
overvaluation by taking measures such as controlling inflation, managing natural
resource wealth in a manner that minimizes the risk of the Dutch disease and
adopting more flexible exchange rate regimes, where appropriate (osakwe and
Schembri, 2002).


Adopting appropriate monetary and fiscal policies


The effectiveness of industrial programmes and policy also depends in part
on the extent to which monetary and fiscal policies are consistent with promoting
industrial development. In particular, the mix of monetary and fiscal policies has to
be such that firms have better access to credit, and real interest rates are not at a
level that deters investment. This is particularly important because domestic firms
tend to rely more on retained earnings rather than bank lending as a source of
finance as a result of the poor access to and high cost of credit in African countries
(Ramachandran, gelb and Shah, 2009). There is a need to align the stance of
monetary and fiscal policies with the objective of promoting industrial development,
while ensuring that the proposed measure does not lead to medium and long-term
macroeconomic instability. In east Asia, monetary and fiscal policies supported
a dynamic investment-profit nexus that provided an important component of
increased domestic savings (UNCTAD, 2008). How this can be achieved in Africa
is an important issue.




73


Strengthening infrastructure development


The inadequate and poor quality of infrastructure in Africa is a major obstacle to
the development of competitive industries in the region. It is estimated that Africa
loses 1 percentage point per year in per capita economic growth as a result of its
infrastructure deficit. The infrastructure problem is evident in areas such as power,
water supply, transport and communications, which are critical to the successful
development of manufacturing enterprises. Furthermore, the problem is not limited
to poor network coverage but also manifested in the exceptionally high price of
infrastructure services in Africa relative to global standards (table 6). The high cost of
infrastructure in Africa increases trade costs and reduces productivity of African firms
by about 40 per cent (Foster and Briceno-garmendia, 2010). Public investments will
be needed to address Africa’s infrastructure problem. However, since governments
do not have the resources they need to address all infrastructure needs, the private
sector should also be provided incentives to either participate or contribute more
to infrastructure development in the region. In addition, the setting up of special
economic zones could enhance firms’ access to infrastructure. when special
economic zones are provided with good infrastructure, have management that is
sensitive to the needs of firms and are supported with effective public institutions,


Table 6. Cost of infrastructure services in africa


sub-saharan africa Other developing regions


Power tariffs
($ per kilowatt-hour)


0.02-0.46 0.05-0.1


Water tariffs
($ per cubic meter)


0.86-6.56 0.03-0.6


Road freight tariffs
($ per ton-kilometre)


0.04-0.14 0.01-0.04


Mobile telephony
($ per basket per month)


2.6-21.0 9.9


International telephony
($ per 3-minute call to the US)


0.44-12.5 2.0


Internet dial-up service
($ per month)


6.7-148.0 11


Source: Foster and Briceno-Garmendia (2010).
Note: Prices for international telephony and internet represent all developing


countries, including Africa.


cHAPTER 4. The why and the How of Policy-Making




74 economic development in africa report 2011


they can be effective vehicles for promoting industrialization. Furthermore, African
countries should be aware that not all manufacturing industries necessarily require
the same infrastructure. Based on the selection of specific target sectors and
in close consultation with the respective domestic private sector, a pragmatic
prioritization of required improvements may thus be expedient.


Improving the investment climate


The 2010 Ministerial Statement adopted at the 3rd Joint Annual Meetings
of the African Union Conference of Ministers of economy and Finance and the
UNeCA Conference of Ministers of Finance, Planning and economic Development
recognizes the importance of a good business environment for promoting
domestic as well as foreign investment. This reflects the fact that Africa’s relatively
burdensome regulatory environment increases trade costs and militates against the
development of competitive manufacturing firms in the region. while this is just one
of the many obstacles to investment in the region, there is the recognition by African
policymakers that it has to be dealt with to enhance prospects for manufacturing
development. In this regard, efforts should be strengthened to reduce the regulatory
and administrative burdens associated with investment in the region. In addition,
the sectoral dimension of investment climate perceptions and requirements should
also be taken into consideration.


F. Financing industrial development:
where will the resources For
industrialization come From?


As African countries design and implement industrialization programmes and
policies, they are beginning to come to grips with the realization that it is not a costless
endeavour. It requires the mobilization of resources to finance public investments in
key priority areas, particularly infrastructure, education and technology acquisition.
It also requires private investments in the industrial sector. In this regard, the degree
to which African countries are successful in achieving their industrial development
objectives will depend in part on the extent to which they are able to mobilize
the required resources and channel them into productive investments in priority
sectors. Consequently, African countries should pay attention to both resource
allocation and resource mobilization issues in the design and implementation of
policies to support their industrial development programmes.




75


In principle, African countries could finance their industrial development
programmes through various sources: domestic savings; borrowing from banks
and finance institutions; FDI; harnessing South–South cooperation as a potential
source of development finance; and encouraging traditional donors to direct more
official development assistance (oDA) towards promoting industrial development
in the region. However, given the heterogeneity of African countries, there will be
differences across countries in the degree of reliance on each of these potential
sources of finance.


Strengthening domestic resource mobilization


Industrial development will have a better chance of success if there is local
ownership of the process and outcome. experience has shown that reliance on
external sources of finance can limit the government’s policy space and its ability
to adopt alternative development paths and lead the development process.
Consequently, for countries that have a choice, domestic resource should be
the preferred source of financing industrialization programmes. However, apart
from the resource-rich economies, most countries in the region have very small
domestic savings and will need to exploit other sources of development finance for
industrialization. In 2009, gross domestic savings as a percentage of gross domestic
product was 16 per cent in sub-Saharan Africa, compared with 27 per cent for east
Asia and the Pacific, 20 per cent for europe and Central Asia, and 23 per cent for
latin America and the Caribbean.14 Factors constraining savings mobilization in the
region include the low level of income, which means a low tax base; reliance on a
narrow set of taxes; inefficient tax administration; political instability; and the low
level of financial development (UNCTAD, 2009b). High tax evasion, due in part to
dissatisfaction with the quality of public spending (or services) is also a factor.


African governments should enhance the domestic mobilization of private and
public savings by instituting fiscal reforms, making more efficient use of public
resources and developing and enhancing access to financial institutions. They
should strive to maintain political stability, stem capital flight and adopt a cautious
and gradual approach to trade liberalization to ensure that it does not erode the fiscal
base. Many African countries rely on trade taxes as a major source of government
revenue. For instance, in countries such as Benin, Togo, Madagascar, Swaziland,
lesotho, Uganda, Namibia, Sierra leone, and liberia, trade taxes accounted for
more than 40 per cent of fiscal revenues in 2008. As these countries participate
in the Doha Round trade negotiations or the economic partnership agreements


cHAPTER 4. The why and the How of Policy-Making




76 economic development in africa report 2011


with the european Union (eU), they should be mindful of the fact that the outcome
will have serious consequences for government revenue, at least in the short run.
Therefore, as they negotiate it is important that they leave themselves some policy
space (or flexibility) to enhance capacity to support their industrial development
programmes.


The resource-rich countries, for example, Algeria, equatorial guinea, gabon,
libyan Arab Jamahiriya and Nigeria, face a less binding finance-constraint than
the resource-poor countries because they derive significant revenue from natural
resources, especially in the context of rising commodity prices. If their export
revenue is channelled into investments in infrastructure, education and technology
acquisition, they are likely to make significant progress in inducing structural change
and lay the foundation for high and robust growth. In this regard, a major challenge
facing resource-rich countries is how to put in place mechanisms for checks and
balances to ensure that policymakers do not mismanage natural resource wealth.
Transparency in the management and use of resource wealth is one way to reduce
rent-seeking and ensure that revenue from commodity booms are harnessed
and channelled into productive activities. The extractive Industries Transparency
Initiative designed to ensure that the extractive industries are subject to public
scrutiny should be supported and more countries be encouraged to participate
in it. The media also has an important role to play in promoting transparency and
ensuring that natural resource wealth is not squandered. However, journalists in
Africa pay very little attention to the operations of the extractive industries, due in
part to poor knowledge of the sector, inadequate resources for research and in-
depth coverage, and lack of journalistic freedom (Canonge and Purcell, 2010). It
would be desirable for the international community to provide training and support
to the media to enhance their ability to cover the operations and activities of the
sector.


Borrowing from banks and finance institutions


The investments required for industrial development can also be financed through
borrowing from domestic and international financial markets. But commercial
banks tend to focus on short-term lending, while industrial development requires
long-term finance. Furthermore, African countries face high-risk premiums and
have difficulties raising money in international financial markets. Consequently, if
borrowing is to play an important role in financing industrialization in the region, it
has to come from development finance institutions. National development banks




77


have been important sources of lending for industrial development in industrialized
developing countries in Asia and latin America. They also played important roles
in directing credit to priority sectors in several African countries until they were
disbanded, mostly in the 1980s, following the adoption of structural adjustment
programmes. African countries should either re-establish or strengthen existing
development banks to enhance domestic entrepreneurs’ access to long-term
finance. In doing so, however, governments should establish well-defined criteria
for lending by these banks as well as put in place a mechanism to monitor and
evaluate their performance.


Regional institutions such as the African Development Bank, the African Finance
Corporation and the Development Bank of Southern Africa can also contribute to
the process. They are already playing important roles in financing infrastructure
investments in the region. African countries should make more efforts to harness
the resources of these institutions to unlock the region’s industrial potential.
Multilateral development finance institutions could also provide finance for Africa’s
industrialization. However, although they have more resources than the national
and regional institutions, they tend to link loan disbursements to policy conditions
that often hamper the ability of recipient countries to adopt the development path
they deem necessary. Consequently, for African countries that have a choice,
preference should be for the national or regional option.


Attracting foreign direct investment


Foreign direct investment is a potential source of finance for industrialization in
the region. It can also provide access to required skills and technology especially
at the early stages of industrialization. There is evidence that Africa is increasingly
tapping into this source of development finance. For example, FDI flows to the
region increased from $2.8 billion in 1990 to $58.6 billion in 2009 and its share
of global FDI flows rose from 1.4 per cent to 5.3 per cent over the same period.
Although the region’s share of global FDI is small, FDI is increasingly an important
source of investment in the region. The share of FDI in gross fixed capital formation
surged from 3.2 per cent in 1990 to 24.1 per cent in 2007.


In terms of value, FDI flows to Africa tend to be concentrated in the mining
industry. However, there is evidence that significant investment activities are also
taking place in manufacturing. For instance, over the period 2003–2009, the
manufacturing sector accounted for about 41 per cent of the total number of


cHAPTER 4. The why and the How of Policy-Making




78 economic development in africa report 2011


greenfield investment projects in Africa (UNCTAD, 2010a). one of the challenges
facing African countries is how to channel more FDI into priority sectors, such as
manufacturing, deemed critical for their industrialization. The tendency has been
for African countries to respond to this challenge by offering generous incentives
to foreign investors. However, it has not had the desired effect in terms of inducing
structural transformation and industrialization. It would be desirable if African
countries adopted a more targeted approach to the use of incentives to ensure that
they attract FDI into priority sectors without eroding the fiscal base. The promotion
of FDI should not be done at the expense of domestic investment. There is also a
need for African countries to encourage joint ventures and hence create linkages
between FDI and the domestic economy.


Seizing new opportunities created by South–South cooperation


The increasing role of developing countries in global finance, trade, investment
and governance has opened new opportunities for economic cooperation between
Africa and non-African developing countries. The large developing countries
such as Brazil, China, India, and Turkey, have relatively large financial resources
as well as appropriate skills and technology that African countries could benefit
from by strengthening partnerships. Although data constraints do not allow for a
comprehensive estimate of the scale of resource flows from developing countries
to Africa, there is some evidence that they are increasingly important sources of
official flows and investment to the region (UNCTAD, 2010b). Infrastructure is one
area where Africa’s developing-country partners, particularly China, are making
significant contributions that could have a positive impact on the region’s quest
for industrialization. over the period 2001–2007, China’s infrastructure finance
commitment in sub-Saharan Africa increased from $470 million to $4.5 billion. India,
kuwait, Saudi Arabia and the United Arab emirates are also making significant
investments in infrastructure in Africa (UNCTAD, 2010b).


