10 Africa: Industrialization Strategy In the Context of Globalization

Zubair Iqbal, and Mohsin Khan
Published Date:
December 1998
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Charles Chukwuma Soludo

The crucial challenge facing policy makers in government and the multilateral agencies is that of framing a new industrial strategy for sub-Saharan Africa in the 21st century. Whatever its limited success in other fields, structural adjustment has failed signally not just in reversing the recent trend towards de-industrialization but also in creating an appropriate policy environment for sustained industrial growth. … A fresh start—a new approach—is needed. [UNIDO, 1996, p. 122]

It is self-evident that, given the validity of the Prebisch-Singer thesis about the secular decline in primary commodity prices, the limited natural resource endowments, and the teeming population of African countries, future growth and development will hinge critically on the aggressive pursuit of production diversification into industry, technological upgrading, and international competitiveness of manufactures. This realization is not new and has constituted the fulcrum of most development strategies in much of Africa since political independence in the 1960s.

So far, the various models of industrialization—from active industrial policy under import-substituting industrialization (ISI) to “no industrial policy” under structural adjustment programs (SAPs)—have not succeeded in laying the foundations for industrial takeoff in most African countries. While most analysts agree about the distortions and failings of the brand of ISI implemented in much of Africa, evidence now shows that the promises of “incentive neutral” trade policy, and “no policy” framework of industrialization under SAP have not materialized.1 The extremely low level of industrialization combines with the atypically weak institutions, human capital, and infrastructure to make Africa (with the notable exception of a minority of countries) the world’s only region that has intensified its position as a pre-industrial society.

The search for, and effective deployment of, strategies to escape this pre-industrial trap and to lay the foundations for sustainable, competitive industrialization are the fundamental challenges for Africa’s development in the years ahead. Recently, the earlier acrimonious debate about the role of the state in industrialization seems to have given way to increasing convergence of views around some strings of “recognitions” for the need for “developmental,” “strong,” “committed,” “effective” state in industrialization. “Without it (the state), sustainable development, both economic and social, is impossible” (World Bank, 1997). Thus, after years of waiting in vain for market forces to unleash industrial development, analysts are beginning to take seriously the political economy, structural, capacity, and institutional issues arising from, associated with, or defining the context for rapid industrialization in Africa. A rediscovery of the state and the potentials of an Asianstyle interventionist regime for latecomer industrializers is one thing, while designing appropriate policies in the context of the changed and continually changing global environment is yet another.

Globalization is perhaps the most profound development that not only circumscribes the nature and scope of national policies but more fundamentally defines the context for African industrialization. It defines not just the breakneck technological changes and shrinkage of the global market but more so the take-it-or-leave-it set of neoliberal policies (unfettered market liberalization and competition) that are the fulcrum of international exchange under the WTO. About 40 African countries have signed the WTO rules.2 In essence, the new framework changes the nature and role of industrial policy, and in particular, severely limits the application of the kinds of the interventions and policies that the more successful Asian industrializers employed.

Africa (together with other regions with developing countries at a similar stage of industrialization) therefore faces atypically Herculean challenges. First, the global environment is atypically more competitive than at any other time. Second, Africa would be the only region that would need to transform from a pre-industrial, precapitalist society into competitive market and industrialized society but without the scope for preferential and differential treatments or protective and interventionist regimes available to earlier industrializers. In other words, Africa would, as a toddler, be expected to compete in a game meant for adults. A further problem is that, in some cases, the toddler is even deformed as defined by the initial but deteriorating conditions. For some analysts, it is difficult to see how Africa can make it into competitive industrialization, and they therefore suggest that it should concentrate on primary commodity production and exports. While the need for fuller exploitation of the static comparative advantages in primary commodities cannot be denied, some analysts argue that the goals of industrialization are coterminous with the requirements of long-term development.3 The issue therefore is not whether Africa should industrialize, but how it should start and sustain the process within the context of a changing global environment. This chapter illuminates some of the issues in the design of such a strategic agenda.

The rest of the chapter is organized as follows. The second section provides an overview of African industrialization policies and performance. In the third section, I examine the causes of Africa’s stalled industrialization and the probable lessons from Asia on building systemic competitiveness. The fourth section evaluates the constraints and opportunities offered by the new waves of globalization, while the fifth section articulates a framework for an industrialization strategy and also concludes the chapter.

