Africa’s economic transformation: industrialisation as the masterpiece

By: Isabelle Ramdoo

Africa’s transformation agenda must change the current paradox where sustained economic growth remains trapped in otherwise poor performance on poverty, unemployment and inequality. As clearly articulated in the 2014 edition of the Economic Report of Africa, released at the 7th AU- ECA Joint Annual Meetings in Abuja on 30 March 2014, reversing this trend requires boldness and consistency.

African leaders have vowed, in the Agenda 2063: The Future We Want for Africa, to shape the next fifty years into“an integrated, prosperous and peaceful Africa, driven by its own citizens and representing a dynamic force in global arena”. On the economic front, one essential enableris the profound structural transformation of African economies, away from commodity dependency and low- industrial base, insufficient agricultural productivity, high unemployment and low intra-African trade. This entails having strong endogenous processes guided by solid drivers, innovative, effective and flexible industrial policies and institutions,appropriately sequenced planning and maintaining a sustained cap in political leadership to avoid deviation from the stated objectives.

No country in the world has achieved its transition without industries

While some irreducible pessimists are still wondering whether African countries should industrialise or not, the debate on the continent has already moved to the next level.How to make it happen and how to tap efficiently and rapidly on Africa’s own human, physical and financial potential are now the key issues at the heart of major policy debates.

African countries have traditionally been exporters of unprocessed commodities. But a better future means breaking loose of “traditions” and catalyse momentum in the industrial process to add value to unprocessed commodities,provide jobs locally and encouragean endogenous class of entrepreneurs to benefit from opportunities at home and regionally. One might argue that in a globalised world,where industries are plugged into global value chains, competitiveness will ultimately drive businesses to places where it makes commercial sense to produce cost-efficiently. But at the same time, without strong domestic industrial leaders, it is difficult to make the most of opportunities. This requires supportive industry-friendly policies.

In the mineral sector for instance, there are substantial opportunities to be harnessed: a whole ecosystem of industries, including a broad range of ancillary goods and services serving the sector backward and forward, are essential for the sector tofunction efficiently. These can be provided locally and when they do not already exist, can be supported with a boost fromsmart policies. In other cases, it might be less straightforward, more complex and expensive in the short-term: the road to turn a bauxite mine into a full-fledged automotive industry is long and winding and perhaps as unrealistic and unlikely, at least in the short to medium term.

How we made it in Mauritius?

“There is no miracle. It is due simply to hard work, discipline and will.” Sir AneeroodJugnauth, Former Prime Minister and President of the Republic of Mauritius.

Mauritius is often cited today as a model of economic success in Africa. What we see today, is an open economy, that headlines most indicators of economic health, ranging from ease of doing business, competitiveness, openness, corruption, governance etc. The 2014 Africa Transformation Report confirmed transformation with depth. But what is less known is that the road to success was not always paved with liberal policies but was instead framed in well thought out organic growth strategies, guided by “enlightened” protectionism, strong industrial polices and developmental statehood, inspired by Asian-style development.

Smart industrial policies and supportive institutions

In the 1970s, Mauritius was a low-income monocrop economy, with a GDP per capita of just under USD 250. By the end of the 1980s, it had a thriving manufacturing sector (essentially textile and clothing), a booming tourism sector, a promising financial sector and world-class supporting logistics services at the port, freeport and airport. Today, it is an upper middle-income country, with a GDP per capita soon approaching the USD 9,000 target and a diversified economy that is constantly in search of new niches as the economic structure evolves.

Mauritius succeeded because it condensed a few fundamentals: it had a very strategic Planning Ministry, which carefully defined economic policies to reflect the needs and the specificity of the economy, while being flexible enough to learn from its mistakes and correct the tack as the country evolved to different levels of development. Other ministries, private sector actors and non-state actor had always been part of the decision making process. Mauritius conducted its industrial policy all throughout the 1980s and the 1990s on the basis on domestic priorities, defined according to national interests. It also had solid institutions: some created to respond to the needs of industries, others, such as banks, werewell-establishedeven before independence.

Leadership and political freedom

Most of all, it had strong leadership, at the highest political level that managed to avoid policy reversals by forging consensus and political alliances andtherefore keep coherence in policy making. Thiskept the interest of the nation above those of political tactics and ideology. Leadership by the business community was essential. While the government built strong ties with the private sector through regular private-public dialogues, it never picked winners. It acted as a facilitator by supporting national champions, provided world-class public goods, facilitated a conducive business environment. It also acted as a regulator when needed to temporarily insulate the vulnerable sectors against shocks.

Consistency, coherence and policy sequencing

Mauritius only joined multilateral systems and regional communities when it was ready to do so, ensuring policy sequencing and consistency in priority setting. For instance, the economy had already embarked upon its transition towards a diversified economy at the time it joined the WTO in 1995, started the implementation of the SADC Trade Protocol in 2000, joined the COMESA FTA in 2000 and finalised the Economic Partnership Agreement with the EU in 2007. It managed to protect its nascent domestic sectors from competition and accompanied them through their transition towards sustainability.

Inclusiveness: no transformation without the people

Africa’s biggest strength is its people: by 2030, it is expected that the continent will be home to 1.6 billion people, representing 19% of the world population. But it can also be its biggest challenge. Inclusive transformation policies will therefore have to factor in the need to reap the demographic dividend, quickly and efficiently.This is particularly crucial at a time when countries need to grapple with their high unemployment rates, in particular among the youth.It should be underscored that economic transformation can be painful.Reforms haveeconomic and political costs: ailing sectors may disappear, causing job losses, with expensive implications for the budgets and elections.

Setting up labour-absorptive industries and upgrading and diversifying existing ones are essential to address existing chronic problems. Many countries need to create productive job opportunities for a growing labour force. This requires industrial policies, strong leadership and public policies to address market failures, externalities and coordination. Few countries succeeded in their transition, and although their cases may be unique, experiences in Asia and elsewhere indicate that 50 years of market failure require doing things differently, including through public policy response and tailor made and targeted support to entrepreneurship and industrial development.

Isabelle Ramdoo is Deputy Programme Manager, Economic Transformation Programme at the European Centre for Development Policy Management. Prior to that, she worked for almost ten years for the Government of Mauritius, including for the Ministry of Finance and Economic Development.