Using official development assistance in support of industrial
development


Unlike the resource-rich African countries, the resource-poor countries in
the region tend to have low domestic savings and face difficulties accessing
international capital markets. For this group of countries, access to oDA could
make their finance constraint less binding and provide some finance for industrial
development. For oDA to play this role, however, a substantial part of it would




79


have to be allocated by donors to supporting industrial development. At the
moment, industrial development is not on the priority list of traditional donors, since
industry accounts for an insignificant share of oDA flows to the region. gross oDA
disbursement for industry by members of the oeCD Development Assistance
Committee as a percentage of their oDA disbursement in Africa for all sectors was
about 0.8 per cent for the period 2004–2008. This partly reflects the increased
emphasis by traditional donors on the social sectors since the adoption of the
Millennium Development goals in 2000. If oDA is to play a positive role in economic
transformation in Africa, then it must be redirected by donors towards supporting
industrial development and the development of productive capacity.


Africa is a major recipient of oDA flows, particularly from the Development
Assistance Committee. Aid flows to the region increased from $15.6 billion in 2000
to $44 billion in 2008, representing an increase in the region’s share of total oDA
from 31 per cent to 34 per cent. There are concerns that the devastating impact
of the recent financial crisis on oeCD economies may result in a decrease in oDA
to developing countries in the short to medium term. To the extent that this fear
materializes, it could make oDA a less attractive source of finance. while oDA
can and has played a useful role in promoting Africa’s development, it should be
recognized that it is often associated with policy conditions that may make it difficult
for recipient countries to lead and own the development process (UNCTAD, 2006).
Furthermore, it is a very volatile and unpredictable form of development finance
(Bulir and Hamann, 2006). Consequently, African countries should take this factor
into account as they seek finance for their industrial development programmes.


g. the role oF regional integration


The responsibility for industrial development rests primarily with national
governments. However, regional integration has enormous potential to contribute
to the realization of national industrial development objectives (UNCTAD, 2009a).
globalization has led to the intensification of competition in global markets, implying
that if African countries are to make any significant progress in penetrating export
markets for manufactures, they would have to take proactive steps to reduce both
the direct and indirect trade costs facing domestic firms in the region. Available
evidence indicates that the indirect costs stem largely from poor infrastructure, high
regulatory burden, and political instability (Ramachandran, gelb and Shah 2009;
Bigsten and Soderbom, 2009).15 In each of these areas, regional integration has an


cHAPTER 4. The why and the How of Policy-Making




80 economic development in africa report 2011


important role to play in lifting the constraints. For instance, regional cooperation
in the development of infrastructure would lower transactions costs, enhance
the development of regional markets, and make manufacturing production and
exports more competitive. Regional integration can also contribute to reducing the
regulatory burden facing African firms by, for example, harmonizing policies and
serving as an external agency of restraint on domestic policies. In this context, the
recent adoption of the west African Common Industrial Policy by the economic
Community of west African States (eCowAS) Council of Ministers is welcome (box
2).


Regional integration is an effective vehicle for promoting peace and security
which are necessary conditions for the sustainability of industrial development.
Regional institutions played a key role in defusing political crises in liberia, Sierra
leone, kenya and Zimbabwe. They are also involved in resolving recent political
turmoil in Madagascar, Cote d’Ivoire and libyan Arab Jamahiriya. By enhancing
prospects for peace and security, regional integration reduces uncertainties
associated with investment, thereby encouraging enterprise and entrepreneurship
development in Africa.


box 2. The West african Common Industrial Policy


On 2 June 2010, in Abuja, Nigeria, the ECOWAS Council of Ministers adopted the West
African Common Industrial Policy (WACIP) and directed the ECOWAS Commission to
take steps to ensure its implementation. The adoption of WACIP is a bold step by ECOW-
AS member States to exploit their comparative advantages and complementarities and to
promote industrial development. The specific objectives of WACIP are as follows:


To diversify and broaden the region’s industrial production by progressively raising the
processing of export products by an average of 30 per cent by 2030;


To progressively increase the manufacturing industry’s contribution to regional GDP to
an average of over 20 per cent in 2030, from its current average of between 6 and 7 per
cent;


To improve intra-community trade from the present 13 per cent to 40 per cent by 2030;


To expand the volume of exports of manufactured goods from West Africa to the global
market from the current 0.1 per cent to 1 per cent by 2030.


ECOWAS was formed in 1975 and has 15 members, namely, Benin, Burkina Faso, Cape
Verde, Côte d’Ivoire, the Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger,
Nigeria, Senegal, Sierra Leone and Togo.


Source: http://allafrica.com/stories/printable/201006110544.html




81


Regional integration can also facilitate the development of financial markets
and improve access to credit, enhancing the competitiveness of domestic
manufacturing firms. Recent surveys of African firms indicate that access to credit
is a major obstacle to investment in the region. This constraint is also reflected
in the reliance of most firms in the region on internal sources of finance for their
operations (Ramachandran, gelb and Shah, 2009). Reasons for lack of access
to credit by African firms include underdeveloped financial markets, high collateral
requirements, the high cost of credit, the lack of credit history and crowding-out
associated with public-sector debt.


Building a robust regional market is critical to unlocking Africa’s manufacturing
potential and preparing it to compete in global export markets. In particular, given
the region’s current lack of competitiveness in the global market for manufactures
and the positive role that regional integration could play in addressing the issue,
African countries should adopt an industrialization and export strategy that
emphasizes the regional market as an engine of growth. This is important because
it is evident that if African countries are to succeed in increasing their share of
global trade, they will have to focus on rapidly growing export markets or those
with high potential for future growth. The bulk of Africa’s exports go to developed
countries, rather than the fast-growing economies of the world. In 2009, developed
countries accounted for about 60 per cent of Africa’s total merchandise exports.
Asia accounted for 24.3 per cent, while Africa accounted for 12.3 per cent and
latin America, 3.1 per cent. The low share of intra-African trade in Africa’s total
exports is disturbing, given that the region is one of the rapidly growing regions of
the world. over the period 2001–2010, 6 of the 10 fastest-growing economies in
the world were in sub-Saharan Africa.16 Furthermore, growth forecasts indicate that
sub-Saharan Africa will account for 7 of the 10 fastest-growing economies over
the period 2011–2015. African countries are increasingly diversifying their exports
towards Asia in order to take advantage of the growing export market. However,
the African regional market potential remains largely untapped, as evidenced by
persistently low intra-African trade.


Another reason why African countries should exploit the regional market as
a basis for fostering industrialization is that, unlike other regions, Africa has a
rapidly growing population, which combined with high income growth, will make
it an important source of export demand in the medium to long term. over the
period 1975–2009, Africa’s population grew at an average annual rate of 2.6 per
cent, well above the world average of 1.5 per cent. Furthermore, recent population


cHAPTER 4. The why and the How of Policy-Making




82 economic development in africa report 2011


projections indicate that Africa will grow by 2.7 per cent over the period 2009–2050
(United Nations, 2009). In contrast, europe’s population is expected to decline by
0.3 per cent, while Asia is projected to grow by 0.9 per cent, latin America and the
Caribbean, by 0.9 per cent, and North America, by 0.7 per cent. Based on these
projections Africa’s share of world population will increase from about 15 per cent
in 2009 to 27 per cent by 2050. In contrast, other regions will experience either a
decrease or no change in their share of world population. These projections imply
that if present trends continue, Africa will increasingly be a significant source of
consumer demand in the world economy.


The regional market can also be a force for industrial development in Africa
because, unlike Africa’s exports to the rest of the world, which is skewed towards
commodities and against manufactures, the share of manufactures in intra-African
exports is quite high. In 2009, manufactures accounted for about 40 per cent of
intra-African exports, while their share of Africa’s exports to the rest of the world was
about 18 per cent. This suggests that African countries can enhance the likelihood
of achieving their industrialization objectives if they use the regional market as a
mechanism for enhancing trade and coping with the challenge of globalization.
Such an approach will permit African firms to exploit economies of scale and garner
the experience they need to successfully face global competition.


It is often argued that Africa currently has low per capita income and so its rapid
population and income growth may not necessarily translate into an increase in
purchasing power. This line of thought is understandable, but flawed for at least
two reasons. First, it ignores the fact that Africa is a heterogeneous continent made
up of small, big, low- and middle -income countries. For the period 2005–2009,
average annual per capita income in the region ranged from a low of $129 in
Burundi to a high of $17,362 in equatorial guinea. Furthermore, several countries in
the region have per capita incomes higher than that of the BRIC countries – Brazil,
the Russian Federation, China and India. For instance, over the period 2005–2009,
3 African countries had average per capita income greater than that of the Russian
Federation, 4 had per capita income greater than that of Brazil, 11 had per capita
income greater than that of China, and 23 had per capita income greater than that
of India (figure 10).




83


figure 10. gDP per capita in africa and the bRIC countries (in dollars)


916.8


920.4


926.6


989.1


1040.7


1070.1


1112


1321.8


1565.3


1743.2


2266.4


2398.8


2468.4


2684.4


2885.5


3450.9


3923.7


4031.3


5478.5


5613.3


6099.8


6751.8


7688.1


8414.4


10192.9


11163.3


17361.6


0 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000


India


Zambia


Senegal


Côted'Ivoire


Djibouti


Cameroon


Nigeria


Sudan


Angola


Egypt


Congo


Morocco


Swaziland


China


CapeVerde


Tunisia


Algeria


Namibia


SouthAfrica


Botswana


Mauritius


Brazil


Gabon


Russia


Libya


Seychelles


EquatorialGuinea


Average per capita income(2005-2009)


Source: UNCTAD/UNIDO.


cHAPTER 4. The why and the How of Policy-Making




84 economic development in africa report 2011


Second, although Africa has low per capita income compared with other
regions, its purchasing power is rising and it currently has one of the fast-growing
and dynamic consumer markets (BCg. 2010). Recent projections indicate that if the
region maintains an average growth rate of 5 per cent, consumer spending will rise
from $860 billion in 2008 to $1.4 trillion in 2020 (MgI, 2010). Most of the projected
increase will be due to a rising African middle class with more discretionary or non-
basic-needs income. In particular, the share of African households with discretionary
income is projected to rise from 35 per cent in 2000 to 52 per cent in 2020.




5CHaPTER
towards a new


industrial policy in aFrica:
taking account oF the


new global environment




86 economic development in africa report 2011


over the past two decades, the global environment has changed significantly in
many respects. International trade is increasingly under regulation in ways that limit
the policy space available to governments (UNCTAD, 2004). Developing countries
are beginning to play important roles in the global market for manufactured
goods, with consequences for the ability of African countries to penetrate export
markets. In addition, concern for climate change is generating interest in the use
of environmentally friendly technologies and methods of production. Furthermore,
production is increasingly being fragmented and located across national borders,
thereby intensifying competition.


The global financial and economic crisis has also raised serious concerns about
the viability of unregulated markets as determinants of economic development. The
strategic design and implementation of Africa’s industrial development programmes
will have to take into account these new realities because they have implications for
the choice and feasibility of policies to promote industrialization.


This chapter examines the challenges and opportunities facing African countries
stemming from current and emerging international trade rules, the rise of industrial
powers from the South, concerns about climate change and the phenomenon of
global value chains. Suggestions are also made on how African countries could
either overcome the challenges or seize opportunities created by the changing
global environment to push their industrialization agendas forward.


a. international trade rules


Since the establishment of wTo in 1995, the scope of the rules-based-trading
system has shifted from a narrow focus on trade in goods, under the general
Agreement on Tariffs and Trade, to broader issues, such as trade in services,
intellectual property rights and trade facilitation. Furthermore, unlike in the Agreement,
there has been greater enforcement of compliance with trade regulations under
wTo (DiCaprio and gallager, 2006). There are concerns that the widening scope
and enforcement of trade agreements and rules have limited the set of instruments
and policies that non-lDC developing countries could possibly use to promote
industrialization (Njinkeu and Soludo, 2001). with respect to Africa, the shrinking
of industrial policy space under emerging and current trade rules is evident in
the following areas: the imposition of tariff cuts under the emerging, but not yet
finalized, non-agricultural market access (NAMA) negotiations; the replacement of
preferential trade agreements with reciprocal economic partnership agreements in




87


conformity with wTo rules, regulations on subsidies imposed under the Subsidies
and Countervailing Measures Agreement, the Uruguay Round Agreement on
Trade-Related Investment Measures (TRIMs) and the Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPS).


