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«Policy Research Paper Industrial Policies for the Structural Transformation of African Economies: Options and Best Practices No. 2 Policy Research ...»

-- [ Page 1 ] --

Economic Commission

for Africa

Policy Research Paper

Industrial Policies for the Structural

Transformation of African Economies:

Options and Best Practices

No. 2

Policy Research Report

no.

Industrial Policies for the

Structural Transformation of

African Economies: Options

and Best Practices

Economic

Commission

for Africa

The ECA Policy Research Paper provides an accessible, informative and interesting synthesis of original policy

analysis or research focusing on major economic and social development issues of importance to Africa at national, sub-regional and regional levels. Its research and policy analysis are presented to share knowledge and encourage dialogue and discussion on issues pertaining to sustainable development in Africa.

However, the findings, interpretations and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to ECA or its leadership. ECA does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use.

This publication is a product of the United Nations Economic Commission for Africa.

UN Under-Secretary-General and Executive Secretary of ECA: Abdoulie Janneh Coordinated by the Economic Development and NEPAD Division.

Emmanuel Nnadozie, Director Copyright © 2011 United Nations Economic Commission for Africa Addis Ababa Ethiopia All rights reserved Printed in Addis Ababa at ECA Print shop Table of Contents Acknowledgement

Acronyms

Abstract

Executive Summary

Introduction

Industry in Africa: some stylized facts

Industrial policies in Africa: a historical overview

Industrial Policy and Role of the State

Comparative Analysis of Africa with East Asia and Latin America

New World Dynamics and the Need for Africa to refocus Industrialization...... 22 The Globalization Process and New Rules in Trade and Industrial Policy........ 22 Industrial policy in Africa today

Sectoral and competition policies

Education and innovation policies

Trade policies

Successful country examples

Which are the main Industrial Policy Options for African Countries?................ 34 Promoting industrial clusters

Upgrading along the agricultural value chain

A typology of African countries and industrial policies

Conclusion

–  –  –

Under the general supervision of Emmanuel Nnadozie, coordinated by Ndubisi Nwokoma, Bartholomew Armah, Aissatou Gueye and Yinka Adeyemi, this study was conducted by Michele Di Maio and benefited from comments of several experts during a Joint ECA/AUC/UNIDO Experts Group Meeting held on October 4-7, 2010, in Addis Ababa, Ethiopia.

Acronyms AEC African Economic Community AERC African Economic Research Consortium AfDB African Development Bank AFTFP World Bank Africa Finance & Private Sector Department AGOA African Growth and Opportunity Act AGRA Alliance for a Green Revolution in Africa AIDA Accelerated Industrial Development of Africa AIO African Innovation Outlook APCI African Productive Capacity Initiative AU African Union AUC African Union Commission CAADP Comprehensive Africa Agriculture Development Programme CAMI Conference of African Ministers of Industry CEMAC Economic and Monetary Community of Central Africa COMESA Common Market for East and Southern Africa DFID Department for International Development ECOWAS Economic Community of West African States EPA Economic Partnership Agreement EPZ Export Processing Zone EU European Union FAO United Nations Food and Agriculture Organization FDI Foreign Direct Investment GDP Gross Domestic Product GVC Global Value Chain HDI Human Development Index ICT Innovation and Communication Technology IDDA Industrial Development Decade for Africa IFPRI International Food Policy and Research Institute IMF International Monetary Fund ISI Import Substitution Industrialization LDCs Least Developed Countries NEPAD New Partnership for Africa’s Development NGO Non-Governmental Organization NIC Newly Industrialized Country ODA Official Development Assistance OECD Organization for Economic Co-operation and Development PAAD Plan of Action for Accelerated Industrial Development.

v R&D Research and Development SADC Southern African Development Community SAP Structural Adjustment Programme SME Small and Medium Enterprise SSA Sub-Saharan Africa STCAP Science and Technology Consolidated Plan of Action UN United Nations UNCTAD United Nations Conference on Trade and Development UNDESA United Nations – Department of Economic and Social Development UNDP United Nations Development Programme UNECA United Nation Economic Commission for Africa UNESCO United Nations Economic and Scientific Cultural Organization UNIDO United Nations Industrial Development Organization USAID United States Agency for International Development WB World Bank WTO Trade World Trade Organization WWII World War II

viAbstract

This study was conceived within the context of the implementation of the Plan of Action for the Accelerated Industrial Development of Africa (AIDA). Its objectives are twofold. First, it provides a detailed analysis of the current state of industry in Africa, describes the set of industrial policies currently being pursued by African governments and discusses how they are affected by the changing global context. Second, it proposes a set of policy recommendations and concrete policy options for African countries based on the analysis of the most promising approaches to industrialization and on a newly formulated country taxonomy that identifies the optimal industrial policy mix for African countries. The idea is that while industrial policy is necessary for any country, what can be regarded as the best industrial policy is highly country-specific. This is even more relevant in the case of Africa where a high degree of heterogeneity exists among the various countries.





viiExecutive Summary

The recent global economic crisis has exacerbated the persistent weakness of African economies – thus making it increasing difficult for them to catch up with the rest of the world. Currently, global rules and standards of industrial production are changing with new competitors eroding African market shares thus slowing down its industrialization process. While the causes of this situation are many, there is increasing agreement on the need for a changed approach to the development of the continent. The most relevant ‘new’ approach is that industrialization is again among the top priorities on the African policy agenda.

