News Archive March 2015

Economic Report on Africa 2015: Industrializing through trade

Executive Summary

Africa’s growth continued to increase rising from 3.7 per cent in 2013 to 3.9 per cent in 2014. The performance was underpinned by improved macroeconomic management, diversified trade and investment ties with emerging economies among other factors. Africa’s social development indicators reveal the weakness of the observed economic performance: high unemployment and poverty coexisting with robust growth. This is a paradox.

Industrialization promises to address this paradox by promoting economic diversification, inclusive growth, efficient utilisation of abundant physical, mineral and human resources and in the process eliminate poverty and hence structurally transform Africa economies.

Trade continues to play a major role in Africa’s economic growth performance and it has potential to promote trade-induced industrialization of the continent provided it is deliberately directed at industrialization. For this purpose, trade policy must be consciously designed, effectively implemented and managed with regular monitoring and evaluation. Such a policy must recognise and key into developments in the global production system especially internationalisation of production system with a view to promoting value addition through processing and manufacturing. Finally, the goal of trade-induced industrialization must also guide the conduct, negotiations and implementation of trade and investment agreements and arrangements.

Issues in industrializing through trade

Two but related challenges facing the continent are to maintain the strong economic growth and to transform it to productivity-induced sustainable, inclusive, employment-generating, poverty-reducing, and environmentally-friendly growth. The greatest deficiency of the current growth episode is its inability to promote structural transformation of the economies of the region. Rudimentary agricultural practices and provision of services dominate the structure of African economies. This overt dependence on traditional agriculture and services sectors can only support limited growth. Industrialization with its capability to generate direct and indirect employment, strong forward and backward linkages with other sectors of the economy including external sector not only promises to transform African economies but also to ensure that growth translates into sustainable development.

No doubt, Africa’s industrialization should take advantage of its abundant and diverse resources including agricultural and mineral resources. Thus, as advocated in previous editions of the Economic Report on Africa (ERA), the continent should exploit its comparative advantage in commoditybased industrialization and add-value to these resources using its abundant human capital. Finally, continuous upgrading, a hallmark of modern industry, is important for sustainability of Africa’s industrialization. In all this, industrial policy has an important role to play so that industrialization is responsive to the yearnings of the continent especially in the promotion of inclusive and transformative growth.

Trade and industrialization are basically two sides of the same coin. A bi-directional relationship: industrialization facilitates trade, and trade also facilitates industrialization. Industrializing through trade emphasizes the role and place of trade in fostering industrial development and upgrade. Basically it involves analysis of the structure of exports and the role of trade policy in the production, imports and exports.

Based on this strong association between trade and industry, this Report, Economic Report on Africa 2015 examines how trade can serve as an instrument of accelerated industrialization and structural transformation in Africa. It also examines the challenges and opportunities for Africa to industrialize through trade in the context of the rapidly changing regional and global economic environment. In specific term, it attempts to answer the following three main questions:

  • When and how trade policies benefit or harm industrialization?

  • What are the prospects for Africa to industrialize by tapping into global value chains?

  • What are the current status of national and regional trade policies in Africa and what are their implications for the continent’s industrial aspirations?

This Report is a follow-up to the previous editions of Economic Reports on Africa especially ECA and AUC (2013), ECA and AUC (2014) and ECA and AUC (2004). These Reports did not only focus on the role of industrialization in structural transformation of Africa by critically examining and analysing commodity-based industrialization and industrial policies in Africa but they also laid the foundation for the current Report as they emphasised the role of trade in fostering industrialization, both at regional and global level, and underlined the importance for Africa of implementing strategic trade policies aimed at overcoming market and institutional failures that hinder export competitiveness. They outlined the key factors constraining Africa’s trade which include the continent’s narrow production and export base dominated by low-value products such as raw materials and primary commodities, very high trade costs, tariff and non-tariff barriers to intra-African trade and Africa’s access to international markets. This Report delves into greater depth on the relationship between trade and industry in Africa, and specifically the role of trade in supporting Africa’s industrialization.