1. Emerging rules


Tariff liberalization under the non-agricultural market access negotiations


Under the emerging NAMA rules in the Doha Round negotiations, developing
countries, with the exception of lDCs, have to reduce their import tariffs on
industrial products and bind tariff rates below a certain ceiling. Developing countries
have the option, however, of applying deeper cuts in tariff lines in exchange for
greater flexibilities, and vice versa. Flexibilities are in the form of exempting a certain
percentage of sensitive product lines from tariff cuts as long as their import shares
in total NAMA imports do not exceed a certain threshold.17 However, the exemption
of a whole sector from tariff cuts will not be possible. This implies that non-lDC
African countries will have less room for pursuing import-substitution strategies
behind high tariff barriers or through gradual and selective tariff liberalization. This
is further compounded by the insertion of the national treatment principle in wTo
laws, whereby foreign firms and foreign goods are to be granted the same treatment
as local firms and locally produced goods in the country.


Proponents of NAMA reforms argue that, in a low-tariff world, developing
countries will benefit in the form of increased market access for their industrial
products to other countries, especially developed countries. For instance, in
developed countries the proportion of industrial imports entering on a duty-free
basis has jumped over the last 15 years from 20 per cent to 44 per cent. However,
critics of NAMA reforms argue that the emerging rules will lead to de-industrialization
in countries that are in their early stages of industrialization (Shafaeddin, 2006).
Furthermore, they argue that the parameter of interest for developing countries
should not be the average industrial tariff rate imposed by developed countries
on imports but the actual rates imposed by the latter on the exports of interest to
developing countries. It is not clear that such rates have been considerably lowered
in return for increased market access. There is also the fear that NAMA liberalization
will lock poor developing countries into their current or existing patterns of export
specialization. In order to build dynamic comparative advantage in higher value-
added activities, entrepreneurs need to be rewarded with higher expected returns
in exchange for the higher risks involved in undertaking strategic investments in


cHAPTER 5. Taking Account of the New global environment




88 economic development in africa report 2011


new industries and new technologies. However, the emerging trade rules will make
it harder for developing countries to turn to selective tariffs and subsidies to provide
such returns to their entrepreneurs (Shafaeddin, 2006).


Economic partnership agreements and compatibility with the World Trade
Organization


The preferential trading arrangements that existed between the eU and
Africa under the Cotonou and lomé accords must be replaced by the so-called
economic partnership agreements in order to make them compatible with wTo
rules. Although full economic partnership agreements are yet to be finalized
between the eU and most African countries, decisions reached in the negotiations
will have important repercussions on the future industrial policy space of African
countries. For example, while some proposed economic partnership agreements
allow the use of export taxes in special circumstances such as the protection of
infant industries, they also specify that export taxes cannot be allowed to increase
or that their use is subject to periodic review. In addition, the agreements contain
standstill clauses that do not allow countries to increase or re-impose tariffs that
had been eliminated and to introduce new tariffs once they have been signed.
These two instances represent an important loss of policy flexibility for countries in
the course of implementing their industrial strategies and adapting such strategies
to changing circumstances. export taxes have historically been used as a means
to support local infant industries, generate value-added by promoting the local
processing of raw materials into industrial goods and raise government revenues.
Successful examples include support to the plywood industry in Indonesia in the
1980s and support to the textiles industry in england in the period 1275–1660
(Third world Network, 2009). Furthermore, the economic partnership agreements
contain a “most favoured nation” clause obliging African countries to extend to the
eU any concessions granted to other development partners, whether on tariffs or
non-tariffs issues. This may compromise the ability of African countries to grant
preferential treatment to developing country partners such as China, India and
Brazil that could play an important strategic role in Africa’s industrialization.


2. Current rules


Subsidies


with respect to the use of subsidies as a tool for promoting industrial development,
subsidies linked to either export performance (export subsidies) or the use of




89


domestic over imported goods (local content subsidies) are prohibited under wTo
rules, except for lDCs and countries with less than $1,000 gross national income
per capita. when linked to export performance, export subsidies can provide
appropriate incentives to domestic firms to invest in building their competitiveness
rather than to remain complacent. However, this type of subsidies can no longer
be used. other types of subsidies, for example production subsidies, are allowed,
but are now actionable which means that their use can be challenged if deemed
to damage the interests of other parties. In import-competing industries with high
sunk costs, there may be a case for subsidizing production by domestic infant
firms, albeit temporarily, in order to promote greater entry and more competition
in the long run. As a result of wTo rules, it is now more difficult to nurture local
infant industries through subsidies. However, it is still permissible to use subsidies
to promote innovation and regional development and to achieve environmental
goals.


Investment measures


The wTo TRIMs Agreement prohibits countries from using local content or
trade-balancing requirements. In addition, as discussed in the preceding section,
countries cannot subsidize firms to favour the use of domestic inputs over imported
ones. This means that these industrial policy instruments used by currently
advanced and emerging economies are no longer available to the non-industrialized
countries. while Brazil, for instance, was able to use local content requirements to
establish a local auto manufacturing industry, Indonesia had to review the local
content provisions of its national car programme in 1999 under wTo (DiCaprio and
gallager, 2006). Under the TRIMs Agreement, countries can no longer use local
procurement programmes to minimize import leakage rates, optimize the domestic
value chain or promote the building of production linkages across sectors in their
industrial policy programmes (UNCTAD, 2007a). The Agreement also prohibits the
use of performance requirements in FDI policies to maximize benefits from FDI,
such as promoting use of local industrial products, inserting local enterprises in the
production chain of transnational corporations and facilitating technology transfer
to local suppliers.


Intellectual property rights


The TRIPS Agreement, through its strict intellectual property protection regime,
makes it harder for developing countries to access and adapt foreign technology
for local industrial development purposes. India was able to take advantage of


cHAPTER 5. Taking Account of the New global environment




90 economic development in africa report 2011


a weaker intellectual property regime under the general Agreement on Tariffs
and Trade to develop a local pharmaceutical industry based on generic drugs.
Such a scenario would not have been possible under the TRIPS Agreement. It
has been pointed out that countries such as Japan, korea, Taiwan Province of
China or even the United States, would not have been able to achieve their current
levels of technological sophistication had they faced intellectual property protection
regimes of the strength required by TRIPs in their early stages of industrialization.
Furthermore, there is the concern that such regimes can prevent developing
countries from engaging in technological learning through imitation and reverse
engineering of mature foreign products in the early stages of industrialization (lall
and Albaladejo, 2003; kim, 2003).


The emerging rules guiding trade and investment under wTo and the economic
partnership agreement will no doubt constrain the industrial policy space of African
countries. However, the following points should be noted. First, the negotiations
under wTo and the economic partnership agreement are still ongoing and have
not yet been cast in stone. Therefore, African countries still have an opportunity
to influence the final outcomes of these negotiations to ensure sufficient flexibility
in designing and implementing their industrial policies. Second, despite the limits
imposed by current and emerging trade rules, there remains some scope for African
countries, particularly the lDCs, to engage in industrial policymaking. Third, a few
wTo rules, such as the provision of the TRIPS Agreement related to technology
transfer from developed countries to lDCs, offer opportunities for African countries
to engage in industrialization, as long as they are creative enough in harnessing
such opportunities to their own benefits.


There are various ways that African countries can shape their industrialization
strategies in response to the challenges posed and the opportunities presented by
the current and emerging trade rules.


Make better use of instruments allowed under existing rules. while the scope
for pursuing vertical industrial policies has been reduced under wTo, the scope
for horizontal and functional interventions has not been significantly squeezed.
Consequently, African countries should be more creative in the choice of policy
instruments by combining the few vertical industrial policy instruments that are
allowed with horizontal and functional policies. Such pragmatism is important for
the purpose of achieving economic diversification and building intersectoral linkages
that in turn will contribute to industrial development.




91


Seize opportunities created by the special treatment of LDCs. African lDCs
benefit from certain exemptions and special treatment at wTo. For example,
under the everything But Arms initiative, exports of African lDCs benefit from duty-
free, quota-free market access to the eU. There are several schemes under the
generalized system of preferences that give preferential market access to products
from lDCs. However, in order for such unlimited market access to translate into
real economic gains for African lDCs, they must be in a position to competitively
produce and supply goods on world export markets. Research has shown that
such schemes tend to be underutilized or utilized for a narrow range of products
(UNCTAD, 2003). As part of their regional industrial policies, African countries
should aim at promoting investment and production in African lDCs in order to take
advantage of the preferential market access and preferential treatment granted to
lDCs under wTo.


Use WTO provisions to further economic development objectives. A few wTo
provisions could actually create opportunities for African countries in the course of
their industrialization. For example, under the TRIPS Agreement, African countries
could secure patents over certain types of natural raw materials that could be
transformed into niche industrial products (e.g. endemic plants for pharmaceuticals).
governments can then attract investors to locate industrial activities in their countries
in exchange for licensed, exclusive use of the raw materials. Doing so will allow these
countries to create a comparative advantage in the production of niche products.
The possibility of applying for trademarks, copyrights and geographical indications
for certain products could also provide an incentive for African entrepreneurs to
invest in the so-called creative industries (e.g. African crafts, African music, African
foods) and so generate niche export markets based on culturally derived products
that are unique and not subject to intense competition. The TRIPS Agreement could
also give African entrepreneurs and governments grounds to fight against imports
of pirated goods that are affecting the survival of their local infant industries.


Article 66.2 of the TRIPS Agreement calls for technology transfer from developed
countries to lDCs, in exchange for the latter enforcing protection of intellectual
property. According to this article, governments of developed countries have
obligations to provide incentives to enterprises and institutions for facilitating the
transfer of technologies to lDCs. However, compliance by developed countries
with the provisions of the article has been limited (Moon, 2008). There is scope
for African lDCs to push for a more stringent enforcement of the provisions of the
article, as part of securing access to technology for their industrialization.


cHAPTER 5. Taking Account of the New global environment




92 economic development in africa report 2011


b. rising industrial powers From the south


The growing role of large developing countries such as Brazil, China and India
presents opportunities as well as challenges for industrialization in Africa. Through
the attraction of FDI and non-equity modes of investment such as alliances,
partnerships and subcontracting, Africa can benefit from its developing-country
partners’ expertise, skills and technology in designing industrial programmes
adapted to its specificities and endowments. Furthermore, through partnership with
developing-country transnational corporations, Africa could develop technologies
that are adapted to its industrial needs and produce industrial products adapted
to the requirements of its low- and middle-income consumers. However, amid the
opportunities also lie the challenges. For example, there is concern that the rise of
the large developing country partners in the global market for light manufactured
goods may have a harmful effect on sub-Saharan Africa’s manufacturing exports
(giovannetti and Sanfilippo, 2009; kaplinsky and Morris, 2007; Jenkins and
edwards, 2005).


There are also concerns that Africa’s growing trade relations with the large
developing country partners is reinforcing the region’s dependence on commodity
exports, thereby inhibiting and delaying structural transformation. Further, the
growing demand for commodities has led to a declining trend in the manufactures-
commodities terms of trade in favour of commodities (kaplinsky, 2008). given the
growing need for commodities by emerging economies, it is likely that the current
terms of trade reversal may be more than a transient phenomenon. This implies
that Africa’s industrial development will need to ride against the market tide. Its
industrial development will need to proceed, despite rising global prices for its
primary commodities and lowering prices for its manufactures. State intervention
will be necessary to defy the market from pulling private-sector activity towards
low value-added commodities and away from high value-added industry. Industrial
policy in Africa is hence necessary to effect a structural transformation that the free
market on its own may not command.


A relevant question at this stage is whether African countries can industrialize
successfully, given the challenges posed by the rise of more dynamic developing
countries in Asia and latin America. The answer is yes, Africa can, provided it is
strategic in designing its industrial development. A few elements of such a strategic
design are sketched out below.




