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Made in Africa - Learning to Compete in Industry

One of the strengths of the new UNU-WIDER and Brookings book Made in Africa is that, in the best sense of the word, its proposals are debatable. It provides evidence and arguments for particular policies. These arguments can be debated and form part of the conversation that allows policymakers can take informed decisions.

The pattern of structural change in Africa seems different from elsewhere. Rather than following the standard pattern of labour moving from low productivity agriculture into light manufacturing and up the value chain, the change has been towards extractive industries for export, and movement into low paid service industry jobs in cities. The book builds the case that manufacturing is essential for development and structural transformation. No country has achieved wealth for its citizens without manufacturing – why should African economies be different?

Industrial policy is back on the agenda

Industrial policy is back on the agenda. African governments face a daunting list of issues, and cannot finance all that needs to be done. The authors argue that coherent industrial policy to support manufacturing should be among the priorities. The widely quoted figure of an infrastructure gap of $93 billion per year (2009) becomes more realistic if localized support for export-oriented industry is prioritized.  

It is unrealistic to try to fulfil an investment climate agenda which closes all the skill and infrastructure gaps. To help exporters, uninterrupted electricity supply and improved transport links are essential. Specialist training and skills to equip exporters in a limited area such as a Special Economic Zone are more realistic than a comprehensive national plan. To improve export chances, policy and institutional reforms, improved trade logistics and better regional infrastructure and institutions are needed.

Improved coordination between governments and firms

Surveys have identified many of the issues considered important by firms in Africa. Governments should engage with the private sector in a structured way to address these issues. Even initiatives such as Presidential Investors’ Advisory Councils have been disappointing. The authors conclude: “Put bluntly, the region and its heads of state will need to raise their game in close coordination.” Governments need to provide the policy environment and specific measures to increase firm level performance to enhance exports.

Promoting and retaining foreign direct investment

Improved performance of organizations to promote and retain Foreign Direct Investment is vital. Governments can remove obstacles to deepening value chains by improving the opportunities of coordination between foreign and domestic firms. While noting that Africa’s results with Special Economic Zones have so far been disappointing, the authors maintain that there is mileage in fostering industrial clusters and creative use of spatial industrial policy.

The opportunities and dangers of resource abundance

Governments and industry must make better use of growth corridors that link extractive industries with the wider economy, and facilitate exports through better infrastructure. However the end of the commodity boom with growth slowing in China needs to be taken into account. The World Bank recently noted “The global commodity super-cycle has come to an end, sharply lowering the price of oil, gas, metals and minerals. As a net commodities exporter, Africa is deeply affected by falling commodity prices, putting pressure on the current account and fiscal balances.”

Advice for international financial institutions and aid agencies

The book risks drawing clear conclusions, even when this requires prevailing orthodoxies to be challenged.

To give just two examples:

• it argues that the World Bank/International Finance Corporation “Doing Business” ranking is a “flawed diagnostic tool” and spells out the distorting and crowding out effect that over-attention on this league-table has had. It suggests making the “aid for trade” agenda more effective, preferably through a “global system of preferences”. Expertise in building firms’ capabilities (e.g. management skills) could help the export push. Regional integration needs to be supported. South-South sharing could be an effective way of successful resource-rich countries (Chile, Botswana) making available their expertise.
• The book makes a strong case for support for larger export-oriented firms, rather than small enterprises, as a way of creating good jobs on a continent where about 75% of existing jobs are considered vulnerable by the ILO. This approach runs counter to much of the aid agency approach to employment generation.

A chance for Africa to “break in”?

This book is a valuable resource with a distinctive message and realistic tone. Even though much can be done, the authors do not expect a replication of the East Asian take-off. There is a chance for Africa to “break in” as East Asia did in the 1980s, becoming the “world’s factory.” Changes in Asia such as rising labour costs and increasing demand for goods in Asia  are among factors which provide the opportunity for Africa initially to pick up some of the basic manufacturing jobs and progressively to move up the value chain in manufacturing, agro-industry and services.  The authors temper this optimism somewhat: “We would be very surprised if the most successful African economy in 2030 looked like Vietnam today”.  

The recipe needs “road testing” in different settings

The sponsoring organizations can only do so much to publicize and explain the analysis. Is it too much to ask that governments and institutions in Africa, and World Bank offices and development agencies working in African countries organize dialogues based on the book – with additional local insights and presentation to contextualize and update the analysis.