Discussions

Africa must industrialise

Africa must industrialise

06 Dec 2017

Talkmore Chidede, tralac Researcher, discusses why Africa needs to industrialise and how to promote industrialisation on the continent

Industrialisation is part of the process of economic transformation – expanding and diversifying the productive base of the economy (creating more and different kinds of value addition activities). The industrialisation of Africa has never been more necessary nor more urgent. The continent’s industrialisation is a key element of advancing economic diversification and value addition, creating jobs and thus reducing poverty and contributing to the implementation of the African Union’s (AU) Agenda 2063 and the United Nations’ (UN) 2030 Agenda for Sustainable Development. Inclusive and sustainable industrial development has been acknowledged in the UN 2030 Agenda for Sustainable Development (in particular Goal 9) as crucial to helping Africa overcome its critical development challenges.

Why does Africa need industrialisation?

Africa is still very much an exporter of raw materials; with many economies characterised by poor economic growth, poverty, inequality and unemployment. According to the World Economic Forum (WEF, 2015), “over the last decade, Africa has recorded an annual average growth rate of 5%.... But that growth, based mainly on commodity exports and extractive industries, has demonstrated a limited capacity to drive socioeconomic transformation.” The Forum has emphasised that “60% of Africa’s unemployed are young people. An estimated 23 million more young people will be joining African labour markets this year, and the continent’s total workforce is expected to increase by 910 million from 2010 to 2050.” Against this background, it is crucial for Africa to build industry-driven economies, capable of providing such jobs, as well as opportunities for social inclusion and development.

What is needed for Africa’s Industrialisation?

The quest for industrialisation is not new in Africa. The issue has been on Africa’s policy agenda for decades, with for example, regional economic communities clearly articulating industrial development objectives in their founding treaties. The AU adopted the Plan of Action for the Accelerated Industrial Development for Africa (2008); the United Nations General Assembly adopted a Resolution declaring 2016-2025, Third Industrialisation Development Decade for Africa (2016). All Africa’s regional economic communities identify industrial development as an important objective in their founding treaties, and most have now adopted explicit industrial development strategies. Most African countries also have industrial development strategies. Despite the importance that African leaders attach to industrial development on the continent, evidence indicates that most African economies do not yet have diversified industrial sectors, and that some of the early industrialising countries are de-industrialising (Stuart, 2016).

Major policy adjustments are needed to create a conducive environment for industrialisation in Africa. For this to happen, there must be comprehensive and robust industrial policies such as special economic zones and regional joint ventures, supporting quality infrastructure and standards development, research and development, and infrastructure, effective financial mechanisms, promotions of regional and sub-regional corridors and join ventures to enhance competitiveness to facilitate the continent’s participation in global value chains, trade and services (United Nations Industrial Development Organisation [UNIDO], 2017).

What is also needed is a development financing strategy (complemented by foreign direct investment) that is sustainable. The African Development Bank (AfDB) has suggested improving the effectiveness and interventions of (regional and national) central and development banks. If their financial capabilities are strengthened, these banks could provide much needed long-term funding to finance their economies’ industrialisation projects, and could help in maintaining sustainable fiscal balances.

Industrialisation at the country level has the potential to boost intra-African trade and give the African Continental Free Trade Area (CFTA) its full potential. UNIDO acknowledges that industrial development and the CFTA are mutually supportive endeavours. The CFTA focuses inter alia on market access (reduction of tariffs and non-tariff barriers for goods and lowering regulatory barriers to cross-border trade in services), thus boosting intra-African trade. According to UNIDO (2017) “the success of the CFTA in facilitating structural transformation and poverty eradication also depends on the ability of countries to industrialise. Trade liberalisation can help countries exploit opportunities for scaled production, continental market access and better reallocation of resources, but not without key contributors to industrialisation such as upgrading productive capacities, increasing technological transfer and institutional capabilities, prioritising strategic industrial sectors where Africa has comparative advantages, and investing in relevant infrastructure improvements” For the CFTA to create structural transformation, coherent, rapid and robust industrial policy strategies must be implemented at the country level.

.


References

AfDB. 2017. “Industrialise Africa: Strategies, Policies, Institutions and Financing”. Available at: https://www.tralac.org/news/article/12455-industrialize-africa-strategies-policies-institutions-and-financing.html

Stuart, J. 2016. “Is Africa Deindustrialising Prematurely?” tralac Discussion: https://www.tralac.org/discussions/article/10655-is-africa-deindustrializing-prematurely.html

UNIDO. 2017. Africa Industrialisation Day – “African Industrial Development: A Pre-Condition for an Effective and Sustainable Continental Free Trade Area (CFTA)”. https://www.tralac.org/images/docs/12426/africa-industrialization-day-2017-high-level-conference-concept-note.pdf

WEF. 2015. “How can Africa achieve sustainable industrial development?” https://www.weforum.org/agenda/2015/09/how-can-africa-achieve-sustainable-industrial-development