93


African countries should compete on both price and non-price factors. Newly
industrializing African economies may find it hard to engage in the traditional
industrial growth trajectories based on developing first stepping-stone industries
such as clothing, textiles, furniture and shoes and other low-cost segments
because of intense competition from emerging economies in those basic industrial
sectors (kaplinsky and Morris, 2007). African countries should aim at adopting, as
far as possible, industrialization strategies that from the start are based on product
differentiated, innovation-intensive, or technology-intensive niche products. Priority
should be given to products that offer continuous upgrading opportunities, and
marketing strategies should emphasize quality and branding rather than price
competitiveness alone.


over time, countries such as China and India are likely to aim at moving up in
the product value chain, graduating away from producing low value-added labour-
intensive products towards manufacturing high-technology, high-capital-intensive
goods, if not even move to other global value chains. China’s announcement at the
end of 2009 of a shift in its manufacturing labelling strategy, away from “Made in
China” toward “Created and designed in China” is a clear signal that, in anticipation
of wage and cost increases on the Chinese mainland, it is searching for production
and assembly locations in other parts of the world. This also fits in with China’s “go
global” policy. Such an upgrading by China and India will open up opportunities for
Africa to fill the manufacturing gap left behind by these two Asian giants in certain
segments and categories of global value chains (e.g. manufacturing and assembly
segment for labour-intensive or medium-technology products).


Africa can position itself to supply growing consumer markets in the South.
Africa needs to stand ready to exploit the large industrial markets that, for example,
China and India will generate as its urban middle classes expand in years ahead. It
is estimated that by 2030, 59 per cent of the global middle class will originate from
Asia, compared with 23 per cent in 2009, because of burgeoning emerging middle
classes from China and India (kharas, 2010). Buyer-driven global value chains will
gravitate from Northern markets to the South (kaplinksy and Farooki, 2010) with
implications on the nature of industrial import demand. Demand from these Asian
economies for soft commodities such as food and inputs into infrastructure are
likely to increase. In developing its relations further with China and India, Africa
should aim at forging strategic partnerships with these two countries with a view
to positioning itself as a potential supplier in the long run for Chinese and Indian
markets in targeted areas such as agro-industry.


cHAPTER 5. Taking Account of the New global environment




94 economic development in africa report 2011


Africa needs to develop a strategy in relation to its Southern development
partners. Africa must set its own development agenda, with industrial development
at its core and let this agenda drive its relationships with its development partners
rather than the other way around. As stated in UNCTAD (2010b), African countries
must harness and use their partnerships with developing countries to further their
long-term development goals. Doing so requires African countries to take a proactive
approach to the partnership process. This implies that they should ensure that
trade, investment and financial flows from developing countries serve to accelerate
their structural industrial transformation as well as to contribute to industrial growth.
In particular, South–South cooperation is more likely to contribute to industrialization
in the region if African countries mainstream it into their national development plans
and gear it more towards the development of productive capacities. A strategic
approach to engaging non-African developing country partners could involve
African countries granting them access to their natural resources in exchange
for the provision of investment, or technology and skill development, in specific
manufacturing sectors. It could also involve demanding that a certain proportion of
natural resources, for which they are granted access, be processed domestically,
perhaps through joint ventures with local firms.


The region could also adopt the strategy of positioning itself as a subcontractor
for or as a co-production partner with Southern manufacturing firms either to service
directly the African market or to use Africa as an entry point to indirectly export
high-quality niche products to Africa’s other major developing partners such as the
eU and the United States. This may be especially relevant for African countries that
do not have natural resources to attract Southern investors. The preferential market
access of African lDCs to such markets through schemes under the generalized
system of preferences could prove to be an attraction to Southern investors. The
acceleration of regional integration could create the large potential markets that can
also attract Southern manufacturing investors to African shores. African countries
can also offer targeted incentives to their Southern partners to set up special
economic or industrial regional zones in Africa. In this regard, African countries
will need to coordinate their incentive packages under their regional platforms,
such as the Southern African Development Community, the Common Market for
eastern and Southern Africa, eCowAS or under the African Union to avoid wars
of incentives. African countries can use their regional platforms to create regional
business corridors driven by Southern industrial investments.




95


c. climate change


The growing concern about climate change and environmental issues in
general presents several challenges for African countries in their quest for industrial
development. First, African countries have obligations under the United Nations
Framework Convention on Climate Change (UNFCCC) to contribute to the global
mitigation and adaptation agenda. while there are currently no binding mitigation
obligations per se on developing countries, this may change in the future as
greenhouse gas emissions rise faster, especially in developing countries. African
countries will have to take these future potential developments in climate change
negotiations into account when framing their industrial strategies. There is mounting
pressure on large developing countries such as South Africa to deviate from
business-as-usual practices in order to contribute to mitigation targets. Current
and future international obligations on climate change mitigation and adaptation
impose constraints on how Africa should industrialize.


Second, as the international community accelerates plans for cutting greenhouse
gas emissions in the twenty-first century, industries may face the obligation of
monitoring their own emissions, reporting on their emission cuts and complying
with environmental standards and legislation. If they fail to do so, penalties may
be faced in the form of carbon taxes, withdrawal of subsidies or production cuts.
Companies are already building green business models to comply with future
outcomes at the international climate change negotiations (oeCD, 2010). In the
future, environmental friendliness can become another dimension of industrial
competitiveness, even more so if climate policies are linked to trade policies.
Industries that fail to “go green” may be at a competitive disadvantage in the global
marketplace. As the momentum to transit to low-carbon economies gathers pace,
African industries may have no choice but to “go green” in the future in order to be
competitive on world markets.


But climate change also presents opportunities for Africa. In particular,
obligations to mitigate and adapt to climate change and to “go green”, though
costly, can actually represent an opportunity for African countries. As a latecomer
in the industrial game, Africa has indeed an opportunity to be at the forefront of the
green industrial revolution by implementing green industrial development based
on low energy-intensity, low-carbon emissions and clean technologies. while
industrially advanced economies will have to bear the costs of transiting towards a
low carbon economy in the medium to long run, Africa has an opportunity to avoid


cHAPTER 5. Taking Account of the New global environment




96 economic development in africa report 2011


such adjustment costs by leapfrogging directly into a clean industrial development
right from the start. Doing so will allow the region to develop first-mover advantages
over other industrialized economies, while waiting for investment and trade to be
integrated in climate-friendly global policies. Future global policy developments
for instance may link trade preferences accorded to developing countries to their
mitigation and adaptation efforts.18 A greater number of developed countries may
in the future impose environmental standards on imports and favour developing
countries that are climate-friendlier production and investment locations. By building
a green industrial economy, Africa can place itself ahead of other developing
countries in terms of ensuring compatibility between its industrial strategy and its
obligations under global climate policies.


African countries should also seize the opportunity presented by concerns
about climate change to power industrial production with clean, renewable energy
sources. Africa’s rich endowment in sunlight, deserts and land positions it as a
potential competitive worldwide supplier of renewable energy such as solar power,
wind power and biofuels. The development of the renewable energy sector in Africa
needs to go hand in hand with industrial development. In particular, renewable
energy is needed to fuel the region’s industrial growth and can also be a significant
component of Africa’s industry. African policymakers should redouble their efforts
to promote the development and use of renewable energy. In this regard, initiatives
such as the one led by DeSeRTeC, which aims to produce clean solar and wind
energy in Northern African deserts to supply europe, the Middle east and North
Africa, should be multiplied.


African countries should also position their domestic industries as suppliers
of environmental industrial products. In particular, in response to the increasing
competition in global export markets, they should aim at developing a high value-
added niche export strategy based on the production of price inelastic and income
elastic goods. In this context, the manufacture of low-carbon and environmental
technology products targeted at environmentally aware customers – both
households and industry – in developed and emerging countries can constitute
a lucrative export niche for African countries. The size of this customer base is
likely to increase in the future as climate change policies gain momentum and
more and more countries switch to low-carbon economies. examples of such
manufactured products may include environmental products that satisfy eco-labels
such as organic cotton-based products; hybrid, “eco” and electric cars; power-
saving light bulbs; biodegradable cleaning products; renewable energy-powered




97


batteries; natural paints and certified products from sustainable forests such as
paper, furniture and building materials. Another niche segment to be explored is
the supply of manufacturing equipment for renewable energy such as wind turbines
and solar panels. The manufacturing of clean equipment and clean technology
to facilitate environmentally sound industrial processes and low-carbon emissions
in other economies such as products for waste management, recycling, carbon
capture and storage and biotechnological products is another potential niche.


African countries should consider forging strategic trade partnerships with
countries that have committed to become low-carbon economies such as eU
countries and China. These countries can offer large potential markets for Africa’s
green industrial products. Africa has to strategize for its enterprises to integrate into
green global value chains aimed at supplying environmental retailers in developed
countries. This may require forging partnerships between African enterprises and
global environmental companies in the form of subcontracting, joint ventures or
equity investment.


To respond effectively to the challenges posed by climate change, African
countries will have to address two constraints: how to access the technology and
expertise needed to manufacture environmental products and how to finance the
implementation of policies needed to build a green industrial economy. once more,
the deepening of South–South cooperation with countries such as Brazil and India
is critical. African countries should partner with Southern countries that can facilitate
transfers of technology and know-how to Africa and assist in adapting technology
to local circumstances. Domestic enterprises in Africa will need to build capacities
in absorbing green technologies from its foreign partners, adapting them to its local
context and innovating on their own in the area of clean technologies. The region
should foster a continued engagement with international organizations such as
UNIDo, the United Nations environment Programme and development banks in
order to secure the finance and technical assistance needed for developing and
applying green technologies to industry. So far only 13 African countries have
established national cleaner production centres that can help promote clean
production methods and environmentally sound technologies.19


African policymakers should also maintain a proactive approach in climate
change forums in order to capitalize on developments at UNFCCC to secure
finance, technology transfers and capacity-building for implementing Africa’s green
industrial policy. African countries, for instance, should seek technical assistance
from international organizations to tap into the various climate funds available under


cHAPTER 5. Taking Account of the New global environment




98 economic development in africa report 2011


the UNFCCC and world Bank umbrellas in order to fund its green industrial policy.
African policymakers can also provide incentives to firms and governments from
developed countries to invest in its green industry as part of their obligations under
UNFCCC to help developing countries mitigate and adapt. In this context, African
governments should make greater use of the clean development mechanism to
encourage the set-up of clean industrial projects and programmes in Africa by
developed partners. As discussed in the UNCTAD World Investment Report 2010,
incentives for attracting low-carbon FDI should also be considered. The setting-up
of low-carbon special economic zones is a case in point (UNCTAD, 2010a).


d. global value chains


An important feature of the new global environment is the increased
internationalization of industrial production. Production is being increasingly
segmented in different stages located in different countries, according to the
competitive advantages of each location. This so-called globalization of the value
chain, or global value chain, allows producers to improve on competitiveness by
making better strategic use of available global endowments, skills and capabilities
to lower costs. It also creates opportunities for a greater number of countries to
take part in the global industrialization process and in so doing spur their own
national industrial development.


By segmenting production into a range of small, narrowly defined tasks, global
value chains facilitate the participation of SMes into international production networks,
as it should be relatively easier for SMes from developing countries to develop
comparative advantages in a range of small, narrowly defined items by learning by
doing and scale economies (Bigsten and Soderbom, 2009). Participation in global
value chains also gives SMes an opportunity to exploit large, profitable world export
markets and engage in industrial and technological upgrading (UNIDo, 2004).


The participation of African enterprises in these global value chains can offer
African countries an opportunity to tap into the global industrial export market.
For countries that have freshly embarked on an industrialization path, the insertion
of their enterprises in global value chains, by forging relationships with foreign
investors, can provide an entry point into the global industrial stage. Such insertion
can provide opportunities for local enterprises to access international markets,
acquire information on export markets and develop technological capabilities
through exporting, or learning by exporting (UNCTAD, 2007b). However, the insertion




99


of firms from developing countries into global value chains can be fraught with
difficulties. As pointed out by kaplinsky and Morris (2003), entry in global networks
is determined more by rules set by private actors rather than by governments in
trade policies. The large firms in the global value chain – be it retailers, traders or
marketers – that distribute contracts to suppliers in developing countries very often
set parameters or “rules”, such as environmental and labour standards, quality
specifications and process standards.


