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Joint AUC/UNECA/UNIDO Experts Group Meeting on the Implementation of the Plan of Action of AIDA

Industrial policies for the structural transformation of African economies: Options and Best Practices. Michele Di Maio University of Naples “Partenope”, Italy. Joint AUC/UNECA/UNIDO Experts Group Meeting on the Implementation of the Plan of Action of AIDA

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Joint AUC/UNECA/UNIDO Experts Group Meeting on the Implementation of the Plan of Action of AIDA

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  1. Industrial policies for the structural transformation of African economies: Options and Best Practices Michele Di Maio University of Naples “Partenope”, Italy Joint AUC/UNECA/UNIDO Experts Group Meeting on the Implementation of the Plan of Action of AIDA October, 4-7, 2010 - Addis Ababa, Ethiopia

  2. This paper This paper has two objectives • To provide a survey of the literature on industrial policy in Africa (historical and comparative perspective) • To suggest some policy recommendations based on • the analysis of the most promising approaches to industrialization • a novel country taxonomy to identify the optimal industrial policy mix for African countries

  3. Outline • Introduction • Industry in Africa: some stylized facts • Industrial policies in Africa: a very brief historical overview • The new world, the new rules and industrial policy in Africa today • What are the main industrial policy options for African countries? • Conclusions

  4. 2 - Industry in Africa: stylized facts • Africa’s manufacturing production has been and still is very low. Figure 1: Manufacturing Value added to GDP, 1965-2005 Source: UNCTAD (2008)

  5. 2 - Industry in Africa: stylized facts • African merchandise export is increasingly marginal in world trade. Source: UNCTAD (2007)

  6. 2 - Industry in Africa: problems and perspectives • African Export • nearly 75% are primary products • the composition of African exports to other developing countries has shifted towards primary products. • Primary products • Production is capital intensive often poorly linked to other sectors • prices are set at the world level and characterized by high volatility • The increasing concentration of Africa’s production and exports on primary commodities casts some doubts on the potential for future growth in the region. • The type of product a country exports matters for long-term growth (Hausmann et al., 2007; Lall et al., 2006).

  7. 2 - Industry in Africa: problems and perspectives • The experience of other emerging countries (i.e. East Asia and Latin America countries) show that industrialization has been the engine of growth • Industrial policy is needed to foster industrialization in Africa. • The failure of past industrialization strategies in Africa calls for a renewed developmental industrial policy. • Are there still lessons to be learned from the past?

  8. 3 - Industrial policies in Africa a historical overview: the DS • The Developmental State in Africa • Since the 1950s African governments implemented a number of industrial policies to promote industrialization. • The Developmental State has been the main actor of this process which was characterized by an Import Substitution Industrialization (ISI) strategy to development. • Governments • offered protection to domestic firms with little discrimination between activities, no time limit and no requirements of international competitiveness • used a range of policy measures to implement protectionist trade policies (tariff and nontariff barriers, such as quotas and licenses ) • nationalised foreign firms and made large public investment

  9. 3 - Industrial policies in Africa a historical overview: the DS • Why did the Developmental State (DS) performance has been so different in NICs and in Africa? • Differences in initial conditions and in the characteristics of the policies adopted. • specialization pattern and the production structure • role of innovation and technological change • initial conditions (quality of education and technological knowledge)

  10. 3 - Industrial policies in Africa a historical overview: SAPs • In mid 1980s, the economic situation of most of African countries was very difficult. • African countries adopted Structural Adjustment Programs (SAPs). • The Developmental State apparatus was eliminated and the ISI strategy abandoned • SAPs successful in: • liberalizing trade and the financial-sector, • favouring the privatization of public enterprises • inducing currency devaluations • But the industrial performance has been disappointing and many African countries suffered sustained de-industrialization process in the 1980s and 1990s

  11. 3 - Industrial policies in Africa a historical overview: SAPs • An assessment • SAPs did not promoted significant changes in technological capability, improvements in skill levels, higher productivity, better manufactured export performance and greater value-added in the agro-industry sector which were the expected responses from the reforms. • The weak African industrial structure is, at least in part a consequence of these interventions. • Industries have still to recover from the SAPs period and, given the new international context, the task will be increasingly difficult

  12. 4 - The new world, the new rules and industrial policy in Africa today • The world economy is rapidly changing • New rules (WTO, REC, etc.) • New actors (China, India, etc.) • New products and new technological paradigms • Opportunities and challenges are different