Africa’s Industrialization Efforts and Performance

Africa’s quest for industrialization has had a checkered history.4 The kinds of industrial policies immediately after independence in the 1960s through the 1970s were largely influenced by the reactions to the colonial heritage as well as the dominant development paradigm of the era.

The peculiar colonial legacy in Africa left the continent not only with the most fragile industrial base but also the weakest social infrastructure that was not conducive to effective industrial takeoff. The colonies were safeguarded as protected markets for imperial export of manufactures, or as monopsonized sources of raw material. Neither production for local markets nor for exports was promoted. The few industrial activities were monopolized by multinational firms, and the emergence of domestic entrepreneurship especially in industry and wholesale trade was stifled through a number of mechanisms. As Mkandawire (1988, p. 18) summarizes:

We are not referring here to the “poor human resources” constraint rightly brought out in many “manpower” and “human capital studies” of African countries but to the class and state structures that made industrialization, no matter how subjectively willed, so socially “rootless” in Africa. There was not, as in India, an incipient indigenous industrial capitalist class that was to ride on the national wave for its own further accumulation, free of the many colonial shackles that may have impeded its growth. There was no landed aristocracy that, as in Latin America, gradually transformed itself or was forcefully transformed into a capitalist class or, at least, provided the surpluses for industrialization. There was no merchant capital that would have been compelled by post-independence policies to enter into manufacturing.

In addition to the dearth of indigenous capitalist class, the colonial state deliberately prohibited involvement of indigenous people in industrial activities. It was little surprise therefore that the struggle for independence was explicitly linked to the demand for the “right to industrialize.” Consequently, the postcolonial state focused on industrialization not only as a means of economic development but also as a strategy to alter some of the vestiges of colonialism and ensure indigenous participation in the otherwise prohibited areas. Foreign companies had a virtual monopoly on manufacturing and other industrial activities, and these were seen as the continuing symbols of imperialism.

Political independence was thought to be hollow without economic independence, and this was seen in the context of exercising “greater control” of their national economies and promoting “self-reliance.” Ostensibly contemptuous (in fact, resentful) of the big multinational corporations, the nationalistic mood of the time was much more about ensuring indigenous “participation” in, rather than “efficiency and competitiveness” of, the enterprises. It was therefore little surprise that most African countries enacted and implemented various forms of indigenization laws—which sought to transfer “ownership and control” of certain industrial activities to the “indigenes,” as well as prohibit “foreigners” from certain aspects of economic activity. The extreme form of this was the mass expulsion of the Asian community from Uganda in the early 1970s. In other words, the interventions were, unlike the Asian model of the time, not motivated by strategic and selective interventions to acquire technological niches and export competitiveness.5 Rather, it was nationalistic desires and exercises in bureaucratic experimentation that provided the basis for the industrial efforts. The nascent state, sometimes in collaboration with the multinational corporations through joint ventures or management contracts, or wholly owned parastatals, pioneered Africa’s industrialization process.

The major strategy adopted was the ISI strategy. Coincidentally, the early years of independence (1960–70s) saw an era of the intellectual ascendancy of Keynesianism, including development economics as well as the celebration of the benefits of development planning. Keynesianism provided the justification for government intervention to correct market failures, while the experience of the Soviet Union with rapid industrialization under a planned economy (as well as the lessons of “late industrializers,” which suggest a prominent role for the state at early stages) acted to promote ISI as the orthodoxy of the era. In addition to nationalization of multinational companies, the other key elements of this strategy in most of Africa consisted, to varying degrees, of protectionist trade regimes which in part were for the infant industry reasons, and a number of incentives to ensure profitability of investing in industries—directed credit; low, differentiated, and administered interest rates; tax incentives; import licensing for procurement of equipment and raw materials; and so forth.

The general thrust (which ironically coincided with the neoclassical preference) was to promote industrialization “generally” without attempts to selectively pick winners and strategically direct policies at them. Given the virtual absence of indigenously owned industries, and the single-minded focus on “controlling” the existing ones, the emphasis was primarily on “increasing local ownership and participation.” Any industry at all, provided that it passed the single criterion of high local ownership and participation, was encouraged. On this criterion, it would appear that many industrial policies of the two decades up to the late 1970s were largely successful in many African countries. What suffered however, were the efficiency, productivity, and international competitiveness of such industries. In fairness however, these objectives were not explicitly pursued in many cases.