Another barrier to entry for newcomers lies in whether they can forge relationships
with the big buyers in these networks. lead firms in the global value chains may
already be relying on an existing network of suppliers. Their willingness to switch
to new suppliers may be low if relationships with subcontractors and suppliers are
governed by trust and reputation because of high transaction costs rather than on
competitive considerations such as production costs alone. Transaction costs can
matter more than simple direct production costs, especially in product lines where
quality and timely delivery are determining market factors and buyers have to make
significant investments to strengthen capabilities of their suppliers and to monitor
them.


global value chains are often driven by multinational enterprises that are
themselves involved in several global value chains. A strategic option for breaking
into global value chains consists in African countries positioning themselves as
reliable suppliers or subcontractors for global producers such as multinational
enterprises in the manufacture of intermediate, semi-finished and/or finished goods.
Trade in intermediate goods, for instance, has become the dominant type of trade
flows and accounts for around 60 per cent of world exports (wTo, 2010). There is
evidence that its increased dominance is due to increased international production,
especially the growing importance of the network of multinational enterprises
(kleinert, 2003). African countries can take advantage of the expanding trade in
intermediate goods by positioning themselves as reliable suppliers of intermediate
industrial inputs for global industrial networks.


Specific measures should also be taken to facilitate the integration of African
SMes into global value chains. UNCTAD (2010c) highlights a series of policy
recommendations that are relevant for African industries. It notes that promoting an
enabling business environment is a prerequisite for SMe’s to integrate into global
value chains. This can range from stable macroeconomic policies; streamlining
and efficiently applying business procedures, laws and regulations; setting up
complementary policies in competition, trade and investment to supporting


cHAPTER 5. Taking Account of the New global environment




100 economic development in africa report 2011


human resource development and improving access to finance. Public policy
interventions to support SMes, should, according to UNCTAD (2010c), focus
on skills development and training, investments in appropriate technologies for
continuous technological upgrading, enhanced compliance with international
standards and linkages between SMes and multinational enterprises via specific
promotion measures especially targeting multinational enterprises that are known
to establish linkages with SMes. other public policy measures would include
setting up business development services, promoting clusters such as science and
technology parks or industry villages, enhancing intellectual property protection
and developing productive capacities.


Despite the advantages of participation in global value chains, there is the
danger that, once enterprises start out as low-cost suppliers in a low value-added
end of a global value chain where entry is easier, they may remain trapped there.
In this context, whether African countries gain in the long run from participation in
global value chains depends on several factors. one factor relates to how proactive
firms and national governments are at fostering continuous upgrading opportunities
for domestic firms in global value chains, building linkages across firms supplying
global value chains in different sectors and forging closer relationships with foreign
buyers/lead firms in the global value chains. government-assisted measures such
as human resource training, investing in science and technology and fostering
linkages between business and scientific and educational institutes may prove
indispensable, for instance, to facilitate learning by local firms so that these firms
can engage in upgrading over time.


Another factor is the ability of local firms to increase the costs for its foreign
buyers to switch to alternative suppliers elsewhere. That is the ability of the local
firm to lock in its buyers. This in turn may depend on the type of hierarchical
relationships within the chain between the foreign buyer and its suppliers; the
degree of support provided by the lead firms to its suppliers for complying with
standards; investments on the part of local firms to meet buyers’ requirements and
how easy it may be for foreign buyers to access same supplies elsewhere. African
countries that are commodity rich, for example, are in a better position to lock in
their buyers if they have access to a critical raw material, such as gold, diamonds
or metals, that is in short supply somewhere else. Resource-rich African countries
can market their exclusive supplies of critical commodities to enter as a supplier in
commodity-driven global value chains.




101


e. summary


To conclude, there are opportunities and challenges presented by the new
global environment that African countries will need to take into account in designing
and implementing their industrial policies. while current and emerging trade rules
have narrowed the policy space available to governments, there is still some room
to effectively use trade instruments to promote industrial development in Africa.
The analysis of the growing role of large developing countries in global markets,
suggests that it may pose a challenge for the expansion of Africa’s labour-intensive
manufacturing exports. Nevertheless, African countries can overcome the challenge
by learning to compete on both price and non-price factors, positioning themselves
to supply growing consumer markets in other developing countries and developing
a coherent strategy for dealing with their developing country partners.


with respect to climate change, it is becoming clear that African countries will
have to take environmental issues into account in the design of their industrial
strategies. However, they should also take advantage of the increasing demand for
environmental goods to adopt the first truly green industrial development model,
power industrial production with clean and renewable energy sources and position
themselves as future suppliers of environmental industrial products. Finally, global
value chains offer opportunities for African producers to participate in global export
markets for manufactured goods but government action is needed to enable firms
seize this opportunity. In addition, it is important for African policymakers to recognize
that the insertion and progression of enterprises from developing countries in global
value chains can be very challenging because of the governance of global value
chains.




cHAPTER 5. Taking Account of the New global environment




Fostering industrial
development in aFrica:


main Findings and
recommendations




6CHaPTER
Fostering industrial


development in aFrica:
main Findings and
recommendations




104 economic development in africa report 2011


African countries require high and sustained economic growth to make
significant progress in reducing poverty and engender development. But history
and econometric evidence have shown that the prospects for high and sustained
growth in any country depend largely on the degree of structural transformation of
the economy (Rodrik, 2007). No country has achieved high and sustained economic
growth without going through a process of structural transformation, characterized
by a shift of production and exports from low productivity to high productivity
goods. This suggests that what a country produces and exports matter for growth
and development (Hausmann, Hwang and Rodrik, 2007).


Furthermore, one of the major challenges which African countries currently face is
to generate productive jobs and livelihoods for the 7–10 million young people entering
the labour force each year. This is difficult to achieve simply through commodity
exports. It requires a complementary process of agricultural productivity growth
and development of non-agricultural employment opportunities in both industry
and services. If African countries are to achieve substantial poverty reduction and
other MDgs, they must go through a process of structural transformation involving
a decrease in the share of agriculture and an increase in the share of industry and
modern services in output, with a shift between and within sectors from lower
productivity activities to higher productivity activities.


African governments are aware of this reality and have taken several steps in
recent years to renew their commitment to industrialization. But the question is
how they can do this without repeating the mistakes of the past, both hands-on
dirigisme and hands-off market fundamentalism.


Against this background, this report examines the status of industrial development
in Africa with a focus on the identification of stylized facts associated with African
manufacturing. It also provides an analysis of past attempts at promoting industrial
development in the region and the lessons learned from these experiences. Finally,
it offers policy recommendations on how to foster industrial development in Africa
in the new global environment characterized by changing international trade rules,
growing influence of industrial powers from the South, the internationalization
of industrial production and growing concerns about climate change. The main
findings and policy recommendations of the report are as follows.




105


a. main Findings


1. Manufacturing currently plays a limited role in African economies. The share
of manufacturing value added (MVA) in Africa’s gDP fell from 12.8 per cent
in 2000 to 10.5 per cent in 2008. In latin America, it fell from 17 per cent to
16 per cent and in developing Asia, it rose from 22 per cent to 35 per cent
over the same period. There has also been a decline in the importance of
manufacturing in Africa’s exports. In particular, the share of manufactures in
Africa’s total exports fell from 43 per cent in 2000 to 39 per cent in 2008.
Factors that have contributed to Africa’s weak industrial performance
include domestic policy failures, lack of policy space to implement alternative
development policies and structural constraints such as poor infrastructure,
low human capital and the small size of domestic markets.


2. Manufacturing performance varies across African countries. In particular,
there is a wide variance across countries in terms of both the level and
growth of MVA per capita. In 1990, 6 of the 52 African countries for which
data are available had an MVA per capita of at least $200 and in 2010 the
number of countries with an MVA per capita of at least $200 was 9. In terms
of manufacturing growth, 23 African countries had negative MVA per capita
growth over the period 1990–2010 and 5 countries had an MVA per capita
growth above 4 per cent.


3. Africa still accounts for a low share of global manufacturing. Africa continues
to be marginalized in global manufacturing trade. The share of the region
in global MVA fell from 1.2 per cent in 2000 to 1.1 per cent in 2008. In
developing Asia it rose from 13 per cent to 25 per cent and in latin America
it fell from 6 per cent to 5 per cent over the same period. In terms of exports,
Africa’s share of global manufacturing exports rose from 1 per cent in 2000
to 1.3 per cent in 2008.


4. Africa is losing ground in labour-intensive manufacturing. low technology and
labour-intensive manufactures play a limited role in African manufacturing.
The share of low technology manufacturing activities in MVA fell from 23
per cent in 2000 to 20 per cent in 2008. Furthermore, the share of low-
technology manufacturing exports in Africa’s total manufacturing exports
dropped from 25 per cent in 2000 to 18 per cent in 2008.


cHAPTER 6. Fostering Industrial Development in Africa




106 economic development in africa report 2011


5. Africa has made some progress in boosting technology-intensive
manufactures. The share of medium- and high-technology (MHT) activities
in Africa’s total MVA rose from 25 per cent in 2000 to 29 per cent in 2008.
Furthermore, the share of MHT exports in total manufacturing exports rose
from 23 per cent to 33 per cent over the same period.


6. Africa is heavily dependent on RB manufacturing. Africa is heavily dependent
on RB manufactures. In particular, the share of RB manufactures in Africa’s
total manufacturing exports was 52 per cent in 2000 and 49 per cent in
2008. This contrasts with the situation in latin America, and east Asia and
the Pacific, where the shares of RB in total manufacturing exports in 2008
were 34 per cent and 13 per cent, respectively.


7. African manufacturing is dominated by small and informal firms. In most
African countries, the manufacturing sector is made up of small or
microenterprises operating side by side with a small number of large foreign
or State-owned firms. Furthermore, most enterprises are informal firms.
Informal firms are smaller in size, produce to order, are run by managers with
low human capital, do not have access to external finance, do not advertise
their products and sell to largely informal clients for cash. In addition, informal
firms rarely become formal as they grow.


8. Industrial clusters play an important role in African manufacturing. There
is some evidence suggesting that industrial clusters have contributed to
boosting the competitiveness of small and medium-sized firms in Africa. These
clusters make market access easier, facilitate technological spillovers, and
reduce geographical and information costs for firms. They also cover a wide
spectrum of areas ranging from resource-based activities to high-technology
industries such as automobile parts and computer manufacturing.


b. policy recommendations


The report suggests that African countries should intensify efforts to develop
manufacturing because it presents great opportunities for sustained growth,
employment and poverty reduction. Further, it argues that deliberate government
intervention is needed to promote manufacturing development, induce structural
transformation and engender development in Africa. The experiences of currently
advanced countries and emerging economies indicate that governments have an
important role to play in inducing structural transformation. In particular, industrial




107


policies were used by these countries to redirect resources and production to
priority activities deemed necessary to promote industrialization. Consequently,
if African countries wish to make significant progress in achieving their industrial
development objectives, there has to be a deliberate effort by national governments
to promote industrialization through industrial policy.


while there is a case for industrial policy in Africa, there is also the recognition
that the past approaches to promoting industrialization did not achieve the objective
of economic transformation. Neither the old industrial policies, adopted during
a period of import substitution industrialization, nor the market and investment
climate reforms are sufficient to induce structural transformation in the region. In
this regard, the Report stresses the need for African governments to adopt a new
approach to industrial policy based on the following principles: supporting, as well
as challenging firms; building effective State-business relations; recognizing the
political feasibility of proposed actions; focusing on lifting binding constraints and
putting in place a mechanism for monitoring, evaluation and accountability.


The Report advocates a strategic approach to industrial policymaking based on
an industrial diagnosis; it proposes a framework for industrial strategy design that
takes into account the heterogeneity of African economies and is tailored to specific
country circumstances. It also stresses the need for industrial policy to lay emphasis
on (a) the promotion of scientific and technological innovation; (b) the creation of
linkages in the domestic economy; (c) the promotion of entrepreneurship; and (d)
the improvement of government capabilities.