The theme of this Report is justified on many grounds and two of them are highlighted here. First, Africa is marginalised in the world trade. The continent’s share in the global exports increased marginally from 4.99% in 1970 to 5.99% in 1980 and has continued the downward trend since then. It was 3.3% in 2010 and 3.3% in 2013. The share of African manufactures in total merchandise exports was 18.5% in 2013.

ERA 2015 delves into greater depth on the relationship between trade and industry in Africa, and specifically the role of trade in supporting Africa’s industrialization

Based on Africa’s abundant physical, natural and human resources, the continent has potentials to significantly increase its share in the global exports. Second and closely related to the first, empirical evidence shows that the newly industrialised countries (NICs) were able to catch-up with the developed countries through highly selective trade policies. This is evident in the fact that East Asia share in the global exports increased from 2.25% in 1970 to 17.8% in 2010 coupled with the fact that manufactures constituted between two-thirds and four-fifths of the region’s total merchandise exports. Africa may not be able to replicate the feat performed by East Asia by towing the same or similar route due to the dynamics in the global trade and industrial production. However, it is also important to note that Africa is capable of surpassing the East Asian miracle by carefully designing trade and industrial path that takes into consideration lessons from experience as well as the current and future developments in the global environment.

Hence, for effective trade-induced industrialization in Africa, structural transformation of industrial production and trade is a basic pre-requisite. Three critical issues are: (1) production and trade in intermediates; (2) establishing, joining and upgrading along national/regional/global value chains; and (3) increasing role of services in (1) and (2) and in trade in general. Africa must imbibe the change from trade in products to trade in tasks and activities and promote the increasing role of services in the process.

Global value chains are an important feature in today’s global economy and African countries seeking to develop exports and grow their economies need to take them into account

Finally, and perhaps more important, trade policy is critical for effective trade-induced industrialization. National trade policy architecture and the flurry of activities in bilateral, regional and multilateral trade negotiations across the length and breadth of the continent must consistently give priority to industrialization.

0a
1 ~ 481

Good governance keeps renaissance on track

Free, fair and well-managed elections will increase confidence in Africa’s political class, its politics, people and economies, says Tony Elumelu.

I am optimistic about Africa and its future. I strongly believe a new Africa has begun to emerge, although one cannot dismiss the odd hurdle and challenge along the way. 

What’s come to life is a more mature continent aware of its past, proud of its heritage and willing to do even more in pursuit of a brighter future.

You may wonder about such unabashed optimism from someone living and working in a country long perceived as difficult and complex.

The simple reason is that today’s Nigeria is a different country.

The potential we have long imagined for our nation is now becoming a reality.

The economic management of Nigeria has improved over the last decade and our leaders are asking more of themselves and their colleagues in and out of government.

Also the private sector is more self-assured and confident about the new economic policies that have led to steady growth in the past decade. We don’t expect anything fundamental to change irrespective of the outcome of the elections.

For this reason we have demonstrated a greater willingness to partner with the government so as to help underpin Nigeria’s growth and its prosperity.

As a business leader my hope for the election was a free, fair and well-managed poll that will increase confidence in the political class, respond to the people and prioritise the development of our economy.

Yesterday, Nigerians went to the polls, and over the course of this year, a total of 11 African countries will conduct their general elections.

Free, fair and well-managed elections will increase confidence in Africa’s political class, its politics, people and economies.

This will aid the flow of long-term investment, expand opportunities and allow broader economic participation for all Africans, especially our youth and women.

As more Africans embrace political freedom and demand responsive leadership, we should remember the critical link between civic responsibility, good governance and economic opportunity.

Good governance and political stability are essential.

However, the private sector has a duty to partner with responsible governments to shape the future of our continent.

