Di­a­monds not for­ever – knowl­edge is power

Lesotho Times - - Opinion - Calestous Juma

AFRICA’S in­no­va­tion strate­gies are at a cross­roads. The African Union’s 10-year Science, Tech­nol­ogy and In­no­va­tion in Africa Strat­egy (STISA-2024) seeks to re­po­si­tion Africa as a tech­nol­ogy-driven econ­omy, away from a sup­plier of raw ma­te­ri­als for the global econ­omy. To re­solve the ten­sion be­tween min­eral de­pen­dency and in­no­va­tion, pol­icy mak­ers stress the im­por­tance of adding value to nat­u­ral re­sources.

African states should try to get the best pos­si­ble deal for their re­sources and of­ten this will in­volve in-coun­try value ad­di­tion. At present, the con­ti­nent’s com­mod­ity sys­tems not only suf­fer from enor­mous Il­licit Fi­nan­cial Flow leakages, suck­ing money out of the con­ti­nent and away from gov­ern­ment trea­suries, but also tend to en­gage in the least prof­itable end of the value chain. For ex­am­ple, in 2014 Africa ex­ported $2.4 bil­lion of cof­fee.

Ger­many, which is not a pro­ducer but a pro­ces­sor, re-ex­ported nearly $3.8 bil­lion worth of cof­fee. The stan­dard re­sponse to the dis­par­ity is to call on Africa to add value to its cof­fee.

How­ever, value ad­di­tion should not be the pri­mary model for industrial di­ver­si­fi­ca­tion. To give it that fo­cus would be to ig­nore lessons from eco­nomic his­tory and tar­iffs im­posed on African ex­ports by trad­ing part­ners.

For many of the largest mar­kets African states sell to, the tax charges are higher the more re­fined the prod­uct is. So, it is ex­pen­sive for coun­tries to add value to their ex­ports un­less they can con­vince trad­ing part­ners to give them more ben­e­fi­cial terms or find new trad­ing part­ners.

Re­duc­ing or re­mov­ing tar­iff bar­ri­ers would not au­to­mat­i­cally lead to value ad­di­tion in pro­ducer coun­tries. Raw ma­te­rial ex­porters would need time to build up pro­cess­ing ca­pa­bil­i­ties. The temp­ta­tion un­der such con­di­tions is to en­ter into joint ven­tures with im­port­ing coun­try com­pa­nies or to en­cour­age them to set up pro­cess­ing ca­pa­bil­i­ties in the ex­port­ing coun­tries. Th­ese poli­cies may be suc­cess­ful, but they may also give too much away to those for­eign com­pa­nies, es­pe­cially if the pol­icy is er­ro­neously seen as the route to in­dus­tri­al­i­sa­tion.

There is lit­tle ev­i­dence to sug­gest that coun­tries in­dus­tri­alise by adding value to their raw ma­te­ri­als. Rather, the causal­ity runs the other way — coun­tries add value to raw ma­te­ri­als be­cause they al­ready have the tech­no­log­i­cal ca­pac­ity to do so.

Lag­ging be­hind In fact, com­mod­ity booms are of­ten a con­se­quence of pol­icy in­cen­tives, im­prove­ments in ex­plo­ration tech­nol­ogy and in­vest­ment in com­mod­ity-re­lated public re­search. Africa cur­rently lags far be­hind in such ef­forts, dis­tracted by its min­eral wealth.

Africa’s most sig­nif­i­cant chal­lenge is up­grad­ing the com­pe­tence of its peo­ple through en­hanced ed­u­ca­tion in science, tech­nol­ogy, en­gi­neer­ing and math­e­mat­ics.

Such in­vest­ments will en­able the con­ti­nent to de­velop the ca­pac­ity to use the world’s avail­able sci­en­tific and tech­ni­cal knowl­edge to di­ver­sify the econ­omy. This eco­nomic devel­op­ment will not be de­pen­dent on nat­u­ral re­sources, although they will likely play some role.

Let us look a few in­spi­ra­tional ex­am­ples. In the early 1960s, Tai­wan was a lead­ing mush­room ex­porter. It quickly be­came a semi­con­duc­tor pow­er­house. It did not achieve this through the ben­e­fi­ci­a­tion of mush­rooms. In the 1990s, Fin­land dom­i­nated the world mar­ket for mo­bile phones. This suc­cess was not achieved by adding value to lum­ber, for which it was known. A decade later, Kenya’s pi­o­neer­ing of mo­bile money trans­fer owed noth­ing to value ad­di­tion in its tea or cof­fee sec­tors. Brazil’s sugar was not the ba­sis for the emer­gence of the coun­try’s aero­nau­ti­cal prow­ess. China fo­cused con­sid­er­ably on meet­ing the food needs of the peo­ple by ex­pand­ing rice pro­duc­tion. But this was not the ba­sis for its rise as a world leader in so­lar pho­to­voltaics.

