Industrial Policy and Structural Transformation: A priority for African countries
This activity is organised in the framework of the MoU signed on October 2014 between the African Union and the OECD, and in particular in relation to the OECD Initiative on Global Value Chains (GVCs), Production Transformation and Development hosted by the OECD Development Centre. The Initiative is a platform for policy dialogue and knowledge sharing between OECD and non-OECD countries. It aims at improving evidence and identifying policy guidelines to promote development by fostering industrialisation and by identifying opportunities for sustainable and inclusive participation and upgrading in GVCs. For more information about the Initiative, see here.
Panel discussion: Industrialising Africa for inclusive and sustainable development: which new options in contemporary global economies?
Haram Acyl Fatima, Commissioner for Trade and Industry, AUC (tbc)
Dr. Anthony Mothae Maruping, Commissioner for Economic Affairs (AUC)
Karingi Stephen, Director of the Regional Integration and Trade Division, UNECA
Mmakgoshi Phetla-Lekhethe, Deputy Director General, National Treasury, South Africa
Cisse Anoma Patricia, Conseiller Technique du Ministre de l'Industrie et des Mines, Côte d’Ivoire
Harrington Nicola, Deputy Director, OECD Development Centre
Key questions for discussion
·What are the main opportunities for African economies to upgrade in GVC? What prevents international firms from investing more in sustainable and inclusive GVC relationships with Africa? What are some recent good experiences? What have we learned from the participation of Africa’s entrepreneurs in global value chains? Can partnerships with old and new investors in Africa enhance knowledge and technology transfer and promote home-grown entrepreneurs?
·Can regional (i.e. African) productive integration contribute to industrialisation in Africa? How? What would need to be in place for this to happen? What could be the role of African consumers?
·How can industrial policies make industrialisation inclusive and sustainable? What are some recent experiences? To what extent the return of industrial policies in other regions could provide good practices in how to manage these policies?
·How to benefit from peer-discussion and knowledge sharing with other countries? Where the international policy dialogue could bring more value? And how to use it to showcase the often unknown good lessons from Africa
Background not
The rise of China and the shifting wealth process have opened new potential opportunities for development through the appearance of new investment partners and FDI inflows to Africa and have induced higher growth in most African countries. However the Afro-optimism induced by the high GDP growth rate of most African countries in the last years, has been recently nuanced by several factors, including the halt in the rise of prices for raw-materials which had been fuelling most of GDP growth rates and the lack of capacity of this growth to be translated into better jobs and sustainable industrial paths.
Growth has fall short in providing the jobs that African youth need and in pushing the economy towards more sustainable industrialisation patterns. Governments are under pressure to deliver options and solutions to societies which are increasingly demanding better life conditions and better opportunities. And a key feature for making the current industrialisation policies efforts effective will be the capacity to make globalisation work for development.
Globalisation has changed the way goods and services are produced. Production networks now span the globe, as intermediate goods are traded between countries and different value-adding activities occur in various locations. Intermediate goods have been the main drivers of the boom in trade since 1990s, accounting for about 65% of all imports in 2012. These global value chains (GVCs) offer new opportunities for structural transformation: African countries can integrate as “links” into GVCs at a specific stage, usually assembly in manufacturing and commodity production in agriculture, without having to develop entire industries. Although at 2.2% Africa’s total global value created under GVCs remains rather small, its participation growth rate has been high.
The participation to value chains opens potential opportunities to upgrade through knowledge transfers, product differentiation and the addition of adjacent stages of the value chain. However, these benefits do not appear automatically. The challenge for African countries is to industrialise and increase participation to value chains while not becoming locked into performing low-value activities.