• Fostering scientific and technological innovation. The accumulation of
technological knowledge and capabilities is critical to inducing structural
transformation and gaining competitive advantage in export markets. African
countries should provide more support for technology and innovation. This
could take the form of stimulating domestic production of technological
knowledge through the provision of incentives to entrepreneurs, or it could
take the form of facilitating access to existing technology through FDI,
licensing and purchasing capital equipment. African countries should also
invest in education and skill formation to ensure that firms have reliable
access to the skilled labour required to produce high-quality goods that
can survive competition in global markets. Particular attention should be
paid to enhancing education and training in technical and scientific subjects
such as engineering because these are the most relevant for industrial
development.


cHAPTER 6. Fostering Industrial Development in Africa




108 economic development in africa report 2011


• Creating linkages intheeconomy. African countries should give priority to
the creation or development of linkages in the domestic economy to ensure
that the promotion of industrial development yields positive spillover benefits
in other sectors of the economy. There are various ways to create domestic
linkages in an economy. For example the promotion of agro-industries is one
way to develop domestic linkages between the industrial and agricultural
sectors of an economy. Furthermore, linkages can be created between
domestic and foreign firms by building domestic technological capabilities.
Polices to support industrial clusters are also important.


• Promoting entrepreneurship. African countries should step up efforts to
promote entrepreneurship by creating an economic environment that
favours both domestic and foreign investment. In particular, they should
reduce policy uncertainty, strengthen infrastructure provision and improve
access to finance for firms, particularly SMes. efforts should also be made
to provide incentives for firms to invest in the discovery of new activities that
enhance export competitiveness and diversification.


• Improving government capabilities. In promoting industrial development,
African countries should ensure that the scope and degree of intervention
takes into account government capabilities. weak State institutions make
it challenging for governments to successfully implement their industrial
development programmes and policies. In this context, African governments
should give priority to enhancing government capabilities to design, formulate
and implement policies. This can be achieved by providing training and
capacity-building activities for public officials with support from international
organizations such as UNIDo and UNCTAD.


The Report points out that industrial policy cannot be implemented in a vacuum.
It has to be consistent with other economic policies for better development results. In
this regard, it recommends the following additional and complementary measures.


• Avoiding exchange rate overvaluation. exchange rate policy affects the
development of manufacturing firms, as well as their ability to compete in
international markets. In particular, a competitive exchange rate promotes
exports and allows domestic firms to seize opportunities created in
international markets. when the exchange rate is overvalued relative to its
equilibrium value, it represents an implicit tax on exports and a disincentive
for firms to invest in the export sector. If African countries wish to make




109


significant progress in meeting their industrialization objectives, they will have
to avoid exchange rate overvaluation by, for example, controlling inflation,
managing natural resource wealth in a manner that minimizes the risk of the
Dutch disease and, where appropriate, adopting more flexible exchange
rate regimes.


• Adopting appropriate monetary and fiscal policies. The effectiveness of
industrial programmes and policy also depends in part on the extent to which
monetary and fiscal policies are consistent with the objective of promoting
industrial development. In particular, the mix of monetary and fiscal policies
has to be such that firms have better access to credit and real interest rates
are not at levels that deter investment. It is necessary to align the stance
of monetary and fiscal policies with the objective of promoting industrial
development, while ensuring that measures adopted to achieve such an
alignment do not lead to medium- or long-term macroeconomic instability.


• Enhancingresourcemobilization. The promotion of industrial development
requires the mobilization of resources to finance investments in identified
priority areas. There has been a tendency for African governments to focus
on resource allocation as opposed to resource mobilization issues in the
conduct of industrial policy. African countries should pay more attention
to the mobilization of resources and strengthen resource mobilization by
boosting domestic savings, borrowing from development finance institutions,
promoting FDI, harnessing the potential of South–South cooperation as a
source of development finance and encouraging traditional development
partners to direct more oDA towards promoting industrial development in
the region.


The Report also recognizes the importance of regional integration and political
stability in developing and sustaining industrialization in Africa. Consequently, it calls
upon African governments to strengthen regional integration and enhance political
stability.


• Strengthening regional integration. Building a robust regional market
is necessary to unlock Africa’s manufacturing potential and prepare it to
compete in global export markets. Regional integration can contribute
to building robust regional markets through, for example, cooperation in
the development of regional infrastructure, harmonization of policies and
maintenance of political stability. given the small domestic markets of African


cHAPTER 6. Fostering Industrial Development in Africa




110 economic development in africa report 2011


economies, the regional market can be a force for industrial development in
the region. This is important because unlike Africa’s exports to the rest of the
world that is skewed towards commodities and against manufactures, the
share of manufactures in intra-African exports is high. In 2009, manufactures
accounted for about 40 per cent of intra-African exports while their share
of Africa’s exports to the rest of the world was about 18 per cent. Further,
Africa is among the fast-growing regions of the world both in terms of
population and income. As a result, the region is increasingly becoming an
important source of export demand that could form the basis for initiating
and sustaining industrial development.


• Maintainingpolitical stability.Political stability is a necessary condition for
industrial development in Africa. without political stability, even a well-
designed and well-implemented industrialization programme is bound to
fail. Therefore, efforts should be made by African governments to reduce
the incidence of political crisis through better political and economic
governance, for example. In addition, the role of regional institutions such
as the African Union Commission and the regional economic communities
should be strengthened in the areas of crisis prevention, management and
resolution.


c. conclusion


Industrial development is crucial for sustained growth and poverty reduction
in Africa. over the past decade, African governments have renewed their political
commitments to industrialization and have adopted several initiatives at the national
and regional levels to enhance prospects of achieving their objectives. This Report
welcomes the new developments and argues that the optimal industrialization
path and policies will vary across African countries because of differences in
endowments, political conditions and geography. Furthermore, it stresses that a
new industrial policy is needed to induce structural transformation and engender
development in African economies. The Report also suggests that efforts to promote
industrial development in Africa should be centred on (a) promoting scientific and
technological innovation, (b) creating linkages in the domestic economy, (c) fostering
entrepreneurship, (d) improving government capabilities, (e) adopting appropriate
monetary and fiscal policies, (f) avoiding exchange rate overvaluation, (g) enhancing
resource mobilization, (h) strengthening regional integration and (i) maintaining
political stability.


notes
and


reFerences




notes
and


reFerences




112 economic development in africa report 2011


notes
1 CAMI was established by African governments in 1971 as a platform for dialogue


and exchange of ideas on the industrial development of Africa. Some of the main
outcomes of the conference include (a) the adoption in 1981 of the First Industrial
Development Decade for Africa (covering the period 1980-1990); and (b) the
adoption in 1989 of the Second Industrial Development Decade for Africa, initially
for the period 1991-2000 but later changed to 1993–2002.


2 The index lies between zero and one, with lower values representing higher
diversification.


3 Following Meier (1988), there are three necessary conditions under which infant-
industry protection could be justified: (a) the existence of external economies that
cannot be captured by the industry; (b) there has to be a time limit for protection;
and (c) in present value terms, the expected benefit from protection must be large
enough to offset the current costs of the policy required to produce the benefit.


4 The technological classification of trade is based on the Standard International Trade
Classification (SITC), Revision 3 and is shown in the table below. Data source: United
Nations Commodity Trade Statistics (CoMTRADe database).


Technology classification of exports according to sITC Rev. 3


Type of exports sITC sections


Resource-based exports 016, 017, 023, 024, 035, 037, 046, 047, 048, 056, 058,
059, 061, 062, 073, 098, 111, 112, 122, 232, 247, 248,
251, 264, 265, 281, 282, 283, 284, 285, 286, 287, 288,
289, 322, 334, 335, 342, 344, 345, 411, 421, 422, 431,
511, 514, 515, 516, 522, 523, 524, 531, 532, 551, 592,
621, 625, 629, 633, 634, 635, 641, 661, 662, 663, 664,
667,689


Low technology exports 611, 612, 613, 642, 651, 652, 654, 655, 656, 657, 658,
659, 665, 666, 673, 674, 675, 676, 677, 679, 691, 692,
693, 694, 695, 696, 697, 699, 821, 831, 841, 842, 843,
844, 845, 846, 848, 851, 893, 894, 895, 897, 898, 899


Medium technology exports 266, 267, 512, 513, 533, 553, 554, 562, 571, 572, 573,
574, 575, 579, 581, 582, 583, 591, 593, 597, 598, 653,
671, 672, 678, 711, 712,713 ,714, 721,
722, 723, 724, 725, 726, 727, 728, 731, 733, 735, 737,
741, 742, 743, 744, 745, 746, 747, 748, 749, 761, 762,
763, 772, 773, 775, 778, 781, 782, 783, 784, 785, 786,
791, 793, 811, 812, 813, 872, 873, 882, 884, 885


High technology exports 525, 541, 542, 716, 718, 751, 752, 759, 764, 771, 774,
776, 792, 871, 874, 881, 891




113


5 There are different definitions for cluster. For a review and a comparison of the
alternatives see Navdi and Schmitz (1999).


6 The clusters analysed are: the Suame Manufacturing cluster in ghana (also in
McCormick, 1999); the kamukunji Metalwork cluster (also in McCormick, 1999) and
the lake Naivasha Cut Flower cluster in kenya; the Nnewi Automotive Components
cluster and the otigba Computer Village cluster in Nigeria; the Mwenge Handicrafts
cluster and the keko Furniture cluster in the United Republic of Tanzania; the lake
Victoria Fishing cluster in Uganda; the Textile and Clothing Cluster in Mauritius; the
wine Cluster and the western Cape Textile and Clothing Cluster (also in McCormick,
1999) in South Africa.


7 krugman and obstfeld (1991) use the term to denote an attempt by a government
to encourage resources to move into particular sectors that it views as important
to future economic growth. Rodrik (2004) describes it as restructuring policies in
favour of more dynamic activities generally, regardless of whether those are located
within industry or manufacturing per se. wade (2010) defines it as targeted efforts to
promote some sectors or products ahead of others. Cimoli, Dosi and Stiglitz (2009)
see it as policies affecting “infant industry” support of various kinds including trade
policies, science and technology policies, public procurement, policies affecting FDI,
intellectual property rights, and the allocation of financial resources. Chang (2009)
states, “when we talk about ‘industrial policy’, the majority of us do not mean any
policy that affects industry but a very particular type of policy that affects industries.
It is what is commonly known as ‘selective industrial policy’ or ‘targeting’ – namely,
a policy that deliberately favours particular industries over others, against market
signals, usually (but not necessarily) to enhance efficiency and promote productivity
growth.”


8 This argument is based on recent UNIDo research on structural change. In essence,
this means that the growth elasticity of individual manufacturing industries varies
and is dependent on certain differences of country characteristics, e.g. stage of
development, country size, population density and endowment structure.


9 An immediate potential is defined as the feasible output in this sector and is based
on the per capita output of relevant comparator countries in this sector when they
were at a similar stage of development. A future potential is based on the per capita
output of the relevant comparator countries in this sector when they were at this
later stage of development. The shares are calculated as the ratio of the country’s
sectoral output in per capita terms in relation to the comparators output in the same
sectors when they were at that stage of development. e.g. a 25 per cent share
means that the country’s output in that sector is only one fourth of the comparator
countries’ output.


10 This follows a similar line of reasoning as the identification process for industries with
latent comparative advantage proposed in lin & Monga (2010). However, while their
paper proposes to use export figures to identify latent comparative advantages, our
analysis is based on manufacturing output statistics.


11 In order to focus on the most critical features, a third indicator, namely the share of
individual countries in total African manufacturing, is excluded here. This dimension


NoTeS




114 economic development in africa report 2011


is less critical for our analysis because we are focusing on the current situation
of individual countries rather than the impact of individual countries on African
manufacturing. However, it has to be noted that, due to their large population and
high per capita MVA, South Africa and egypt alone account for more than 50 per
dent of African manufacturing capacity today.


12 Structural change analysis shows that the sectoral evolutionary path is conditioned
by a country’s development stage as well as exogenous factors (country size, factor
endowments and population density). Based on these factors, individual sectors
have different economic growth potentials. For instance, while some industries are
more likely to support the rapid growth of lDCs, others are more important for
middle-income or high-income countries. The same is true for small vs. large or
resource rich vs. resource poor countries, and so forth.


13 The Netherlands and the United States are the other major processing countries.
14 In 2007, the savings ratio was 17 per cent in sub-Saharan Africa, 30 per cent in east


Asia and the Pacific, 23 per cent in latin America and the Caribbean, and 23 per
cent for europe and Central Asia.


15 It should be noted that manufacturing firms in the region are particularly affected by
the high costs of doing business because they rely heavily on logistics, regulation
and infrastructure (Bigsten and Soderbom 2009).