For example, there was no explicit emphasis on exports of manufactures, and the firms were not subjected to performance-based criteria for receiving further incentives and protection. The lack of gradual exposure of the firms to international competition contributed partly to the low industrial growth and innovation, as well as its feeble structure. Some analysts argue, however, that unlike the Asian countries with severe resource constraints, African countries (like their Latin American counterparts) earned much of their foreign exchange by exporting primary commodities. Thus, the necessity for exporting was not as urgent and imperative as in the case of the Asians.

The oil price shocks and the bursts in primary commodity exports in the late 1970s and early 1980s exposed this African neglect as unsustainable. With the benefit of hindsight and lessons from Asia, the past policies now appear to have been “mistakes.” Unfortunately, it is this policy framework of the 1960s and 1970s that forms the basis for performance evaluations, and these evaluations are predominantly based upon a set of objectives that those industrial policies never set out to achieve.

With the SAPs of the early 1980s came a fundamental change in industrialization strategy that is rooted in neoliberalism. The initial extreme laissez-faire model of just “getting prices right” has, however, evolved in the face of scathing criticisms, to the broader “Washington consensus” as articulated by the World Bank (1991): the “marketfriendly” approach. Under this approach, the presence of market failures is acknowledged, but most corrective interventions are rejected as likely to boomerang. In essence, “government failure” dominates market failure. “The appropriate role of government is to ensure adequate investments in people, provide a competitive climate for private enterprise, keep the economy open to international trade, and maintain a stable macroeconomy. Beyond these roles … governments are likely to do more harm than good, unless interventions are market friendly” (World Bank, 1993, p. 10). Specifically, according to this model, governments should: “Intervene reluctantly: Let markets work unless it is demonstrably better to step in … Apply checks and balances: Put interventions continually to the discipline of the international and domestic markets … Intervene openly: Make interventions simple, transparent, and subject to rules rather than official discretion” (World Bank, 1991, p. 5).

This model of little or no industrial policy coheres, under this framework, with the strategy of unilateral, deep, and swift trade policy reforms. The bid to produce a “neutral” trade regime also implies the elimination of infant industry protection as a viable strategy of industrialization. This approach to industrialization and growth has been tried since the early 1980s in most African countries.

After nearly forty years of experimentation with various models of industrialization, the results are anything but salutary (see the tables that follow). The share in global manufacturing value added (MVA) has shrunk from 0.6 percent in 1970 to 0.3 percent in 1995; and growth of MVA deteriorated from 2 percent in the 1970–80 period to 0.1 percent in 1991–95 (see Tables 1 through 5). Total export growth per capita deteriorated to –1.6 percent in the 1991–95 period; and manufacturing employment declined from an average growth rate of about 5.3 percent in 1970–80 to –1.1 in 1985–90. For exports, Table 6 points to the rudimentary nature of manufactured exports (accounting for just 18 percent of exports as against 54 percent for other developing regions) while machinery exports account for a mere 2 percent of total exports. Table 7 indicates that Africa is the only region where the concentration of export commodities into primary products has intensified. In Table 8, we observe that aside from a few commodities, Africa has consistently lost market shares in its exports.

Table 1.Regional Percentage Shares of Global Manufacturing Production
Industrial countries88.082.884.280.3
Developing countries, including China1.017.215.819.7
Latin America4.
Sub-Saharan Africa0.
North Africa and West Asia0.
South Asia1.
East and Southeast Asia, including China4.26.87.411.1
Source: UNIDO Global Database.
Source: UNIDO Global Database.
Table 2.Structure of Value Added(Percent)
Region or Country and Sector1970198019901994
Low technology157.254.949.750.1
Machinery, excluding transport equipment20.922.524.223.4
Transport equipment8.
Other manufacturing1.
North America
Low technology152.249.747.045.8
Machinery, excluding transport equipment23.125.824.425.1
Transport equipment10.110.511.711.8
Other manufacturing1.
Western Europe
Low technology156.353.749.149.6
Machinery, excluding transport equipment21.523.024.523.8
Transport equipment8.89.910.210.0
Other manufacturing1.
Low technology150.051.742.944.5
Machinery, excluding transport equipment25.324.730.628.1
Transport equipment9.49.510.710.6
Other manufacturing1.
Latin America and the Caribbean
Low technology169.366.364.163.2
Machinery, excluding transport equipment10.212.011.811.7
Transport equipment6.
Other manufacturing1.
East Asia and Southeast Asia
Low technology168.964.354.854.6
Machinery, excluding transport equipment9.814.221.022.1
Transport equipment4.
Other manufacturing3.
South Asia
Low technology166.361.861.157.7
Machinery, excluding transport equipment11.614.613.814.1
Transport equipment5.
Other manufacturing0.
Low technology158.659.856.359.6
Machinery, excluding transport equipment22.119.620.318.6
Transport equipment1.
Other manufacturing1.
Sub-Saharan Africa
Low technology183.176.379.280.7
Machinery, excluding transport equipment3.
Transport equipment2.
Other manufacturing1.
Source: UNIDO Global Database.