Africa attracts investors because of its burgeoning domestic markets, abundant natural resources and plentiful supply of labour. African markets are also regarded as relatively open. Africa’s ongoing retail revolution presents important opportunities to develop regional value chains, which offer closer proximity and first-mover advantages. In addition, regional markets often permit lower norm-related standards and thus present lower barriers to entry. Opportunities in producer-driven chains tend to lie in acquiring upstream capabilities – such as research, supplier services and component manufacturing – or in expanding into higher quality varieties of the base product (e.g. such as organic or fair trade types of cocoa and coffee). Buyer-driven chains, such as apparel and horticulture, allow for closer links between producers and consumers by cutting out middlemen and providing unique value added required by consumers. A good example is illustrated by the growing number of flowers suppliers from Kenya who directly deliver their products to retailers, thereby bypassing the traditional auction houses.
Regardless of the scenario and the specific value chain, local entrepreneurs will be crucial to identify the opportunities offered by GVCs and to take the risk to turn these opportunities into jobs and growth. The inability to meet product quality standards, as well as high costs of transport and energy, and a poorly trained workforce are among the top reasons firms cite among the challenges for upgrading. The lack of a strong service sector is another hindrance: while on average 30% of the value of manufactured products exported globally is added in the form of services – such as design, development, marketing, warranties and after-sales care – Africa’s share in global service exports has observed a decline. The inadequate provision of public and private services, particularly extension services, penalises smaller firms, demanding a heightened focus on innovation and value added in their sector. The accelerating spread of global value chains amplifies this challenge, as they put African countries at a disadvantage in the competition for GVC investments, especially in manufacturing.
The new, evolving global context, the changing features of global value chains and production networks, and the new dynamics in Africa offer potential for improvement, but sound strategies need to be in place to deliver the inclusive and sustainable development outcomes that African societies demand and deserve for today, and for tomorrow. Industrial policies have come back to the development agenda in the last years, but implementation and financing remain a challenge. Current industrial policies need on the one hand, to learn from the past and lever on successes and failures. On the other hand, they need to include as a starting point the high level of interconnectedness of global economies to maximise the opportunities of participation into GVCs and minimise the associated risks.
Despite country specificities, high level political support and coordination between levels of governments, firms and other public institutions has proved to be a key feature of success cases. Development strategies have a key role to play in fostering industrialisation and a private sector development which is inclusive and sustainable.
Background Documents
·African Development Bank (2013), “At the Centre of Africa’s Transformation: Strategy for 2013-2020”.
·AU-ECA (2014), Economic Report on Africa 2014: Dynamic Industrial Policy in Africa, ECA Publishing.
·AU-ECA (2013), Economic Report on Africa 2013: Making the Most of Africa’s Commodities: Industrializing for Growth, Jobs and Economic Transformation, ECA Publishing.
·AU (2012), Boosting Intra-Africa Trade: Issues Affecting Intra-African Trade, Proposed Action Plan for boosting Intra-African Trade and Framework for the fast tracking of a Continental Free Trade Area, Decisions of the 18th Ordinary session of the Assembly of the African Union, Addis 2012.
·AU (2008), Action Plan for Accelerated Industrialization in Africa 2008.
·OECD/AfDB/UNDP (2014), African Economic Outlook 2014: Global Value Chains and Africa's Industrialisation, OECD Publishing. DOI: 10.1787/aeo-2014-en
·OECD/ AfDB/UNDP (2013), African Economic Outlook 2013: Structural Transformation and Natural Resources, OECD Publishing. DOI: 10.1787/aeo-2013-en
·OECD (2014), Perspectives on Global Development 2014: Boosting Productivity to Meet the Middle-Income Challenge, OECD Publishing. DOI: 10.1787/persp_glob_dev-2014-en
·OECD (2013), Perspectives on Global Development 2013: Industrial Policies in a Changing World, OECD Publishing. DOI: 10.1787/persp_glob_dev-2013-en
·Primi, A. (2013), The return of industrial policy: (What) can Africa learn from Latin America?, Working Paper, prepared for the JICA/IPD Africa Task Force Meeting, Yokoama, Japan, 2013.