The se­cret of th­ese coun­tries lies in their ac­qui­si­tion, do­mes­ti­ca­tion and ex­pan­sion of lo­cal tech­no­log­i­cal ca­pa­bil­i­ties. But even more im­por­tantly, th­ese coun­tries were able to iden­tify emerg­ing tech­nolo­gies that could serve as a plat­form for pro­duc­ing a wide range of prod­ucts and as­so­ci­ated ser­vices.

Tech­no­log­i­cal ver­sa­til­ity is a crit­i­cal el­e­ment of prod­uct devel­op­ment. Some tech­nolo­gies of­fer greater op- por­tu­nity for prod­uct di­ver­si­fi­ca­tion than oth­ers. Di­a­monds are not for­ever, but the knowl­edge un­der­ly­ing their struc­tures might be. Agri­cul­tural residue may ap­pear val­ue­less. But with mod­ern knowl­edge on nan­otech­nol­ogy and chem­i­cal en­gi­neer­ing, such ma­te­rial could be the ba­sis of new bio­ma­te­ri­als­based in­dus­tries. Knowl­edge di­ver­si­fi­ca­tion of­fers coun­tries greater op­por­tu­ni­ties for cre­at­ing new eco­nomic com­bi­na­tions.

For the most suc­cess­ful com­bi­na­tions to arise, pol­i­cy­mak­ers should be aware that tech­no­log­i­cal in­no­va­tion is a re­com­bi­nant process that builds on prior knowl­edge. For ex­am­ple, as noted in this col­umn last month, the 3D print­ing in­dus­try — a pos­si­ble dra­matic growth sec­tor that some young African en­trepreneurs are al­ready ex­ploit­ing — is an ex­ten­sion of the dig­i­tal revo­lu­tion, but it also re­quires ad­di­tional ex­per­tise in elec­tronic, me­chan­i­cal and chem­i­cal en­gi­neer­ing.

Pur­su­ing such strate­gies re­quires build­ing up the ca­pac­ity to iden­tify, ac­quire and do­mes­ti­cate emerg­ing tech­nolo­gies. Such com­pe­tence usu­ally re­sides in science, tech­nol­ogy and en­gi­neer­ing de­part­ments in uni­ver­si­ties and re­search in­sti­tutes. In fact, most African na­tions al­ready pos­sess pock­ets of such ca­pa­bil­i­ties in their in­sti­tu­tions of higher learn­ing and re­search. But their gov­ern­ments hardly know about their ex­is­tence, partly be­cause of their SE­CRETS OF INDUSTRIAL DI­VER­SI­FICA

tion Africa’s eco­nomic trans­for­ma­tion through in­no­va­tion is within reach. But this can­not be ef­fec­tively pur­sued while con­tin­u­ing to be hob­bled by the un­ten­able view that industrial di­ver­si­fi­ca­tion needs to start with adding value to the con­ti­nent’s ma­te­ri­als.

But, this should be done as an end in it­self, not as the mech­a­nism for spurring industrial devel­op­ment. To in­dus­tri­alise, pol­i­cy­mak­ers should fo­cus on the knowl­edge un­der­ly­ing industrial prod­ucts and pro­cesses. With such knowl­edge, African coun­tries may, in fact, find op­por­tu­ni­ties for in­creas­ing its man­u­fac­tured ex­ports that are not nec­es­sar­ily re­lated to their nat­u­ral re­source en­dow­ments.

It is partly be­cause of the limited in­vest­ment in tech­no­log­i­cal com­pe­tence that Africa has hardly been able to ben­e­fit from trade ar­range­ments such as Amer­ica’s Africa Growth Op­por­tu­nity (AGOA). Sim­i­larly, Africa’s ex­ports to new mar­kets such China are still very low de­spite the re­moval of tar­iffs and duty on a wide range of prod­ucts. The same ob­sta­cles face in­tra-african trade, which re­mains small.

Raw ma­te­ri­als are an im­por­tant part of Africa’s past, present and fu­ture. How­ever, they are not the most strate­gic en­try point for industrial di­ver­si­fi­ca­tion and job cre­ation. In­stead, we should place di­rect fo­cus on up­grad­ing hu­man com­pe­tence.

Raw ma­te­ri­als are ex­haustible, hu­man knowl­edge grows with use. That is the se­cret of industrial di­ver­si­fi­ca­tion, job cre­ation and pros­per­ity.

is a pro­fes­sor at Har­vard Kennedy School spe­cial­is­ing in tech­no­log­i­cal in­no­va­tion and en­trepreneur­ship for devel­op­ment.

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