While politicians battle it out for the votes, it is incumbent on the African private sector not to remain silent. We are a critical part of the equation.

Despite the obstacles, we see a continent rich in natural resources, the advantageous demographics of a young population, technical innovation and policies that give incentives for us to invest.

Call it enlightened self-interest, but this new dynamic is fast taking-root. Better governance and a decent level of political stability have resulted in the net flow of long-term investments, expanded opportunities and broader economic participation for all Africans, especially our youth and women.

We could do more, but at least we have started. For my part, I will continue to advocate for Africapitalism because I believe its tenets are fundamental to Africa’s future.

These tenets dictate that, through long-term investment and wealth creation, the African private sector can fulfill many of the social obligations governments often mismanage and find overwhelming.

At a policy level, business can and must encourage governments to focus on a narrower set of objectives to which they must commit.

By addressing the most pressing problems in a more focused manner it will lead to better results.

These are simple business principles, that when applied to the behemoth that is government, could achieve better results.

Primarily, I believe that a proper role of government is to support economic expansion, however, in the end the driving of the economy must be led by the private sector.

This is best achieved when governments enact growth-enabling policies in critical sectors like housing, agriculture, power, infrastructure, manufacturing and finance.

At general election times, it is also important to remember that policy continuity is critical to building confidence, retaining and attracting investment.

However, we must be realistic. We recognise that we cannot demand slimmed down and efficient governments if the private sector is reluctant to step up and take more responsibility. I cite a couple of examples of the sort of responsibility to which I refer to:

In 2013, US President Barack Obama asked African governments and citizens to support Power Africa, an American government initiative to add 30 000MW of electricity generation capacity across sub-Saharan Africa. The African private sector did indeed respond.

My investment company Heirs Holdings committed an amount of $2.5 billion (about R30bn) in investments in the African power sector, representing the largest single commitment to the initiative.

That investment will earn a positive return, however, in addition we aim to solve a series of critical problems including job creation, economic growth, and improving livelihoods. The second example is also focused on the very important power sector.

That Nigeria has a severe power shortage is no longer news.

In recognising the need for change, the Nigerian government commenced a much-heralded and transparent privatization process.

Transcorp Ughelli Power – a subsidiary of my investment company, Heirs Holdings, purchased the biggest thermal plant in Nigeria.

And we are already demonstrating how private sector management can be more efficient.

The company has expanded generation output from 115MW to 610MW a day after only 16 months of private ownership.

However, we first needed the government to unlock the opportunities for fresh investments in the sector. In the end business has become part of the solution.

That’s good for business – and good for the people of Nigeria.

This formula can be replicated in different economic sectors across the continent.

These are just two examples of the myriad ways the public and private sectors can and are working together to maximise the scope for a brighter and more prosperous Africa. But we need to do more, especially in the area of entrepreneurship, if we really want to unlock the potential of our people especially the young ones.

The $100m Tony Elumelu Entrepreneurship Programme (TEEP) seeks to play an important role in this critical area.

Launched on January 1 this year, the programme received more than 20 000 applications from all states in Nigeria and 52 countries and territories across the African continent.

The aim of the programme – which will support a new class of entrepreneurs with the $100m funding from my foundation over its 10 year life – is to discover, nurture, and support 10 000 African entrepreneurs over the next decade, with a target of creating 1 million new jobs and $10bn in additional revenues in the process.

The overwhelming response to this programme demonstrates a hunger in Africa for access to investment, training and open and competitive markets – all of which can only be made possible with supportive government policies.

It is also evidence of a thriving entrepreneurial class more than able to compete across boundaries.

We hope the programme will touch not only the lives of the 10 000 entrepreneurs who will receive the training, mentoring, networking, and funding, but also the hundreds of thousands of others who will benefit when other well-endowed Africans as well as international development partners channel funds in a similar direction.

