Us­ing trade to boost Africa’s in­dus­tri­al­iza­tion

De­lib­er­ate trade poli­cies could lead to growth

Africa Renewal - - CONTENTS - By Franck Ku­wonu

Sanusi Lamido, a for­mer gover­nor of the cen­tral bank of Nige­ria, once railed against his coun­try for spend­ing “huge re­sources im­port­ing con­sumer goods from China that should be pro­duced lo­cally.”

Nige­ria, Africa’s big­gest econ­omy and most pop­u­lous coun­try, is also the con­ti­nent’s largest crude oil pro­ducer, but im­ports most of its re­fined oil. Ex­port­ing raw com­modi­ties and then spend­ing vast sums of money on man­u­fac­tured im­ports is hardly unique to the Nige­ria- China trade re­la­tion­ship. Most African coun­tries are in sim­i­lar sit­u­a­tions with China, the Euro­pean Union, the United States or other over­seas trade part­ners.

Although China has set up min­ing oper­a­tions across Africa and is heav­ily in­volved in build­ing in­fra­struc­ture, much of its ac­tiv­i­ties on the con­ti­nent in­volve im­ported equip­ment and labour and no skill trans­fers, Mr. Lamido ob­served. “So China takes our pri­mary goods and sells us man­u­fac­tured ones,” the for­mer banker wrote in an op-ed for the Fi­nan­cial Times, a UK-based fi­nan­cial daily.

Mr. Lamido’s views are shared by many African ex­perts. In­deed, the case for in­dus­tri­al­iza­tion in Africa has long been rec­og­nized among those spe­cial­ists who ar­gue that the con­ti­nent’s eco­nomic trans­for­ma­tion is un­likely to hap­pen with­out greater in­dus­tri­al­iza­tion. The United Na­tions even ded­i­cated the two decades from 1980 to 2000 to pro­mot­ing in­dus­tri­al­iza­tion in Africa. In 1989 the UN Gen­eral Assem­bly pro­claimed 20 Novem­ber as Africa In­dus­tri­al­iza­tion Day to mo­bi­lize “the com­mit­ment of the in­ter­na­tional com­mu­nity to the in­dus­tri­al­iza­tion of Africa.”

“The lack of com­pet­i­tive­ness of African man­u­fac­tur­ing and the ex­tent to which the scope for do­mes­tic value ad­di­tion is left un­tapped are epit­o­mized by the re­gion’s trade in cot­ton,” says the UN Eco­nomic Com­mis­sion for Africa in its an­nual Eco­nomic Re­port on Africa pub­li­ca­tion. For ex­am­ple, while Africa ac­counted for about 16% of global cot­ton ex­ports in 2012, only 1% of these ex­ports, or about $400 mil­lion, was cot­ton that had been pro­cessed into fab­rics. Dur­ing the same pe­riod, the con­ti­nent im­ported $0.4 bil­lion worth of cot­ton and $4 bil­lion of cot­ton fab­rics.

“In other words,” says the re­port, “The re­gion was trad­ing raw cot­ton for cot­ton fab­rics, miss­ing a huge op­por­tu­nity to add value do­mes­ti­cally and in­dus­tri­al­ize.” Some of the main cot­ton ex­porters in­clude Benin, Burk­ina Faso and Mali. Such skewed trade pat­terns could re­sult in a sit­u­a­tion in which what­ever rev­enue Africa gen­er­ates from ex­port­ing raw ma­te­ri­als is off­set by im­ports of man­u­fac­tured goods.

Nige­ria of­fers a clas­sic ex­am­ple of what has been hap­pen­ing to many sub-Sa­ha­ran African coun­tries that have con­cen­trated on ex­port­ing raw com­modi­ties while pay­ing scant at­ten­tion to pro­cess­ing some of the com­modi­ties into fin­ished goods as part of a de­lib­er­ate pol­icy on in­dus­tri­al­iza­tion. For ex­am­ple, in 2012 Nige­ria ex­ported $89 bil­lion of crude oil, ac­cord­ing to the ECA re­port, but im­ported $5.5 bil­lion of re­fined oil be­cause its re­finer­ies have all but col­lapsed due to ne­glect. De­lib­er­ate trade poli­cies and prac­tices con­sis­tent with African coun­tries’ de­vel­op­ment goals could lead to in­dus­tri­al­iza­tion, which in turn could help trans­form and strengthen their economies.

In­suf­fi­cient growth

Over the past two decades Africa’s eco­nomic ex­pan­sion has been re­mark­able, with a few coun­tries reg­is­ter­ing dou­bledigit rises. Be­cause much of the growth is fu­elled by high de­mands for min­eral and agri­cul­tural re­sources, the World Bank projects a slow­down in 2015 to about 4.4% due to weaker prices for oil and other com­modi­ties. How­ever, growth is ex­pected to pick up again in 2016 and 2017.

