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

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Country Sectors Botswana automotive, beverages, textiles and clothing Cameroon textiles and clothing, wood, energy and hydrocarbons, agro-processing, pharmaceutical products, tourism Cote d’Ivoire agro-processing, building, civil engineering Ghana agro-processing, ICT, metal-based industries Kenya agro-processing, fertilisers, cement, fish, leather, pulp and paper, metals, plastics, textiles, clothing and footwear, ICT, electrics Mauritius ICT Morocco textile, clothing, tourism Nigeria pre-chemicals, machine tools, steel mills Rwanda agro-processing, ICT Senegal tourism South Africa automotive and components, textiles and clothing, pharmaceuticals, plastics, metals, pulp and paper, furniture, chemicals Uganda agro-processing, textiles and clothing Zimbabwe agriculture, raw materials and products Sources: Harabi (2008), Marti and Ssenkubuge (2009), Soludo et. al. (2004), various national proposals, documents and declarations Table 6 compares the sectoral and competition policies implemented in a sample of African countries. Competition policies are particularly important in the raw-material sectors. In the last ten years, government intervention in the form of a new regulatory environment has unleashed private investments in the sector (UNIDO, 2009). One such successful case is, for instance, Botswana.

Still, there are critical elements related to improving governance of mining-related fiscal revenues and to avoiding the pronounced Dutch-disease effects that are preventing development of other industries. In the context of sectoral policies, of particular importance are the measures to attract investments to a selected sector. In Tanzania since the 1990s, there is a comprehensive investment promotion scheme, the National Investment Act. New investments in selected sectors receive a five-year tax holiday, waivers/drawback rights on imports and free long-term land leases. The response has been strong in several sectors, particularly tourism, industrial gold mining and fisheries.

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Education and innovation policies Education is essential for improving the productive capacities of countries through supporting technological progress, complementing capital accumulation and enhancing structural change (UNCTAD, 2006). Indeed, the education level of a population is a pivotal input into the economic growth path. Several scholars have suggested that there is a relationship between the lagging industrial development in SSA and its weak human capital base.

In the 1970s, SSA had the lowest figures in the developing world regarding educational enrolments at practically all levels of schooling, worker training and higher education. Unfortunately, this problem has not been considered in the design of SAPs. This has surely contributed to retarding the development of capabilities in the industry. However, Africa has improved its accumulated human capital during the last twenty years. As reported by UNECA (2010a), the result of these efforts is a more educated labour force as the proportion of the labour force with secondary and university education increased from 18 to 22 and 6.8 to 7.2 per cent respectively between 1990 and 2007.

Yet, all these effort seems not to yield the expected results in terms of unemployment reduction and higher growth. The increasing number of unemployed who hold a university degree suggests a mismatch between the skills African education systems are producing and those needed by the business sector. There are two possibilities. First, students graduate in subjects which have no practical use in the business sector.33Second, there is a situation of over-education. In this case, unemployment is due to the characteristics of the production structure of African economies – characterised by the prevalence of agriculture and raw (capital-intensive) material sectors - which does not require the high skilled workers universities are producing.

In recent years, African governments have started giving education and technology development high priority. In particular, more attention is being paid to creating a close interaction between education and technology policies. Among the numerous documents on the issue, the most important is the Science and Technology Consolidated Plan of Action (STCAP) approved by the African Union (AU) and NEPAD in 2005. There has been a great effort by regional institutions and economics scholars to understand and evaluate the working of the innovation systems in African countries.34As for technology, the situation for African firms is very difficult. In particular, SMEs are characterized by very low technological levels.35 On the other hand, the few large African firms conduct practically no in-house research and development (R&D). There is very little interaction between the industrial sector and the technology infrastructure. The results of the research institutes are generally unimpressive and they do not reach the local firms. Also technology information services established by several governments to help local firms, especially SMEs, to locate and purchase foreign technologies have not performed well.

While the difficulties are enormous, nonetheless, most countries are making effort to implement measures that foster innovation and technology accumulation by firms (see Table 7). Many African countries have created institutions for promotion of science and technology in the last decade, (such as the Industrial Research Institute in Ghana, the Industrial Research and Development Institute in Kenya and the Tanzanian Industrial Research Organization).36 In some cases, the ambitious government objective is to re-design the infrastructure of the country, as seen in Angola’s Science and Technology Innovation Policy programme (UNIDO, 2008). Ogbu et al. (1995) observe that many countries now have full-fledged technology ministries, which are supposed to demonstrate an acknowledgement of the importance of technology to development. Although the evidence is of mixed value, it demonstrates – at best - that the ability of government to coordinate and evaluate technology acquisition and use has been very weak.

33 For example, while about 50 per cent of university students in the Republic of China and Korea major in science, engineering or business, only 20 per cent of African students do so.

34 The first NEPAD Ministerial Conference on Science and Technology called on the NEPAD Secretariat to initiate activities that would generate an African Innovation Outlook (AIO). The objective was to provide a detailed account of innovation in the African context. Another important initiative has been carried on by UNU-INTECH for NEPAD. Two distinct, but complementary surveys, one on science and technology and a second on innovation were designed (UNU-INTECH, 2004).

