Carlos Lopes

Africa Cheetah Run

The Former Executive Secretary's Blog

Large scale commodity-based industrialization in Africa is imperative, possible and beneficial

1 March 2013
Une industrialisation massive fondée sur les matières premières est pour l’Afrique impérative, possible et bénéfique

African countries are growing but have not been able to fulfil their industrial potential. This is due to a number of internal, external and historical reasons but mainly because of failure of policies, often imposed on Africa. Of particular note are the legacies of Africa’s colonialism which left institutions and infrastructure designed to enhance extraction of its resources and the externally imposed structural adjustment programmes which had particularly negative effects on technological accumulation, human capital development and manufacturing export performance.

That past is behind it, and Africa today can create a new legacy. Sweeping political and economic changes over the last half century reformed global power structures, reconfigured international relations, loosened old hegemonies and allowed new ones to emerge, and led to serious rethinking of development paradigms. These changes present a huge opportunity for Africa to emerge as a global economic power—and present a serious challenge too. Emergence will require leadership, vision and strategies for long-term development. To unleash its potential, especially given the new spirit of an Africa on the rise, Africa must define and own its development agenda. Individually and collectively, African countries must embark on a bold transformation driven by massive industrialization to address youth unemployment, poverty, and gender disparities.

African countries have a real opportunity to promote economic transformation through a commodity-based industrialization process, capitalizing on the continent’s resource endowments and high commodity prices and the changed organization of the global production process. Maximizing Africa’s commodities for industrialization involves adding value to soft and hard commodities and developing forward and backward linkages to the commodity sector. Industrialization will yield employment, income, price and non-price benefits. African countries will benefit from diversification of technological capabilities, an expanded skills base, and deepening of individual countries’ industrial structures.

The lesson from resource-rich countries is that commodity-based industrialization is possible—despite all the criticisms, which run along three lines: that it is as hard as any other industrialization path; that commodity sectors are unlikely to promote linkages and externalities; and that resource-based industries do not match Africa’s factor endowments. The recent experiences of such countries as Venezuela, Argentina, Malaysia and Thailand, Australia, Norway and Scotland as well as the historical experience of Sweden, Finland and the United States point to the contrary. For African countries, success will require a good understanding of the critical factors that influence linkage development in particular and resource-based industrialization in general—and acknowledgment that one size does not fit all. Upgrades in commodity processing require a supportive policy environment, domestic firm capabilities, and sector regulatory frameworks. Interventionist state policies will play a critical role and continental policy initiatives will present an opportunity for addressing some of the challenges.

Progress has been registered in forward and backward local linkages to the hard energy and soft commodity sectors in some African countries. Ethiopia’s leather industry and Nigeria’s oil supply industry provide good examples of linkages that are not only developing, but also deepening into high value added activities. South Africa’s input suppliers industry and Egypt textile/clothing industry are cases of well-developed linkages to and from the commodity sectors, which are struggling to remain competitive. Ghana and Zambia are in the middle of the spectrum of linkage development. In both countries, the mining sector has been making a long and intrinsic contribution to socioeconomic growth. Ghana has experienced investment boom since the 1980s, and Zambia since the 2000s.The key challenge to African countries today is how to design and implement effective industrial policies needed to promote industrialization and economic transformation. Important lessons can be learnt from the development success of China and other emerging economies in recent years.

The 2013 edition of the Economic Commission for Africa Economic Report on Africa (ERA 2013),themed Making the Most of Africa’s Commodities: Industrializing for Growth, Jobs, and Economic Transformation, presents a justifiable case that massive industrialization based on commodities in Africa is imperative, possible and beneficial. Africa needs to frame specific, evidence-based policy for commodity-based industrialization for each country to ground government initiatives that foster linkage development and accelerate the process within each country, sector, and dominant value chain. Value addition is still limited and the depth of linkages is more varied from country to country, mostly due to country-specific and/or industry-specific constraints that cannot be overcome by market forces. Worth noting is that up to 90 per cent of Africa’s total income from coffee, calculated as the average retail price of a pound of roasted and ground coffee, goes to consuming countries. This clearly underscores the benefit to be realized and enjoyed by African countries if they were to increase value addition. Kenya’s upgrading trajectory has been remarkable, as fresh vegetables firms have moved into high value added exports. Effective collaboration between public and private sector has played a critical role in designing and implementing strategies to support local upgrading processes. This sets an example for other countries.

Africa’s economic future will be determined by how the continent will design and implement effective industrial policies needed to promote industrialization and economic transformation. There is urgent need to address infrastructure constraints and bottlenecks, facilitate the development of the commodity sector and linkages, boost availability of unskilled and semiskilled jobs, and provide job training in higher artisanal skills. Improved coordination in the private sector, and between farmers, growers, processors, and exporters, will foster systemic competitiveness along the entire local value chain and enable firms to meet the end-markets requirements of price, quality, and standards. The technical characteristics of the global value chains and the structure of the industry must be taken into account when determining the best strategies for local upgrading and moving into more profitable and more sustainable activities of regional and global value chains. Regional markets can facilitate local production linkages within and between African countries by providing learning opportunities and allowing domestic firms to build their production capabilities in a staged, step-by-step process.

Africa boasts about 12 percent of the world’s oil reserves, 40 percent of its gold, and 80 to 90 percent of chromium and platinum group metals. The continent has vast arable land and timber resources. With the abundance of these resources and the rising global demand for raw materials, African governments are currently forging new partnerships that are leading to increased infrastructure investments and sharing of skills and technology. But Africa can do better. Instead of relying on exports of raw materials, African countries should add value to their own commodities to promote sustained growth, jobs and economic transformation.