This brief, produced by the ODI in partnership with the United Nations Economic Commission for Africa, explores how the idea of using trade and trade policy to support industrialisation has experienced a recent resurgence, and provides a set of policy recommendations for African economies looking to industrialise smartly through trade.

The importance of industrialisation

Africa’s experience with industrialisation has been disappointing. Globally, the share of manufacturing in total output rises with per capita income until countries reach upper-middle-income status, then declines as services become more prevalent at higher incomes. This has not been the case in Africa. In 2014, Africa’s average share of manufacturing value added in gross domestic product (GDP) was 9.8%, 3 percentage points less than the 12.8% of 1990. The share of manufacturing exports in Africa’s total exports similarly declined from 25.6% in 1995 to only 18.9% in 2014.

By moving labour and other resources from lower- to higher-productivity activities and raising within-sector productivity growth, industrialisation contributes to economic transformation. Moving forwards, transformation of African economies through industrialisation will be key to achieving economy-wide productivity improvements, job creation and sustained progress in growth and poverty reduction.

Using trade as a tool to drive Africa’s industrialisation

Fresh thinking is needed on how to achieve Africa’s industrialisation objectives. Trade has a key role to play. Intra-regional trade has particular potential to facilitate increased economies of scale, diversification and value addition. In 2014, manufactured goods accounted for 41.9% of intra-African exports, compared with only 14.8% of Africa’s exports to outside the continent. Intra-African trade is, however, underexploited, owing to high trade costs in the region. As a share of total African trade, it was 15.3% in 2015. As a comparison, trade among developing economies in Eastern Asia as a share of total Eastern Asian trade was 32.1%.

Although the idea of actively using trade and trade policy to support industrialisation is not new, it has recently experienced a resurgence. Trade has greater prominence in the United Nations’ Sustainable Development Goals than it did in the Millennium Development Goals, with trade-related targets included as means of implementation. The African Union’s vision contained in Agenda 2063 calls for developing productive capacities, boosting intra-African trade, establishing a Continental Free Trade Area (CFTA) and improving regional infrastructure, among other trade-related priorities. African countries recognise the role the CFTA can play in achieving its industrialisation and have designated industrialisation as the central pillar of the CFTA project. The African Union’s Regional Economic Communities (RECs) also recognise that industrialisation needs to take centre stage in regional integration and development agendas.

The remainder of this brief provides a set of policy suggestions on what needs to be done for African economies to industrialise smartly through trade, based on recent research by the ECA and ODI.

This policy brief was prepared by the Overseas Development Institute (ODI), UK, and the African Trade Policy Centre (ATPC) in the United Nations Economic Commission for Africa (ECA).

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