  13. 4 - The new world, the new rules and industrial policy in Africa today • Industrialisation figures today among the highest policy priorities at the continental level: several initiatives, plans of action, development projects and call to develop industrialization in Africa. • African governments are still largely engaged in industrial policy. • A number of different industrial policy instruments are employed in African countries (next slide)

  14. Industrial Policy in Africa today

  15. 5 - What are the main industrial policy options for African countries? • New approaches to industrial policy • Industrial clusters • Upgrading along the agricultural value chain • An industrial policy mix for African countries

  16. Industry in Africa: Industrial clusters • An emerging element in the African economic landscape is the industrial cluster. • Clusters are believed to play a significant rolein the promotion and development of SMEs (McCormick, 1999; Oyelaran-Oyeyinka and McCormick, 2007; Zeng, 2008). • The benefits of clustering are: 1) making market access easier; 2) create labor pooling; 3) facilitate technological spillovers; 4) create an environment conductive to joint actions. • The benefits of clusters would be particularly valuable to African SMEs given the difficult economic environment in which they operate.

  17. Industrial cluster: which policies? • Policies should be designed to create an environment conducive to the conditions under which a cluster can emerge. • The cluster approach works well when (at least) three actors take part into the initiative: the university, the government and the private sector. • While differentiated by cluster characteristics, policies should: • encourage acquisition, adaptation and diffusion of technology (science parks) • strengthen the education-business sector link • strengthen and upgrade skill training • provide physical infrastructure

  18. Policy to upgrade along the agricultural value chain • Agriculture is crucial for African countries’ growth • Not all agricultural sectors provide the same opportunities for export-led growth. • Over the past quarter-century, there has been a significant transformation of global trade: away from traditional tropical products and towards non-traditional agricultural exports • There are a number of government projects and plans of action to support the agriculture sector in Africa. • NEPAD’s Comprehensive Africa Agriculture Development Programme (CAADP) • Alliance for a Green Revolution in Africa (AGRA) • UN, World Bank, and IMF High Level Task Force on the Global Food Crisis

  19. Policy to upgrade along the agricultural value chain • The new content: increasing importance of GVCs in agricultural trade • the role of standards • global buyers become more demanding • Governments should: • provide physical and informational infrastructure to support coordination between enterprises and traders • develop efficient marketing organizations • support the development of local consultancy and certification companies for standards • collaboration between export enterprises • provide business-oriented services to farmers

  20. Policy to upgrade along the agricultural value chain • Two opposing views on the strategy to follow. • firms should focus on simple and labour-intensive technologies, access large markets via large-scale retailers • firms should continuously innovate as a way to remain competitive and upgrade • Government intervention is necessary to provide technical assistance to meet with sanitary, environmental and industrial standards which characterize operations within GVCs. • The role of SMEs • major trends in global agribusiness appear to undermine SMEs ability to survive. Rather than sustaining SMEs access to developed countries’ markets, policies should allow SMEs to increase their presence in the local and close regional markets (Humprey and Memedovic, 2006).

  21. A typology of African countries 4 dimensions • Endowments (resource-rich vs resource-poor countries) • Geographical location (landlocked vs coastal countries) • Population level (large vs small) • Education level of the population (high vs low) 4 policies • Sectoral policies • Trade policies • Competition policies • Education and Innovation policies

  22. Industrial policy mix: a taxonomy

  23. The industrial policy mix • Which is the best industrial policy mix for each country? • All characteristics (endowment, geographical location, population, education) are relevant to industrial policy. • But each dimension influences one type of policy in particular. • Industrial policy mix: a weighted average of the different types of industrial policy: • sectoral policies (endowments) • trade policies (geographical location) • competition policies (population level) • education and innovation policies (education level) • The weight each type of policy has in the industrial policy mix is given by the importance each characteristic has in the definition of the specific economy and by the country priority list.

  24. Industrial policy mix: Education and Innovovation policies

  25. 6 - Conclusions • African countries need to strengthen their industry to be able to compete at the world level and to induce a structural change of their economies • Historically, industrialization and structural change has been possible only through government intervention • The world and the rules of the game have changed but there is still room for government intervention to favor industrialization • New tools and strategies are available: cluster approach and policies to up-grading along the agricultural value chains • The country-specific industrial policy mix

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