Low-technology industries are defined as food, beverages, tobacco, textiles, clothing, footwear, leather products, wood and cork products, furniture, paper and paper products, printing and publishing, petroleum refineries, coal products, pottery, glass and nonmetallic minerals, iron and steel, and nonferrous metals and metal products (excluding machinery).

Source: UNIDO Global Database.

Low-technology industries are defined as food, beverages, tobacco, textiles, clothing, footwear, leather products, wood and cork products, furniture, paper and paper products, printing and publishing, petroleum refineries, coal products, pottery, glass and nonmetallic minerals, iron and steel, and nonferrous metals and metal products (excluding machinery).

Table 3.Percentage Share of Manufacturing Value Added in GDP
Region or Country1960197019801990
Industrial market economies28.727.925.122.7
Developing countries20.320.220.921.9
North America27.924.821.518.5
Western Europe29.830.527.123.9
Eastern Europe and former U.S.S.R.42.141.343.936.6
Latin America20.923.724.623.1
Tropical Africa7.010.310.19.5
North Africa and West Asia10.
Indian Subcontinent12.012.714.315.4
East and Southeast Asia (excluding China)14.419.122.926.6
Source: UNIDO Global Database.Note: Current prices and dollar exchange rates.
Source: UNIDO Global Database.Note: Current prices and dollar exchange rates.
Table 4.World Percentage Growth Rates of Manufacturing Value Added
Region or Country1970–801980–901990–95
North America2.32.53.1
Western Europe2.61.60.5
Eastern Europe and former U.S.S.R.7.11.6-9.5
Latin America and the Caribbean5.50.42.0
Sub-Saharan Africa2.02.50.1
North Africa and Western Asia7.75.53.2
South Asia4.26.84.5
East and Southeast Asia11.58.57.4
Developing countries (including China)
Source: UNIDO Global Database.Note: 1990 dollars.
Source: UNIDO Global Database.Note: 1990 dollars.
Table 5.Percentage Growth Rates and Shares of Manufacturing Value Added
Regional growth rates of MVA
Industrial market economies1.52.02.0
Eastern Europe and C.I.S.-
Developing countries6.56.97.8
Latin America2.02.72.8
Tropical Africa0.13.33.5
North Africa and West Asia3.25.45.7
Indian Subcontinent4.54.85.0
East and Southeast Asia including, China10.79.29.9
Shares in global MVA1
Industrial countries77.573.768.5
Eastern Europe and C.I.S.
Developing countries19.723.729.1
Latin America4.64.64.4
Tropical Africa0.30.30.3
North Africa and West Asia1.92.22.4
Indian Subcontinent1.51.61.7
East and Southeast Asia, including China11.114.820.0
Shares of MVA in GDP
Industrial countries22.522.221.6
Eastern Europe and C.I.S.34.033.633.5
Developing countries23.625.728.5
Latin America22.021.821.6
Tropical Africa9.510.110.8
North Africa and West Asia14.215.717.6
Indian Subcontinent15.515.715.9
East and Southeast Asia, including China31.734.336.9
Source: UNIDO Global Database.Note: “MVA” is manufacturing value added. “C.I.S.” is Commonwealth of Independent States.

In the final year of the period.

Source: UNIDO Global Database.Note: “MVA” is manufacturing value added. “C.I.S.” is Commonwealth of Independent States.

In the final year of the period.