16 The economist, Print edition, 6 January 2011.
17 Developing countries will apply tariff cuts according to a “Swiss” formula. Countries


that apply the deepest tariff cuts will be able to “make smaller or no cuts in 14
per cent of its most sensitive industrial tariff lines, provided that these tariff lines
do not exceed 16 per cent of the total value of its NAMA imports”. That country
can also keep “6.5 per cent of its tariff lines unbound or exclude them from tariff
cuts, provided they do not exceed 7.5 per cent per cent of the total value of its
NAMA imports” (wTo). lDCs will not face tariff reductions but will have to raise the
percentage of their tariff lines that are bound. The wTo text mentions that additional
flexibilities will be negotiated at a future date for South Africa, Botswana, lesotho,
Namibia, Swaziland and members of the South African Customs Union. According
to wTo, “the tariff reductions will be implemented gradually over a period of five
years for developed members and ten years for developing members, starting 1
January of the year following the entry into force of the Doha results”.


18 At the end of 2010, there were talks at wTo on the granting of tariff cuts for goods
with an environmental purpose.


19 The national cleaner production centres programme was established by UNIDo
and the United Nations environment Programme to provide assistance to business,
government and other stakeholders in implementing cleaner production methods,
practices, policies and technologies in their home country. The programme now
covers 47 developing and transition countries including in Africa Cape Verde, egypt,
ethiopia, kenya, lebanon, Morocco, Mozambique, Rwanda, South Africa, Tunisia,
Uganda, United Republic of Tanzania and Zimbabwe.




115


reFerences
Aiginger k (2007). Industrial policy: a dying breed or a re-emerging phoenix. Journal of


Industry, Competition and Trade. (7): 297–323.
Altenburg T (2011). Industrial policy in developing countries: overview and lessons from


seven country cases. Discussion Paper 4/2011. german Development Institute.
Altenburg T, Rosendahl C, Stamm A and Drachenfels C. (2008). Industrial Policy – A key


element of the social and ecological market economy. In: The social and ecological
market economy: a model for Asian development? gTZ. eschborn. pp 134–153.


Altenburg T and eckhardt U (2006). Productivity enhancement and equitable
development: challenges for SME development. UNIDo. Vienna.


Bigsten A, kimuyu P and lundvall k (2004). what to do with the informal sector?
Development Policy Review. 22(6): 701–715.


Bigsten A and Söderbom M (2006). what Have we learned from a Decade of
Manufacturing enterprise Surveys in Africa? World Bank Research Observer, vol.
21 (2): 241–265.


Bigsten A and Soderbom (2009). African firms in the global economy. Manuscript.
Department of economics, University of gothenburg. Sweden.


Booth D (2003). Are PRSP’s making a difference? The African experience: introduction
and overview. Development Policy Review. 21(2).


Boston Consulting group (BCg) (2010). The African Challengers: Global Competitors
Emerge from the Overlooked Continent. BCg.


Bulir A and Hamann A (2006). Volatility of development aid: from the frying pan into the
fire. IMF working Paper wP/06/65.


Byiers B (2009). Informality in Mozambique: Characteristics, Performance and Policy
Issues. Mimeo. United States Agency for International Development.


Canonge J and Purcell M (2010). watchdog or lapdog: limits of African media coverage
of the extractive sector. Manuscript. School of International and Public Affairs.
Columbia University.


Chang H (2009). Industrial policy: can we go beyond an unproductive confrontation?
Paper presented at the Annual world Bank Conference on development economics,
Seoul, Republic of korea, 22–24 June.


Cimoli M, Dosi g and Stiglitz J (2009). Industrial Policy and Development: The Political
Economy of Capabilities Accumulation. oxford University Press. oxford.


de Janvry A and Sadoulet e (2010). Agriculture for development in Africa: business-as-
usual or new departures? Journal of African Economies. 19 (AeRC supplement 2):
ii7–ii39.


DiCaprio A and gallagher k (2006). The wTo and the shrinking of development space –
How big is the bite? Journal of World Investment and Trade. Vol. 7, No.5. october.


erdle S (2011). Industrial Policy in Tunisia. DIe/gDI Discussion Paper 1/2011.


ReFeReNCeS




116 economic development in africa report 2011


Farole T (2011). Special Economic Zones in Africa: Comparing Performance and
Learning from Global Experiences. world Bank. washington, D.C.


Foster V and Briceno-garmendia C (2010). Africa’s infrastructure: a time for
transformation. world Bank. washington D.C.


gault F and Zhang g (2010). The role of innovation in the area of development. In:
kraemer-Mbula e and wamae w, eds. Innovation and the Development Agenda.
oeCD/IDRC. Paris.


giovannetti g and Sanfilippo (2009). Do Chinese exports crowd-out African goods?
An econometric analysis by country and sector. European Journal of Development
Research. 21 (4): 506–530.


Harrison A and Rodriguez-Clare A (2009). Trade, foreign direct investment and industrial
policy for developing countries. Manuscript.


Hausmann R and Rodrik D (2003). economic development as self-discovery. Journal of
Development Economics. 72(2): 603–633.


Hausmann R, Hwang J and Rodrik D (2007). what you export matters. Journal of
Economic Growth. 12(1): 1–25.


Hesse H (2008). export diversification and economic growth. working Paper No. 21,
Commission on growth and Development.


Jenkins R and edwards C. (2005). The effect of China and India’s growth and trade
liberalization on poverty in Africa. Department for International Development. United
kingdom.


kaplinsky R (2007). Capacity-building in SSA: what difference do the Asian Drivers make?
Paper presented at the meeting of experts on FDI, Technology and Competitiveness
held at UNCTAD, geneva, 8–9 March.


kaplinsky R (2008). China and the terms of trade: the challenge to development strategy
in SSA. In: Paus e, Prime P and western J, eds. The Global Giant: Is China Changing
the Rules of the Game? Palgrave Macmillan. New York.


kaplinsky R and Farooki M (2010). what are the implications for global value chains
when the market shifts from the North to the South? world Bank Policy Research
working Paper No. 5205. world Bank. washington, D.C.


kaplinsky R and Morris M (2003). Handbook for value chain research. Prepared for the
International Development Research Centre. ottawa.


kaplinsky R and Morris M (2007). Do the Asian drivers undermine export-oriented
industrialisation in SSA? World Development. 36(2):254–273.


kharas H (2010). The emerging middle class in developing countries. oeCD Development
Centre. working Paper No. 285. oeCD. Paris.


kim l (2003). Technology transfer and intellectual property rights: the korean experience.
Issue paper No. 2. UNCTAD/ICTSD capacity-building project on intellectual property
rights and sustainable development. geneva.


kjollerstrom M and Dallto k (2007). Natural-resource-based industries: prospects for
Africa’s agriculture. In: United Nations, eds. Industrial Development for the 21st
Century. United Nations. New York.




117


kleinert J (2003). growing trade in intermediate goods: outsourcing, global sourcing or
increased importance of MNe networks? Review of International Economics. 11(3):
464–482. August.


kraemer-Mbula e and wamae w (2010). Innovation and the Development Agenda.
oeCD. Paris.


krugman P and obstfeld M (1991). International Economics: Theory and Policy.
HarperCollins. New York.


la Porta R and Shleifer A (2011). The unofficial economy in Africa. NBeR working Paper
16821.


lall S (1995). Structural adjustment and African industry. World Development. 23(12):
2019–2031.


lall S (1996). Paradigms of development: the east Asian debate. Oxford Development
Studies. 24(2): 111–131.


lall S (2004a). Selective industrial and trade policies in developing countries: theoretical
and empirical issues. In: Soludo C, ogbu o and Chang H, eds. The Politics of Trade
and Industrial Policy in Africa. Africa world Press, Inc. Trenton.


lall S (2004b). Stimulating industrial competitiveness in Africa: lessons from east Asia
on the role of FDI and technology acquisition. Paper prepared for the NePAD/TICAD
Conference on Asia-Africa Trade and Investment.


lall S (2004c). Reinventing Industrial Strategy: The Role of Government Policy in Building
Industrial Competitiveness. g-24 Discussion Paper 28. UNCTAD g-24 Discussion
Paper Series. UNCTAD. New York and geneva.


lall S (2005). Is African industry competing? working Paper 121. Queen elizabeth
House, University of oxford.


lall S and Albaladejo M (2003). Indicators of the relevant importance of IPRs in
developing countries. Issue Paper No. 3. UNCTAD/ICTSD Capacity-building project
on intellectual property rights and sustainable development. geneva.


lall S and Teubal M (1998). Market-stimulating technology policies in developing
countries: a framework with examples from east Asia. World Development. 26(8):
1369–1385.


lall S and wangwe S (1998). Industrial policy and industrialisation in sub-Saharan Africa.
Journal of African economies. 7(1):70–107.


lauridsen l S (2010). Strategic Industrial Policy and latecomer Development: The
what, the why and the How. In: Forum for Development Studies. 37(1):7–32.


lin J (2009). New structural economics: a framework for rethinking development.
Manuscript. world Bank. washington, D.C.


lin J and Chang H (2009). Should industrial policy in developing countries conform
to comparative advantage or defy it? A debate between Justin lin and Ha-Joon
Chang. Development Policy Review. 27 (5):483–502.


lin J Y and Monga C. (2010). Growth Identification and facilitation – The role of the state
in the dynamics of structural change. The world Bank Policy Research working
Paper 5313. world Bank. washington, D.C.


ReFeReNCeS




118 economic development in africa report 2011


McCormick, D. (1999). African enterprise Clusters and Industrialization: Theory and
Reality. World Development. 27(9):1531–1551.


Mckinsey global Institute (MgI) (2010). Lions on the move: the progress and potential
of African economies. Mckinsey & Co. www.mckinsey.com/mgi.


Meagher k (2009). The informalization of belonging: Igbo informal enterprise and national
cohesion from below. Africa Development. 34(1):31–46.


Meier g (1988). Theoretical issues concerning the history of international trade and
economic development. Paper delivered at the Free University, Berlin, 6 May.


Mkandawire T (2005). Maladjusted African economies and globalization. Africa
Development. 30(1):1–33.


Mkandawire T and Soludo C (2003). African Voices on Structural Adjustment: A
Companion to Our Continent, Our Future. Africa world Press, Inc. Trenton.


Moon S (2008). Does TRIPS article 66.2 encourage technology transfer to lDCs? An
analysis of country submissions to the TRIPS Council. UNCTAD-ICTSD project
on intellectual property rights and sustainable development. Policy Brief No.2.
geneva.


Mytelka l k (2007). From clusters to innovation systems in traditional industries. In:
oyelaran-oyeyinka B and McCormick D, eds. Industrial Clusters and Innovation
Systems in Africa: Institutions, Markets and Policy United Nations University Press:
39–62.


Nadvi k and Schmitz H, eds. (1999). Industrial Clusters in Developing Countries. World
Development, vol. 27, No.9.


Njinkeu D. and Soludo C (2001). Industrializing Africa using the WTO framework.
Contribution to the world Bank project wTo 2000. African economic Research
Consortium. Nairobi.


oeCD (2008). Financing Development 2008: Whose Ownership? oeCD. Paris.
oeCD (2010). Transition to a low-carbon economy: Public goals and corporate practices.


oeCD. Paris.
ohno k (2009). The middle income trap: implications for industrialisation strategies in


East Asia and Africa. gRIPS Development Forum. Tokyo.
osakwe P and Schembri l (2002). Real effects of collapsing exchange rate regimes: an


application to Mexico. Journal of International Economics. 57: 299–325.
osakwe P N (2010). Africa and the global financial and economic crisis: impacts,


responses and opportunities. In: Dullien S, kotte D, Marquez A and Priewe J, eds.
Financial and Economic Crisis of 2008–2009 and the Developing Countries. United
Nations and HTw Berlin University of Applied Sciences. New York.


oyelaran-oyeyinka B (2006). Learning to Compete in African Industry: Institutions and
Technology in Development. Ashgate Publishing limited. Aldershot.


Ramachandran V, gelb A and Shah M k (2009). Africa’s private sector: what’s wrong with
the business environment and what to do about it. Centre for global Development.
washington, D.C.