It will have an even greater effect on Africa’s economic transformation because the voices of 20 000 African entrepreneurs have now been heard, and can be used to guide governments on the sectors which appear to be of most interest and where public funds to support new business expansion could be directed or where regional investments in clusters could have the most effect.

Of course, none of these opportunities can be realised without good governance, political stability, and governments that work to support the private sector in innovative and practical ways.

The creation of jobs, social wealth and a higher quality of life for all Africans depends on confidence in our public institutions.

With the elections over in Nigeria, we hope to see a renewed pursuit of strong and inclusive economic growth led by Nigeria’s own entrepreneurs.

The African private sector has a unique ability to drive economic growth and social wealth by pursuing long-term investments in key sectors. However, for Africa to succeed – and I cannot emphasise this enough – the private sector needs good and stable governments that are accountable and supportive across the continent.

Tony Elumelu is the chairman of Heirs Holdings in Nigeria.

0a

Good governance keeps renaissance on track

30 Mar 2015
Free, fair and well-managed elections will increase confidence in Africa’s political class, its politics, people and economies, says Tony Elumelu. I am optimistic about Africa and its future. I strongly believe a new Africa has...
1 ~ 481

Strengthening the Asia-Africa Partnership

An event next month is an ideal opportunity to institutionalize a partnership that offers considerable opportunity.

Next month, Indonesia will be hosting the commemoration of the 60th anniversary of the 1955 Asia-Africa Conference. According to Indonesian President Joko Widodo, the commemoration aspires to remind the world that Indonesia played a significant role in the anti-colonial struggle. Amidst complex contemporary global politics, it will be a challenge for Jokowi to convince the world that this Asia-Africa gathering is necessary and relevant. Institutionalizing effective cooperation between the two continents should be a priority.

Ten years ago, Indonesia hosted the Asia-Africa Conference golden jubilee, out of which came the New Asian-African Strategic Partnership (NAASP). At that 2005 summit, Asian and African leaders agreed to revive the 1955 Bandung Spirit, whose one aim was to advance cooperation between the two continents. The NAASP expanded the form of Asia-Africa engagement from merely non-aligned and anti-colonial rhetoric to broader cooperation. Since then, there have been several projects and programs under the NAASP banner, from diplomatic training and technical cooperation to a business forum. Nevertheless, the NAASP receives little in the way of either public attention or political will. Does the NAASP really boost Asia-Africa relations? That is unclear. Certainly, interactions between Asia and Africa are growing, especially on economic matters, but they do not appear to be driven by the NAASP.

Asia and Africa currently lack any formal institutional links, despite the long-standing rhetoric of Asia-Africa solidarity. This is in contrast to Asia’s relations with other continents, which have been developed in institutions such as the Asia-Europe Meeting (ASEM) and the Forum for East Asia-Latin America Cooperation (FEALAC).

Framework

NAASP did in fact try to institutionalize interregional ties. The 2005 NAASP agreed to hold heads of state/government summits every four years and a foreign ministerial meeting every two years, but neither actually went ahead. There were some meetings under the Asian-African Sub-Regional Organization Conference (AASROC) framework, but the long-term vision of this forum remains unclear.

Leaders in Asia and Africa have ignored the NAASP’s commitment to establishing closer contact. Individual Asian powers that see Africa as an enormous economic opportunity, approach African within their own national frameworks. Each Asian country pursues its national interests through bilateral engagement, such as the Forum on China-Africa Cooperation, India-Africa Forum Summit, and Tokyo International Conference on African Development (TICAD). Yet there are few initiatives for African countries to pursue what they might want from cooperation with Asia. On several occasions, South Africa has proposed the inclusion of NAASP into the agenda of the African Union (AU) and the New Partnership for Africa’s Development (NEPAD), without success.