In recent years, the commitment by African governments to fostering industrialization has been increasing and a number of major initiatives to meet this objective have been taken. One of the most important steps was the adoption of the Plan of Action for the Accelerated Industrial Development of Africa (AIDA). The plan, promoted by the African Union Commission (AUC) in collaboration with the United Nations Industrial Development Organization (UNIDO), the United Nations Economic Commission for Africa (UNECA) and other development partners, contains seven programme clusters.1 The current study is to be placed within the context of the implementation of AIDA. Its objective is twofold. First, it provides a detailed analysis of the current state of industry in Africa, to describe the set of industrial policies currently being pursued by African governments and to discuss how they are affected by the changing global context. Second, it proposes a set of policy recommendations and concrete policy options for African countries. This is based on the analysis of the most promising approaches to industrialization and on the use of newly formulated country taxonomy to identify the optimal industrial policy mix for African countries. The idea is that while industrial policy is necessary for any country, what can be regarded as the best industrial policy is highly country-specific. This is even more relevant in the case of Africa where a high degree of heterogeneity exists among the various countries.

The analytical framework adopted in this study is based on the fact that development requires economic transformation and that targeted industrialization is the key to generate sustained growth. Industrial policy is necessary to achieve these objectives because it induces structural change and fosters competitiveness. Moreover, industrial policy can play a critical role in the growth process by focusing on diversification, to reduce exposure to external shocks. This view is supported by the historical evidence that no newly developing economy has succeeded by relying on the market alone to induce structural change and diversification of outputs and exports.

At the same time, industrial policy can spur an increase in investment levels, building new backward and forward linkages across the economy, and upgrading technological capacity that will make for more beneficial integration of African countries in world trade.

This study begins by describing the industrial sector in Africa –as shown in Section 2. It is shown that industry; the manufacturing sector in particular, is still very weak and marginal in African economies, as indicated by the low share of manufacturing exports for most African countries.

1 The seven programme clusters are: Industrial Policy and Institutional Direction; Upgrading Production and Trade Capacities; Promote Infrastructure and Energy for Industrial Development; Human Resource Development for Industry; Industrial Innovation Systems, R&D and Technology Development; Financing and Resource Mobilization; and Sustainable Development.

ix At the same time, the importance of production and export of primary products is shown to be increasing. This poses a number of questions about which development model is best suited for which countries on the continent. Also, in this section, there is a focus on the new industrial realities, namely industrial clusters, and how they can contribute to the industrialization process.

In addition, the strengths and weaknesses of industrial clusters are discussed with the case made that they, in most cases, fit the needs and possibilities of the African industrialization process quite well.

The current difficult, industrial scenario in Africa is the result, among other consequences, of the different development and industrialization strategies that have been attempted since the 1950s.

Section 3 discusses the history of government intervention and industrial policy in Africa since the era of independence. In the 1950s, African countries started import-substitution strategies, by replacing imports with domestically manufactured goods. In most cases, these strategies failed because of a mixture of internal and external causes. With the adoption of Structural Adjustment Programmes SAPs in many African countries, intensive international competition and globalization, these countries shifted to market-oriented and export-oriented strategies. For the most part, this proved to be a difficult challenge. To better understand the African case, the experiences of other developing countries, in particular East Asia and Latin America, are also analyzed. In this regard, the reasons for the wide differences in the performance of Developmental State strategy in Africa with respect to other emerging countries are identified. The analysis also emphasizes that, contrary to expectations, the SAPs did not generate the expected microeconomic responses, nor have they promoted significant changes in technological capability, improvements in skills levels, higher productivity, better manufactured export performance or greater value added in the agro-industry sector. This makes the re-thinking of industrialization strategy more urgent than ever before.

Section 4 briefly discusses how the globalization process and the new rules of world trade have changed in the last few decades and how this affects the options for government intervention, particularly in the use of industrial policy by African countries. The discussion here indicates that the globalization process has marginalized Africa, which has been limited in its ability to benefit from the world trade opportunities. In fact, with the increasing internationalization of production, distribution and marketing of goods and services, Africa faces additional challenges just to catch up with the rest of the world, since global rules and standards of industrial production are also changing. Having described the new context, this section then surveys the set of industrial policies currently implemented by African countries. The basis for this is the definition of industrial policy proposed in Cimoli et al. (2009). Industrial policy is here defined as the (large) set of innovation and education, trade, sectoral and competition polices employed by governments to induce structural change and industrialization. For each domain, how specific policies and instruments have been adopted in different countries is described. The objective is to identify the common patterns and general features that are relevant to the adoption of industrial policies in Africa. It turns out that African governments are employing a large number of polices in various domains and that variance across countries is quite large. Actually, this may be surprising, given the specificities of African countries and their high degree of heterogeneity.



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