The results from the surveys will be used to benchmark the innovative performance of respective countries, identify common problems and search for regional solutions. As for academic scholars, Muchie et al. (2004) coordinated a collection of papers on African countries within the framework of the national innovation systems. Enos (1995) analyses R&D investments in detail, both before and after SAPs in Ghana, Kenya, Tanzania and Uganda. Lall and Pietrobelli (2002) evaluated the system of innovation in Ghana, Kenya, Tanzania, Uganda and Zimbabwe and how they contributed to the competitiveness of each country. Oyelaran-Oyeyinka (2006) investigated the role of technology and institutions in supporting SMEs in African industries.

35 In the Maghreb countries (Algeria, Tunisia, Morocco), innovation takes place almost exclusively in SMEs, with very little experience in R&D-based innovation, suffering notably from high levels of obsolescence both in terms of human resources and equipment (Djeflat, 2004).

36 For a detailed analysis of the characteristics, activities and performances of R&D institutions in Ghana, Kenya, Tanzania and Uganda, see Enos (1995).

Table 7: Innovation policies: comparative table, selected countries.

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Africa clearly needs a more effective technology policy. Lall and Pietrobelli (2005) suggest that government intervention in the sphere of technology needs a strong re-direction along the lines of the national innovation system perspective. Oyelaran-Oyeyinka (2004b) argue that government has a key part to play in promoting ‘dynamic learning’ in companies through supporting an increased export orientation of SMEs and the provision of training to the workers.

Diyamett (2009) indicates that the cluster is the best approach to build a system of innovation in Africa. The basic concept is that the cluster system better fits the characteristics of the African innovation system. The latter is characterized by two main weaknesses and one peculiar characteristic. The first weakness is the absence of a link between science and technology. The second weakness is the fact that African markets are small, fragile and underdeveloped. This dramatically reduces the incentive demand for innovative products. In addition to these difficulties, there is the fact that the system of innovation is characterized by several low-tech sub-systems, in which incremental innovation and learning by doing are much more important than radical innovation and R&D.

The African environment is indeed characterized by SMEs with little experience in the field of R&D, relatively weak industrial performances in terms of productivity and high levels of obsolescence both in terms of human resources and equipment. The main problem with SMEs is that they locked into repetitive routines of learning-by-doing and disconnected from both local and global knowledge flows (Oyelaran-Oyeyinka, 2004b). One interesting opportunity for fostering innovation in and creation and diffusion of SMEs is, following the NICs’ experience, to create science parks. The science park is one form of cluster initiative; it is a geographical place where firms, universities and other research centers, spinoffs from companies and R&D units of existing companies are close in location and exchange technological knowledge thus taking advantage of geographical proximity.

Trade policies The past fifty years have seen dramatic increases in the importance of trade in the world economy because trade has grown much more rapidly than output. The approach to trade policies has dramatically changed as well. Traditionally, trade policies have been fundamental tools of the industrial policy toolkit. Protectionist trade policies were widely used between the 1950s and 1970s. By the 1980s, developing countries had to turn towards policies that involved more open trade regimes. By the end of the 1980s, in virtually all developing countries liberalizing trade and investment was a prominent piece of their development programmes (Martin, 2001).

Under the label of trade policies can be grouped a number of very different instruments that are available to governments to influence trade relations. Among the most important are tariffs, export subsidies, quotas and other non-tariff barriers. All these policies have the objective of modifying trade relations between the domestic country and the rest of the world. Some policies impact on the country as a whole, while others impact only on specific sectors or even individual firms.

As previously mentioned, the rules of world trade have significantly changed and this had had a large impact on the use of trade policies. Still, Chang (2004) argues that it could be overestimated. For instance, countries still have the possibility to increase tariff in cases of emergency (import surcharge).37. Moreover, most African countries are LDCs and thus are still allowed to use export subsidies, which other countries cannot. In addition, they can use subsidies for agriculture, regional development, basic R&D and environment-related technology upgrading.

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37 This can be done on two grounds. The first is a sudden surge in sectoral imports. The second is the overall balance of payment problem.

Finally, there are a number of domestic policies that can be used for fostering investment in strategic sectors, for instance, subsidies on equipment investments, support for start-up enterprises, subsidies for investment in particular skills, etc. For instance, governments may support export also by creating export credit agencies that offer trade financing, generate and provide information, and pool risks. Indeed, as shown in Table 8, African countries make a large use of trade policies.

In particular, export promotion policies are one of the many instruments of industrial policy available to the governments to promote economic growth.38 Among the most used trade policies are the incentives to export activities and the creation of Export Processing Zones (EPZs).

EPZs provide large incentives to attract foreign firms, similar to what happened in the NICs at the beginning of their development process. While this instrument has been long and widely used, it seems that more evidence is needed to empirically assess how successful these EPZs have been. This would inform governments on whether to proceed with this strategy or employ resources in other measures. For instance, studies carried out in Ghana and Kenya have shown that government could play a positive role in exporting by creating the skilled labour required by exporting firms (UNECA, 2010a). These projects have been quite successful and have shown that the coordination between different types of policies is key to their efficacy.

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