If the upcoming Asia-Africa gathering wants to be remembered, it should offer something fresh and substantive. Fail to do so, and the fate of NAASP will follow that of the Non-Aligned Movement (NAM): a lot of rhetoric, but little that is operational or significant. The institutionalization of the NAASP should enable Asian and African officials to meet on a more regular basis. A routine inter-continental meeting could become a venue to exchange views and address global challenges, such as climate change, development and terrorism, areas that are usually outside the scope of the more economically focused bilateral format. This would in turn add to the weight of Asia and Africa, which already account for 75.3 percent of the world’s population and 28.5 percent of its GDP, on the global stage.

Institutionalizing the NAASP as a driver of Asia-Africa relations will not be easy, but it is feasible, especially if it is modeled after ASEM and FEALAC, which have a strong tradition of informality. ASEM holds a summit every two years with periodic ministerial meetings on foreign affairs, economic, cultural and other areas. FEALAC, on the other hand, has only biennial foreign ministers’ meetings and gatherings of senior official. Neither ASEM nor FEALAC has a structured agenda or any secretariat – FEALAC has a cyber secretariat, but it is more an online database and a source of information on FEALAC activities. Neither ASEM nor FEALAC aspire to become arenas for problem solving. Rather, they are forums for building trust and dialogue, with the potential to open up mutually beneficial opportunities for their members.

Taking ASEM and FEALAC as models, the countries of Asia and Africa could start to seriously explore an informal institutionalization project. Informality will provide flexibility and inclusiveness, enabling all members to contribute. Regular meetings between foreign ministers should be initiated in the upcoming commemoration, with an eventual target of setting up an intergovernmental forum – let’s call it “the Asia – Africa Contact (AAC).”

ASEAN and Trade as Drivers

If continent-wide interregional cooperation between Asia and Africa is too complex, then they could begin with ASEAN. The Southeast Asian bloc could have some relevance from the Asian side because it is the only coherent regional community within Asia. ASEAN has the profile to set a “Pan-Asian agenda” for engaging Africa. The 2015 ASEAN Economic Community, which aims to create a Southeast Asian-wide single market and production base, is potentially compatible with Africa’s ambition of establishing a trade union comprising three regional organizations: the Common Market for Eastern and Southern Africa (COMESA), the South African Development Community (SADC), and the East African Community (EAC) by 2016. ASEAN, or even broader East Asia, could engage Africa nations through this huge trade union, which covers 27 African countries.

A closer  economic engagement between ASEAN with one, if not those three regional entities in Africa will not only help to solidify relations between the continents, it also has the potential to boost trade. Currently, trade volumes between ASEAN and COMESA, for instance, are still just 0.37 percent of ASEAN’s total trade with the rest of the world. Given a burgeoning middle class and demographic conditions in both regions, there is a huge potential market, are considerable unexplored economic potential.

A free trade agreement (FTA) between ASEAN and SADC could be one aim. SADC countries offer agricultural products such as fruit, vegetables, meat and livestock. ASEAN’s main goods are electrical products, machinery and automobiles, all important imports for SADC. These competitive advantages suggest an ASEAN-SADC FTA could be quite beneficial. For one thing, African consumers would certainly appreciate the removal of the relatively high tariffs SADC and COMESA apply to imports from outside their blocs.

An FTA between Asia and Africa would be challenging to achieve, but in the meantime countries from both continents should aim to improve people-to-people and business-to-business connections, who would be stakeholders in any future FTA. In this sense, the Asia-Africa Business Summit that will be convened on the sidelines of the upcoming commemoration is welcome, and should become routine. This kind of forum can improve trust in the business community.

More The Ceremony

To create a framework that covers wide-ranging engagement between Asia and Africa, Jokowi could take a lesson from Singapore’s former Prime Minister Goh Chok Tong, who in the 1990s persistently pursued his vision of establishing ASEM and FEALAC, proactively exchanging ideas with other heads of state and government. And similar effort with Africa will obviously take time, diplomatic energy (and of course money), and will require careful study. But proposing an institutionalization project could certainly provide the bridge the two regions need.