119


Rankin N, Söderbomb M and Tealb F (2006). exporting from Manufacturing Firms in
sub-Saharan Africa. Journal of African Economies. 15 (4): 671–687.


Rattso J and Torvik R (2003). Interactions between agriculture and industry: theoretical
analysis of the consequences of discriminating agriculture in sub-Saharan Africa.
Review of Development Economics. 7(1):138–151.


Redding S (1999). Dynamic comparative advantage and the welfare effects of trade.
Oxford Economic Papers, vol. 51, pp. 15–39.


Robinson J (2009). Industrial policy and development: a political economy perspective.
Paper presented at the 2009 world Bank ABCDe Conference held in Seoul, Republic
of korea, 22–24 June.


Rodrik D (2004). Industrial policy for the twenty-first century. CePR Discussion Paper
No. 4767. Centre for economic Policy Research. london.


Rodrik D (2007). Industrial development: some stylized facts and policy directions. In:
United Nations, eds. Industrial Development for the 21st Century. United Nations.
New York.


Rodrik D (2008). Normalizing industrial policy. working Paper 3. Commission on growth
and Development. The International Bank for Reconstruction and Development/The
world Bank. washington, D.C.


Rosendhal C (2010). Industrial Policy in Namibia. DIe/gDI Discussion Paper 5/2010.
german Development Institute. Bonn.


Sandefur J (2010). On the Evolution of the Firm Size Distribution in an African Economy.
CSAe wPS/2010–05. oxford.


Shafaeddin M (2006). NAMA: a tool of development or de-industrialization? Paper
presented at the Regional Meeting of Civil Society groups and experts on free trade
agreements in the Arab region, 9–11 December 2006, Cairo.


Shen J, Dunn D and Shen Y (2007). Challenges facing U.S. Manufacturing and
Strategies. Journal of Industrial Technology. 23(2): 2–10.


Soludo C, ogbu o and Chang H (2004). The Politics of Trade and Industrial Policy in
Africa. Africa world Press. Trenton.


Stein H (1992). De-industrialization, adjustment, the world Bank and the IMF in Africa.
World Development. 20(1):83–95.


Sundaram J and von Arnim R (2008). economic liberalization and constraints to
development in sub-Saharan Africa. DeSA working Paper No. 67.


Sutton J and kellow N (2010). The Enterprise Map Project. An Enterprise Map of
Ethiopia. IgC. london.


Szirmai A (2009). Industrialization as an engine of growth in developing countries. UNU-
Merit working Papers 2009–010.


Third world Network (2009). Benefits of exports taxes. Preliminary paper. geneva.
UNCTAD (2003). Trade preferences for LDCs: an early assessment of benefits and


possible improvements. United Nations publication, geneva.


ReFeReNCeS




120 economic development in africa report 2011


UNCTAD (2004). Trade and Development Report 2004. Policy Coherence, Development
Strategies and Integration into the world economy. United Nations publication.
geneva.


UNCTAD (2006). Economic Development in Africa Report 2006. Doubling Aid: Making
the Big Push Work. United Nations publication, Sales No. e.06.II.D.10, New York
and geneva.


UNCTAD (2007a). Elimination of TRIMS-experiences of selected developing countries.
UNCTAD current studies on FDI and development. United Nations publication,
geneva.


UNCTAD (2007b). The Least Developed Countries 2007 Report – Knowledge,
technological learning and innovation for development. United Nations publication,
Sales No. e.07.II.D.8, New York and geneva.


UNCTAD (2008). Trade and Development Report 2008. Commodity prices, capital flows
and the financing of investment. United Nations publication, Sales No. e.08.II.D.21,
New York and geneva.


UNCTAD (2009a). Economic Development in Africa Report 2009. Strengthening regional
economic integration for Africa’s development. United Nations publication, Sales
No. e.09.II.D.7, New York and geneva.


UNCTAD (2009b). Enhancing the Role of Domestic Financial Resources in Africa’s
Development: A Policy Handbook. United Nations publication, geneva.


UNCTAD (2009c). The Least Developed Countries Report 2009. The State and
Development Governance. United Nations publication, Sales No. e.09.II.D.9, New
York and geneva.


UNCTAD (2010a). World Investment Report 2010. Investing in a low carbon economy.
United Nations publication, Sales No. e.10.II.D.2, New York and geneva.


UNCTAD (2010b). Economic Development in Africa Report 2010. South–South
cooperation: Africa and the new forms of development partnership. United Nations
publication, Sales No. e.10.II.D.13, New York and geneva.


UNCTAD (2010c). Integrating developing countries SMEs into global value chains.
United Nations publication, Sales No. e.10.II.D.2, New York and geneva.


UNeCA (2010). Assessing Regional Integration in Africa IV. Enhancing Intra-African
Trade. United Nations economic Commission for Africa. Addis Ababa.


UNeCA and African Union Commission (2008). Economic Report on Africa 2008. Africa
and the Monterrey consensus: tracking performance and progress. United Nations
economic Commission for Africa. Addis Ababa.


UNIDo (2004). Inserting local industries into global value chains and global production
networks: Opportunities and challenges for upgrading with a focus on Asia. UNIDo.
Vienna.


UNIDo (2009). Industrial Development Report 2009: Breaking In and Moving Up –
New Industrial Challenges for the Bottom Billion and the Middle-Income Countries.
UNIDo. Vienna.




121


UNIDo (2011). Industrial Development Report 2011. UNIDo.Vienna. (forthcoming).
United Nations (2009). World Population Prospects: The 2008 Revision. Highlights.


United Nations publication. New York.
Van Biesebroeck J (2005a). exporting Raises Productivity in sub-Saharan African


Manufacturing Firms. Journal of International Economics. 67(2): 373–391.
Van Biesebroeck J (2005b): Firm Size Matters: growth and Productivity growth


in African Manufacturing. Economic Development and Cultural Change.
53(3):545–583.


wade R (2009). Rethinking industrial policy for low-income countries. African
Development Review. 21(2): 352–366.


wade R (2010). After the crisis: industrial policy and the developmental state in low-
income countries. Global Policy. 1(2):150–161.


wangwe S (1995). Exporting Africa: Technology, Trade and Industrialization in Sub-
Saharan Africa. Routledge. london.


wangwe S and Semboja H (2003). Impact of structural adjustment on industrialization
and technology in Africa. In: Mkandawire T and Soludo C, eds. African Voices on
Structural Adjustment: A Companion to Our Continent, Our Future. Africa world
Press, Inc. Trenton.


wTo (2010). Timeliness and contract enforceability in intermediate goods trade.
gamberoni e, lanz R and Piermartini R. Staff working Paper eRSD-2010-14.
economic Research and Statistics Division. world Trade organization. geneva.


Zeng D Z, ed. (2008). Knowledge, Technology, and Cluster-Based Growth in Africa.
International Bank for Reconstruction and Development/world Bank. washington,
D.C.


ReFeReNCeS




122 economic development in africa report 2011


Economic Development in Africa series:


2000 Capital Flows and growth in Africa – TD/B/47/4 – UNCTAD/gDS/MDPB/7
Contributors: Yilmaz Akyüz, kamran kousari (team leader), korkut Boratav
(consultant).


2001 Performance, Prospects and Policy Issues–UNCTAD/gDS/AFRICA/1
Contributors: Yilmaz Akyüz, kamran kousari (team leader), korkut Boratav
(consultant).


2002 From Adjustment to Poverty Reduction: what is New?–UNCTAD/gDS/
AFRICA/2


Contributors: Yilmaz Akyüz, kamran kousari (team leader), korkut Boratav
(consultant).


2003 Trade Performance and Commodity Dependence – UNCTAD/gDS/
AFRICA/2003/1


Contributors: Yilmaz Akyüz, kamran kousari (team leader), Samuel gayi.


2004 Debt Sustainability: oasis or Mirage? – UNCTAD/gDS/AFRICA/2004/1
Contributors: kamran kousari (team leader), Samuel gayi, Bernhard
gunter (consultant), Phillip Cobbina (research).


2005 Rethinking the Role of Foreign Direct Investment – UNCTAD/gDS/
AFRICA/2005/1


Contributors: kamran kousari (team leader), Samuel gayi, Richard kozul-
wright, Phillip Cobbina (research).


2006 Doubling Aid: Making the “Big Push” work – UNCTAD/gDS/
AFRICA/2006/1


Contributors: kamran kousari (team leader), Samuel gayi, Richard kozul-
wright, Jane Harrigan (consultant), Victoria Chisala (research).


2007 Reclaiming Policy Space: Domestic Resource Mobilization and
Developmental States – UNCTAD/AlDC/AFRICA/2007


Contributors: Samuel gayi (team leader), Janvier Nkurunziza, Martin Halle,
Shigehisa kasahara.


2008 export Performance Following Trade liberalization: Some Patterns and
Policy Perspectives - UNCTAD/AlDC/AFRICA/2008


Contributors: Samuel gayi (team leader), Janvier Nkurunziza, Martin Halle,
Shigehisa kasahara.




123


2009 Strengthening Regional economic Integration for Africa’s Development -
UNCTAD/AlDC/AFRICA/2009


Contributors: Norbert lebale (team leader), Janvier Nkurunziza, Martin
Halle, Shigehisa kasahara.


2010 South-South Cooperation: Africa and the New Forms of Development
Partnership - UNCTAD/AlDC/AFRICA/2010


Contributors: Norbert lebale (team leader), Patrick osakwe, Janvier
Nkurunziza, Martin Halle, Michael Bratt and Adriano Timossi.


Copies of the series of reports on economic Development in Africa may be
obtained from the Division for Africa, least Developed Countries and Special
Programmes, UNCTAD, Palais des Nations, CH-1211 geneva 10, Switzerland
(fax: 022 917 0274;


e-mail: africadev@unctad.org). The reports are also accessible on the UNCTAD
website at www.unctad.org/Africa/series.


eCoNoMIC DeVeloPMeNT IN AFRICA SeRIeS




U n i t e d n at i o n s C o n f e r e n C e
o n t r a d e a n d d e v e l o p m e n t


U
N


C
TA


D
/A


LD
C


/A
FR


IC
A


/2
01


1


U n i t e d n at i o n s i n d U s t r i a l
development organizat ion


ECONOMIC
DEVELOPMENT IN


REPORT 2011


UN
CTA


D


UN
ID


O


AFRICA
Fostering industrial
development in aFrica in the
new global environment


T
here is mounting evidence
ind icat ing that indust r ia l
development presents great
opportunities for sustained
growth, employment and
poverty reduction. Conse-


quently, over the past decade, African
governments have renewed their political
commitment to industrialization and have
adopted several initiatives at the national
and regional levels to enhance prospects
of achieving their development objectives.
The Economic Development in Africa
Report 2011 examines the status of
industrial development in Africa with a
focus on the identification of “stylized facts”
associated with African manufacturing. It
also provides an analysis of past attempts
at promoting industrial development
in the region and the lessons learned
from these experiences. Furthermore, it
offers policy recommendations on how
to foster industrial development in Africa
in the new global environment, which is
characterized by changing international
t rade ru les, growing inf luence of
industrial powers from the South, the
internationalization of production, and
increasing concerns about climate change.


T h e R e p o r t a r g u e s t h a t a n e w
industrial policy is needed to induce
structural transformation and engender
development in African economies. It
advocates a strategic approach to
industrial policymaking which is based
on an industrial diagnosis, and proposes
a framework for industrial strategy design
which takes account of the heterogeneity
of African economies and is also tailored
to country-specif ic circumstances.
Furthermore, the Report suggests that
efforts to promote industrial development
in Africa should focus on (a) the promotion
of scientific and technological innovation;
(b) the creation of l inkages in the
domestic economy; (c) the promotion of
entrepreneurship; (d) the improvement of
government capabilities; (e) adoption of
appropriate monetary and fiscal policies;
(f) avoiding exchange rate overvaluation;
(g) enhancing resource mobilization; (h)
strengthening regional integration; and (i)
maintenance of political stability.


www.unctad.org/Africa/series


SPECIAL ISSUE


Econom
ic D


evelopm
ent in A


frica R
eport 2


0
1


1
UNITED NATIONS


EMBARGO
The contents of this Report must not be


quoted or summarized in the print,
broadcast or electronic media before


11 July 2011, 17:00 hours GMT




Login