Discussions
Key issues related to the discussion of a regional industrial policy framework for SACU
Taku Fundira, tralac Researcher, discusses selective regional industrial policy as a means to developing a regional framework in SACU
The drive towards the reduction of dependence on primary commodity exports, poverty reduction, employment creation and globalisation has reinforced the case for Africa to industrialise. According to Altman and Mayer (2003), industrial development is the primary foundation upon which advanced societies have been built and is one reason why industrial policy has become a major preoccupation of policy makers in developing countries.
Agriculture which is currently the largest sector in Africa, is facing dwindling prospects especially in the face of global climate change. As a result African agriculture is likely to be at a disadvantage compared to other major regions. With continued population growth on an increasingly stressed land base, there is a strong argument for Africa to industrialise.
A look at Africa’s previous attempts at industrialisation reveals that they failed for many different reasons. The focus on domestic markets which are too small and fragmented and exhibit very slow growth, reduced the viability of such a strategy. Furthermore, an oversized state apparatus, corruption and inefficient industries were widely attributed to the failures of these policies. According to Collier (2009), industrialisation for Africa will only be feasible if it succeeds in breaking into global markets.
Therefore the region must find new ways to improve competitiveness by developing manufacturing capabilities that enable it to compete effectively in global markets. The Africa Competitiveness Report 2011 notes that African countries have much to gain by having a strong, sophisticated, and well-diversified export sector, by further opening up regional trade, and by being integrated into the world economy in order to maintain and achieve sustained growth.
This growing awareness has led African countries through regional initiatives to boost productivity growth, something which is considered a key determinant of a country’s living standards and its ability to compete in the world market. In southern and eastern Africa, discussions on regional industrial strategies are ongoing. A recent example was the announcement by South Africa’s Minister of Defence and Military Veterans Lindiwe Sisulu, who chairs government’s international co-operation, trade and security cluster within the Southern African Customs Union (SACU), where member states (namely – Botswana, Lesotho, Namibia, Swaziland and South Africa) are developing a regional framework for cross-border co-operation on industrialisation. The framework targets eight sectors which are, clothing and apparel, agro-processing, mineral beneficiation, leather and leather products, automotives components, renewable energy, arts and crafts, and support services including infrastructure, transport and logistics and skills development. This approach of selective industrial policy (i.e. policies intended to promote specific industries versus general policies to promote industrialization) has serious economic and political implications.
The traditional rationale for selective industrial policy has been made in terms of “market failures” that arise when competitive markets either do not exist or are incomplete, in situations, for example, when there are information asymmetries, scale economies, or externalities. The Economist (2010) notes that the topic remains controversial. While some successes have been achieved, there are also many expensive failures as policies are usually designed to support or restructure old sectors (such as textiles and clothing) or promote new ones such as the automotive sector. Success has been limited in both instances and governments rarely evaluate the costs and benefits properly.
Examining these and other experiences can provide important input to the debate about a regional industrial policy framework, both in SACU and also in the envisaged COMESA-EAC-SADC Tripartite free trade area, which is anchored on three pillars, one of which is industrialisation. SACU’s challenges in the quest for a regional industrial policy framework are compounded by the asymmetry in industrial development among the member states. South Africa has clear industrial development interests to protect. While the smaller countries have very limited industrial development, and limited prospects for developing a diversified industrial base. South Africa views the import tariff as a key instrument of industrial policy, while for the others, the import tariff is associated with government revenue generation. What would define a regional industrial strategy for such a polarised region?
Regardless, however, of the type of support measures that SACU will ultimately develop, there are some guiding principles that SACU that can employ from the East Asian experience in developing a SACU industrial policy. It should be noted however that the lessons from East Asia need to be examined within the particular context; some of the instruments used to great effect are no longer available as a result of changes to the global (including WTO) governance environment. It is, however worth taking a look at the use of performance benchmarks, making the beneficiaries accountable for their performance, and specifying time limits for protection (ul Haque, 2007). It is also very important that governments in SACU engage and consult with the private sector to identify regulatory and other challenges to industrial development, what is responsible for high costs of doing business and areas where restructuring or support may be appropriate.
Sources:
Africa Competitiveness Report 2011, World Bank Publication, available [online]: http://www.weforum.org/reports/africa-competitiveness-report-2011
Altman, M. & Mayer, M. 2003. Overview of industrial policy, In Human Resources Development Review 2003: Education, Employment and Skills in South Africa. Human Sciences Research Council Cape Town: HSRC Press, 64-85.
The Economist 2010. The global revival of industrial policy: Picking winners, saving losers Industrial policy is back in fashion. Have governments learned from past failures? August 5, Print edition.
ul Haque, A. 2007. Rethinking Industrial Policy, UNCTAD Discussion Paper No. 183. UNCTAD/OSG/DP/2007/2, available [online]: http://www.unctad.org/en/docs/osgdp20072_en.pdf
Collier P. 2009. Industrial development offers the potential to transform Africa, Business Action for Africa, available [online]: http://www.businessfightspoverty.org/profiles/blogs/industrial-development-offers