Next month’s event should not just be ceremonial. It should have a robust, operational vision. A successful commemoration is one that can reenergize a commitment to creating a platform that eliminates gaps in culture and mindsets. For an Asia-Africa partnership to be relevant, the event next month should chart a course for more tangible, institutionalized cooperation, with economic engagement as the priority.

Awidya Santikajaya is a PhD candidate at the Asia-Pacific College of Diplomacy, Australian National University. Adib Zaidani Abdurrohman has completed a Master of Diplomacy and Trade at Monash University.

0a

Strengthening the Asia-Africa Partnership

30 Mar 2015
An event next month is an ideal opportunity to institutionalize a partnership that offers considerable opportunity. Next month, Indonesia will be hosting the commemoration of the 60th anniversary of the 1955 Asia-Africa...
1 ~ 481

Trading for Peace Initiative

COMESA has prioritized the development of programmes on post conflict reconstruction and development especially in the Great Lakes Region through Trading for Peace Programme.

Under this initiative 10 Trade Information Desks have been established at various border posts of the Great Lakes Region to provide small scale cross border traders with information such as pricing, taxes and markets.

Secretary General Sindiso Ngwenya told the 14th Ministers of Foreign Affairs meeting in Addis Ababa, Saturday that investing in empowering communities at the border area and encouraging interaction between them, was an incentive to avoid getting into activities that can disrupt the benefits accrued from the trading relations.

He reported that another phase of the programme had begun this year aimed at reinforcing infrastructure at these border posts starting with the reconstruction of border offices at Goma and Kavimvira in the Democratic Republic of Congo.

“During this phase, we plan to construct markets at Goma, Rubavu, Gatumba and Kavimvira, at the cost of approximately three Million dollars,” Mr Ngwenya informed the Ministers. The project is supported by the KfW Bank under the framework of the African Peace and Security Architecture.

What was most urgent, he said was to manage and resolve existing conflicts, and ensure that the factors that led people to pick up arms are addressed comprehensively so that any conflicts that are resolved remain resolved.

In addition to the post conflict reconstruction programmes, COMESA was also investing in an early warning system that is able to provide indications about structural factors that need to be addressed long before they manifest. The Secretary General however noted that it was “up to policy makers to act on the warnings given, if the conflict is going to be prevented.”

Ethiopian State Minister for Foreign Affairs H.E. Ambassador Berhane Gebre-Christos called on COMESA Member States to complement the efforts of other sub regional groupings in the region such as IGAD and continental Union involved in peace and security to avoid duplication of efforts and institutional rivalry.

In his opening address of the meeting, Ambassador Gebre-Christos said it was not only critical to build peace where it has been established but also to overcome through dialogue the persistent stalemate characterizing some conflict situations in the region.

The Minister cited terrorism as one of the serious threat facing COMESA region that required collective action to counter it.

“Terrorism threat posed by groups such as Al Shabab, AQIM, LRA and others is not only a problem of few countries but of each and every one of us,” the Minister said. “Our counter-terrorism efforts should begin from a clear understanding of this fundamental reality and demonstrate a firm commitment to individually and collectively fight the menace.”

He urged the COMESA states to support the peace efforts in Somalia and continue to assist, encourage and even press parties in South Sudan when necessary in order to achieve durable peace and stability. Mr Ngwenya thanked the European Union for funding the Maritime Security programme, and development of COMESA mediation support and early warning programmes through the African Union. He also thanked the KfW bank, the African Development Bank and USAID for supporting the Trading for Peace Programme.

The Ministers drawn from the 19 Member States appreciated the African Union for providing COMESA with conference facilities for its policy organs meetings and Summit.

0a

Trading for Peace Initiative

30 Mar 2015
COMESA has prioritized the development of programmes on post conflict reconstruction and development especially in the Great Lakes Region through Trading for Peace Programme. Under this initiative 10 Trade Information Desks have...
1 ~ 481