Table 6.The Structure of Sub-Saharan African Countries’ Exports
By Main Category of Export Products (percentage)
Aggregate SITC Groups1Manufactures, of which:
Exporting CountryValue (millions of U.S. dollars)All foodsAgricultural materialsFuelsOres and metalsManufacturesChemicalsOther manufacturesMachinery and transportUnallocated Trade
Burkina Faso160.327.542.
Cape Verde6.550.
Central African Republic139.517.327.
Cote d’Ivoire2,940.449.918.314.50.316.83.511.32.10.2
Equatorial Guinea25.457.930.
Gambia, The40.672.
São Tomé and Príncipe7.491.
Sierra Leone142.824.63.93.540.926.
South Africa18,968.813.69.213.926.434.46.524.33.62.5
All sub-Saharan Africa53,688.418.58.336.316.618.
All developing countries708,947.011.43.326.
Source: Data compiled from United Nations COMTRADE record; and UNCTAD, Handbook of International Trade and Development Statistics, 1992. In some cases, the total trade values reported in this table may differ from those shown in Table 1. Where this occurs, data on the direction of trade had to be taken from a different year than the above statistics on the composition of trade.

“SITC” is Standard International Trade Classification. In items of the SITC (Revision 1) classification, the product groups shown in this table are defined as follows: all foods and feeds, SITC 0+1+22+4; agricultural raw materials, SITC 2-22-27-28; fuels, SITC 3; ores, minerals, and metals, SITC 27+28+68; manufactures, SITC 5+6+7+8-68; chemicals, SITC 5; other manufactures, SITC 6-68; machinery and transport, SITC 7.

Source: Data compiled from United Nations COMTRADE record; and UNCTAD, Handbook of International Trade and Development Statistics, 1992. In some cases, the total trade values reported in this table may differ from those shown in Table 1. Where this occurs, data on the direction of trade had to be taken from a different year than the above statistics on the composition of trade.

“SITC” is Standard International Trade Classification. In items of the SITC (Revision 1) classification, the product groups shown in this table are defined as follows: all foods and feeds, SITC 0+1+22+4; agricultural raw materials, SITC 2-22-27-28; fuels, SITC 3; ores, minerals, and metals, SITC 27+28+68; manufactures, SITC 5+6+7+8-68; chemicals, SITC 5; other manufactures, SITC 6-68; machinery and transport, SITC 7.

Table 7.Measures of the Concentration of Exports: African Countries Compared with Other Country Groups
Share of Three Largest Products in Total Exports (percent)Product Diversification IndexProduct Concentration Index
Country Group1962–641991–931962–641991–931962–641991–93
North Africa63.068.70.740.730.440.43
Sub-Saharan Africa36.562.30.710.770.200.49
Low-income countries39.262.90.720.790.220.50
Middle-income countries43.974.30.760.800.240.60
Low-income Asia30.434.50.610.530.170.20
Middle-income Asia38.530.80.740.440.210.15
Middle East92.091.00.840.840.820.79
High-income non-OECD41.040.80.680.490.250.22
Latin America and the Caribbean38.923.80.620.400.220.13
Source: Computed from United Nations Series D Trade Records.Note: “OECD” is Organization for Economic Cooperation and Development.
Source: Computed from United Nations Series D Trade Records.Note: “OECD” is Organization for Economic Cooperation and Development.
Table 8.Value, Share, and Changes in Sub-Saharan Africa’s Major Non-Oil Export Products in OECD Markets
Export ProductValue (millions of U.S. dollars)Percentage Share of African ExportsAfrica’s Percentage Share of OECD ImportsGlobal Export
(Standard International Trade Classification)1962-641991-931962-641991-931962-64ChangeGrowth Rates (percent)
Unwrought copper alloys (682.1)510.8780.814.75.1632.4-22.55.69
Green or roasted coffee (071.1)447.91,053.012.916.9522.7-7.24.36
Cocoa beans, raw or roasted (072.1)337.31,338.09.728.8380.1-9.95.34
Groundnuts, green (221.1)185.511.15.350.0781.6-79.93.68
Nonconifer saw logs (242.3)176.6734.25.094.8536.1-16.17.20
Raw cotton (263.1)161.0379.54.642.5111.41.82.48
Unmanufactured tobacco (121.0)119.9589.73.463.8913.8-1.66.09
Iron ore (281.3)115.0247.33.321.639.5-6.36.65
Raw beet and cane sugar (061.1)93.0415.12.682.7410.05.83.64
Palm nuts and kernels (221.3)
Natural rubber and gums (231.1)77.8191.12.241.2610.3-2.74.22
Fresh bananas (051.3)61.3202.81.771.3414.2-9.88.52
Palm oil (422.2)57.553.01.660.3559.0-54.18.63
Vegetable oil residues (081.3)54.768.71.580.4510.1-8.88.06
Agave fibers (265.4)52.715.41.520.1033.318.5-5.60
Manganese ore (283.7)44.8176.21.291.1627.84.24.33
Groundnut oil (421.4)39.978.21.150.5255.3-19.13.85
Shaped lumber (243.3)38.6418.11.112.7615.5-6.710.69
Tea (074.1)36.7246.01.061.628.513.73.31
Base metals (689.5)36.4252.41.051.6729.2-16.09.88
Posts and poles (242.9)
Fixed vegetable oils (422.9)
Nonindustrial diamonds (667.2)26.41,792.70.7611.845.24.313.27
Unwrought tin alloys (687.1)
Inorganic bases (513.6)
Industrial diamonds (275.1)
Unwrought aluminum alloys (684.1)21.3272.00.611.804.1-1.611.09
Tin ores (283.6)
Crude asbestos (276.4)19.323.30.560.1510.10.30.55
Natural gums and resins (292.2)18.676.70.540.5328.411.83.90
Source: World Bank data.Note: “OECD” is Organization for Economic Cooperation and Development.
Source: World Bank data.Note: “OECD” is Organization for Economic Cooperation and Development.