Yet as in the past, this growth will likely not be enough to lead to sig­nif­i­cant changes needed to re­duce poverty by cre­at­ing jobs

and pro­vid­ing so­cial ser­vices. Over­all, “the cur­rent mer­chan­dise ex­port struc­ture, dom­i­nated by raw and un­pro­cessed com­modi­ties, is not con­ducive to the en­vis­aged level of de­vel­op­ment,” says Car­los Lopes, the ECA head, in his fore­word to the ECA’s re­port, the fo­cus of which is “In­dus­tri­al­iz­ing through Trade.” By favour­ing the ex­port of raw ma­te­ri­als over pro­cess­ing goods, subSa­ha­ran Africa de­nies it­self the op­por­tu­nity to add value through man­u­fac­tur­ing, which would pro­vide more jobs and gen­er­ate ad­di­tional rev­enue.

In 2013 the ECA ar­gued that African coun­tries could trans­form their economies through com­mod­ity-based in­dus­tri­al­iza­tion. A year later, its re­port “Dy­namic In­dus­trial Pol­icy in Africa” con­cluded that the con­ti­nent needed to set up stronger in­sti­tu­tions and adopt ef­fec­tive mea­sures to en­hance struc­tural trans­for­ma­tion. This year the com­mis­sion is say­ing that de­lib­er­ate and smart trade poli­cies and prac­tices could lead to the much-de­layed in­dus­tri­al­iza­tion of Africa.

This year’s re­port is mak­ing the case that African coun­tries can use trade to achieve in­dus­trial de­vel­op­ment and struc­tural trans­for­ma­tion, but ad­vises against the tra­di­tional pat­tern of trad­ing, which so far has meant ex­chang­ing raw com­modi­ties for man­u­fac­tured goods.

“A suc­cess­ful trade-in­duced in­dus­tri­al­iza­tion should be in­ter­ac­tive and co­her­ent with a coun­try’s na­tional de­vel­op­ment strat­egy; it should be evolv­ing and highly se­lec­tive,” Hope­stone Chavula, one of the au­thors of the re­port, told Africa Re­newal.

Smart pro­tec­tion­ism

The no­tion of “highly se­lec­tive” trade poli­cies seems to im­ply that African coun­tries are be­ing asked to im­ple­ment some kind of pro­tec­tion­ism or spe­cial treat­ment for cer­tain sec­tors that would be jus­ti­fied by the over­all need to ad­vance na­tional de­vel­op­ment goals. To this end, the craft­ing of na­tional de­vel­op­ment strate­gies has to be the start­ing point to­wards in­dus­tri­al­iza­tion, says the re­port. But un­like in the past, such de­lib­er­ate trade poli­cies may be dif­fi­cult to im­ple­ment un­der the rules of the World Trade Or­ga­ni­za­tion. The WTO is un­likely to give the nod to coun­tries try­ing to shield se­lected in­dus­tries, nascent or frag­ile, from com­pe­ti­tion, even when do­ing so would pro­tect their na­tional in­ter­ests.

Still, Mr. Lopes from the ECA is con­vinced “smart pro­tec­tion­ism” works, telling Africa Re­newal last year that “all coun­tries that have in­dus­tri­al­ized started with some de­gree of pro­tec­tion­ism.” But he quickly con­cedes that Africa can­not prac­tice crude pro­tec­tion­ism any­more. “If we have to make the rules work for Africa, that ba­si­cally means smart pro­tec­tion­ism.”

In pur­su­ing in­dus­tri­al­iza­tion through trade, sub-Sa­ha­ran Africa would not be tread­ing untested paths. Ex­pe­ri­ence from Ja­pan, the East Asian tigers and China all show the ef­fect of de­lib­er­ate trade poli­cies, in­clud­ing the role of cen­tral gov­ern­ments in mak­ing the right choices to ad­vance na­tional de­vel­op­ment goals.

While the role of gov­ern­ments may be im­por­tant, the re­port says, pol­i­cy­mak­ers must un­der­stand global trade dy­nam­ics and use re­gional and in­ter­na­tional trade ne­go­ti­a­tions to pur­sue their in­dus­tri­al­iza­tion agenda.

Trade poli­cies alone will not jump-start African in­dus­tri­al­iza­tion, the re­port finds, but they will pro­vide “a ro­bust frame­work for African coun­tries to re­assess their trade pol­icy.” This will give those coun­tries the op­por­tu­nity to iden­tify the best routes to struc­tural trans­for­ma­tion and tai­lor trade pol­icy to achieve the de­sired goals.

Panos/ Nyani Quarmyne

Fac­tory work­ers pack­age prod­ucts at Decor­plast, a man­u­fac­turer and re­gional ex­porter of in­jec­tion­moulded plas­tic goods in Ghana.

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