Regional industrial development in Africa – how can COVID-19 responses contribute?
Industrial development has always been featured in Africa’s integration agenda. In recent years this focus has been sharpened and industrial strategies at continental and regional economic community levels have been more comprehensively articulated. This reflects the fact that while market integration is important to boost trade performance, the development of productive capacity is a key prerequisite for material improvements in trade performance. Industrial development and diversification are important for other reasons too; including the contribution to job creation and increasing resilience to external shocks. The lessons we are learning during this pandemic are particularly important. The interaction between trade and industrial policy takes on special significance , for example, with regard to access to essential goods, medical and pharmaceutical products and of course food.
Industrial policy is usually seen as a national imperative, however the reality and importance of regional value chains, and the potential to further enhance cross-border investment and production linkages to develop a robust industrial structure at national and regional levels must be recognized. This requires that Africa’s regional integration agenda be supportive to investors and producers who are making decisions that will expand and diversify Africa’s productive capacity, leveraging cross-border linkages. This Blog provides an overview of guidelines that have been adopted at regional economic community levels, and how these could impact industrial development.
Industrial development is an integral to the African Union’s (AU) Agenda 2063. The Action Plan for Accelerated Industrial Development of Africa (AIDA) has been adopted as a flagship project of the AU. This continental industrial action plan identifies major activities and measures that should be targeted to promote Africa’s industrial development. These include the development of infrastructure; human capital; policy on product and export diversification, natural resources management; development and sustainability, innovation, science and technology; standards and compliance; legal, institutional and regulatory framework; and resource mobilization. AIDA also places emphasis on access to finance especially for small-scale and rural industries. Several important industrial development projects have already been initiated under AIDA. Notable is the project to expand pharmaceutical production. While this predates COVID-19, the recent launch of the Africa Medical Supplies Platform, is an important development prompted by the pandemic. This online platform is designed to facilitate access to medical supplies and especially COVID-related medical equipment across the continent. This multi-partner initiative, includes Afreximbank, which will facilitate payments, African national carriers and global freight forwards to provide logistical services and the African Union’s Centre for Disease Control, under the leadership of the AU Special Envoy, Strive Masiyiwa. An important contribution also comes from Afreximbank’s US$3 billion Pandemic Trade Impact Mitigation Facility. Of the total fund, US$200 million is set aside to support food production and the manufacture and trade in medical supplies and equipment. This can boost not only capacity to produce medical supplies and equipment, but also e-commerce across the continent.
The establishment of sustainable regional industrial financing mechanisms especially for SMEs is important for deepening regional industrial development. Access to capital for industrial activities is a major impediment to industrial development in many regions. Big companies may be able to access finance to support their industrial activities, but small and medium enterprises may face challenges. Innovative financial products that are designed to be accessible to SMEs, taking into the challenges they may face related to meeting traditional collateral requirements.
Regional investment policies designed to attract investment into sectors such as agro-processing, clothing and texting, mineral beneficiation and pharmaceuticals can provide stimulus towards diversification, expanding the regional manufacturing base, and increasing the export of manufactured products.
Most regional economic communities (e.g. COMESA, EAC, SADC) have industrialization strategies, emphasizing, amongst other aspects, regional value chains as a pathway to regional industrial development. The Southern African Development Community (SADC), for instance, adopted a SADC Industrial Policy Framework to ‘promote the development of an integrated industrial base within SADC through the exploitation of regional synergies in value-added production and enhancement of export competitiveness.’ The Framework outlines the synergies between cross-cutting and sector-specific interventions for the implementation of the policy framework. It focuses on priority sectors such as food processing; fisheries; forestry; textiles and garments; leather and leather; the processing of mineral products; pharmaceuticals and chemicals; machinery and equipment; and services. The Framework emphasizes innovation, technology and research and development, infrastructure, skills, finance, SMEs development, foreign investment and export promotion, trade and competition policy in industrial development.
Regional COVID-19 guidelines and industrial development
Many Regional Economic Communities (RECs) have adopted guidelines in response to the coronavirus (COVID-19) pandemic. The broader and long-term implementation – beyond the pandemic – of these guidelines can make a positive contribution to industrial policy development.
Guidelines adopted by COMESA and SADC address harmonization and coordination of cross-border transport regulations to facilitate the movement of essential goods (e.g. food and medical supplies) during the pandemic. It is obvious that such coordination and harmonization can have positive effects on industrial development beyond COVID-19 too. If effectively implemented, harmonized regional transport services will contribute to addressing supply-side constraints and reduce the unnecessary cost and time of doing business across borders.
The guidelines also recommend the adoption and implementation of digital trade procedures. Building digital infrastructure that is efficient and cost-effective is supportive to industrial development. Facilitating cross-border trade in services including transport, communication, financial services and professional services, is equally important to promoting industrial development.
EAC member states adopted import duty reduction measures to boost local production amidst COVID-19. The measures provide, inter alia, for duty remission for industrial inputs which are not available in the region. Such measures could stimulate local production activities and value-addition. They are designed to assist local manufacturers in sourcing inputs not available in the region at reduced customs duties. Industrial inputs are not always available on the continent; African countries import them mostly from Asia, the EU and the US.
The effective implementation of industrial policies is clearly a pre-requisite for industrial development. Equally the implementation of COVID-19 response guidelines will only be effective if they are implemented by all member states in a REC. The challenge is that they are guidelines, for which there is no enforcement mechanism at REC level. It is up to the member states to implement these measures and then also to accept, as legitimate the measures, including the e-certificates for standards, for example, that other member states implement, for these measures to facilitate trade and support regional production linkages.
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