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Institute of Federalism and Legal Studies
Ethiopian Civil Service University
The recent African remarkable economic performance continued despite subdued international economic activity and is expected to step up further in the medium term. Africans are enthusiastic to see this growth sustained, accelerated and translated into new employment opportunities, insure incomes and improved livelihoods. But, the growth so far has not been inclusive, and structural transformation on the continent remains limited. The failure to experience inclusive growth has been reinforced by several developments in the world economy-particularly volatile commodity prices-highlighting the perils of strong economic growth without synchronized industrial development and economic transformation.
Structural transformation is linked with the reallocation of resources, particularly through new investment, from low to higher productivity activities, typically from agriculture to industry and modern services, leading to higher economy-wide productivity and progressively raising income. As revealed in previous editions of the Economic Report on Africa, much of Africa, however, has seen the reverse, as resources moved from higher to lower productivity activities, particularly to the informal sector, slowing growth in national productivity. Factors of production such as labor have shifted remarkably from agriculture and manufacturing to services-harming productivity and in some cases curtailing employment opportunities in both agriculture and manufacturing and often cutting the contribution of manufacturing to the continent’s GDP and employment over the past ten years.
To a certain extent for this reason, African countries remain marginal players in domestic and international markets for their manufactured goods, with insignificant share of manufactured exports in world exports, compared even against other developing countries.
All this is distressing, as industry-manufacturing particularly-has traditionally been a source of substantial employment generation in developed countries and more recently in developing economies. Industrialisation remains a means for Africa’s economic transformation and is therefore a prerequisite for Africa to attain an inclusive economic growth. The following Economic Report on Africa which is jointly produced by the United Nations Economic Commission for Africa and the African Union Commission in 2015 are very illustrative of the above remark.
Africa’s social development indicators reveal the weakness of the observed economic performance: high unemployment and poverty coexisting with robust growth. This is a paradox. Industrialization promises to address this paradox by promoting economic diversification, inclusive growth, efficient utilisation of abundant physical, mineral and human resources and in the process eliminate poverty and hence structurally transform Africa economies.
Categorically, this Economic Report on Africa highlighted the fact that it is only through industrialisation and structural transformation that Africa can ensure broad-based growth with greater impact on employment creation.
Africa’s share in international trade is also way below potential, at around 3.3 %, and its exports are dominated by oil, metals and minerals. Intra-African trade remains low versus other regions (about 11.5 % in 2012, though informal trade lifts the figure) and is hindered by sharp intra-African trade barriers. Yet intra-African trade is far more industrialized than Africa’s trade with the rest of the world, suggesting that boosting intra-African trade can contribute to industrialization. Other encouraging news, given the decisive role of services in development, is the optimistic expansion of Africa’s service exports: exports of commercial services, for instance, have almost tripled in the past ten years.
We cannot, however, turn a blind eye to the fact that bulks of Africans still depend on agriculture for their livelihoods, and thus enhancing its performance is a key to sustainable poverty reduction. Beyond increased agricultural income, effects on the wider economy of a more prosperous agricultural sector include strengthened backward linkages and greater demand for industrial products.
Managing these change processes is fundamental to structural transformation and inclusive development. Economic development does not occur in a vacuum, despite the claims of some proponents of market reform, as market forces alone cannot sustain increases in a country’s income and development. Countries that industrialized required far-sighted and strong state efforts to address market failures and promote restructuring. It is now time to re-acknowledge that state support is vital to address market failures and spur industrialization-and to institutionalize vibrant industrial policies in national and regional development strategies, as the continent reflects on the next steps necessary to sustain and improve on growth rates that have made the continent an economic success story over the past ten years.
The resilience of Africa’s economy was tested during the 2008 international financial meltdown. But despite a slowdown in economic activity, African nations recovered faster than countries in other regions. Besides, over the last decade, African nations economy have experienced an average of 5 % annual growth on the globe, with some nations achieving 7 %-a performance that more developed and wealthier regions have yet been able to match.
While Africa has experienced impressive economic growth over the last decade on the back of better commodity prices, improved governance and increasing domestic demand and trade and investment ties with emerging economies, this has not translated into sufficient job creation or the broad-based economic and social development needed to reduce the high poverty and rising inequality in many countries.
Yet, many would ask, what is new about the argument for economic transformation and industrialization? In the past, most African countries pursued industrial policy with mixed results without significantly did contribute to economic growth in Africa. Productivity levels remained low, social conflicts slowed progress and understanding the sources of productivity growth remained a challenge for African economists. Throughout these years, the continent remained heavily reliant on primary commodity production and exports, which has waned transformational efforts.
Scores of economists in Africa have argued that commodity-based industrialization can, with the right industrial policies, lay the ground for long-term diversification and competitiveness in new and non-commodity sectors in Africa’s commodity-rich countries. It is also imperative for African countries to put in place policies that ease the development of linkages, considering country-or industry-specific constraints that cannot be overcome by market forces and that call for strategic and systematic industrial policies. In this way would not only help inch by inch transform their economies through increased value addition in the primary commodity sector, but also contribute to the process of diversification into higher-productivity employment-generating sectors, particularly in manufacturing and modern services.
If we accept that industrialization is an essential precondition for inclusive economic growth and structural transformation, then we must underline that any attempt to industrialize on the continent will fail on condition that there is no focus of attention on the designing of industrial policy institutions and processes capable of supporting industrial transformation. Countries’ past experiences in the post-independence period as well as in the 70s and 90s have demonstrated that adopting dynamic industrial policies with flexible processes and mechanisms help transform economies and bring about inclusive and sustainable economic and social development.
South Africa, for example, has adopted a model linking industrial policy to national development plans. The adoption of the National Industrial Policy Framework in 2007-the formulation of which involved the participation of stakeholders from the trade, financing and procurement sectors-has allowed the country to expand its products beyond the reliance of traditional commodities and non-tradable services. It has boosted sectors such as the automobile and components industry, making it one of the most important industries, contributing 6 % of GDP and 12 % to manufacturing exports.
Industrial policy of Mauritius government also promotes a highly developed coordination and public-private dialogue to identify and resolve problems, and has transformed the country from a low-income mono-crop dependent economy to a middle-income well-diversified economy in which tourism and services sectors have become main contributors to its national economy growth.
Such successes have not gone overlooked by other African peers. Thanks to its Growth and Transformation Plan (GTP) 2010/11-2014/15, which focuses on well-articulated, designed and implemented economic policies for Agricultural Development Led Industrialization (ADLI) strategy, Ethiopia is successfully developing, with sustained two-digit growth rates and greater investment in agriculture and industry. Furthermore, Ethiopia, as part of its growth and transformation plan, has, with stakeholders, identified constraints to expanding its leather industry, which has high growth potential, and designed measures to heighten technical skills and access to technology and markets. These interventions have improved the quality and quantity of leather exports.
These continental experiences reveal the advantages of adopting an industrial policy agenda and indicate that there is real benefit in embracing an institutional framework. It is thus essential for the rest of African countries to realize that transcending the blueprint approach to industrialization-where industrial policy is simply a set of non-contextual, predefined interventions, and shifting toward a set of institutions that generate processes that can address industry vigorous demands-is the way to go.
In conclusion, the continent has incontestably demonstrated itself in its ability to grow and attain economic success in the 21st century, but the next step in its economic journey will dictate whether Africa can translate its recent economic success story into a sustainable economic growth. Now is the time to call African countries to introduce realistic industrial policy frameworks tailored to the individual conditions of each economy to deliver inclusive and sustainable economic development.