Tables 1, 9, and 10 summarize the extent of the de-industrialization that has taken place both in the context of the regional aggregate relative to the rest of the world, and in terms of the individual countries” performance relative to their history. Table 10 particularly compares the manufacturing value added as proportion of GDP in 1980 and 1994, and finds that, for 13 out of 23 countries, there was either stagnation or de-industrialization. Table 1 confirms de-industrialization for the aggregate sub-Saharan Africa. Stewart (1991, p. 429) argues that “indiscriminate import liberalization has been partly responsible for the observed de-industrialization. Some selective protection is necessary for the development of industrial capacity.”

Table 9.Industry in Africa
Manufacturing Value AddedMVA per Person
Country1970119941Growth, 1984-941970119941
Burkina Faso1552872.02829
Central African Republic94166-4.22627
Côte d’Ivoire6771,141-3.012384
Sierra Leone43852.71619
South Africa13,51122,657-0.1602559
Total (including others)23,56339,1062.02392322
Source: UNIDO Global Database.Note: “MVA” is manufacturing value added.

Millions of dollars, in 1990 prices.

Excluding South Africa.

Source: UNIDO Global Database.Note: “MVA” is manufacturing value added.

Millions of dollars, in 1990 prices.

Excluding South Africa.

Table 10.Changing Percentage Share of Manufacturing Value Added in Gross Domestic Product in Sub-Saharan Africa, Selected Countries
Country19801994Change, 1980-94
Côte d’Ivoire1526+11
South Africa2323
Sierra Leone62-4
Source: World Bank (1996).
Source: World Bank (1996).

Ndlovu (1996, p. 158) traces the de-industrialization and disinvestment to the SAPs:

Much of the decline occurred in the 1990s, when economic environments had been altered significantly by the impact of structural adjustment. Bennell found that between 1989 and 1994 over half of British manufacturing firms based in anglophone Africa disinvested on account of shortage of foreign exchange, massive currency devaluations and low profitability. Underlying reasons given for disinvestment were “stalled industrialization in Africa” and, interestingly, the SAPs. The countries most affected are Kenya, Nigeria and Zimbabwe, where 65 percent of equity investment was located. In all, the 14 countries affected account for 54.6 percent of sub-Saharan Africa’s population and have been the origin of 58.6 percent of the region’s manufacturing value added.

More fundamentally, the trade reforms have been shown to be incompatible with the goals of balance of payments and fiscal viability. Trade reforms have been frequently reversed to the point that, except for the few cases heavily buoyed by aid inflows, almost all the other liberalization schemes can be said to be unsustainable. Evidently, despite the various policies, Africa remains the world’s only region still awaiting an industrial revolution.

The Low Level of Industrialization and Lessons on Competitiveness

Industrial Stagnation

It must be stressed at the outset that references to such aggregates as “Africa” or even sub-Saharan Africa can be somewhat misleading. Africa is a highly differentiated aggregate, and care must be taken to underscore the substantial differences across countries and subregions. For example, in terms of industrial development, we can classify the countries in two categories: countries with fairly developed industrial structure (only five countries are in this group, with manufacturing sectors accounting for more than 20 percent of GDP), and those at the pre-industrial stage of development.6 Clearly, more than 85 percent of Africa has rudimentary industrial base (of less than 20 percent of GDP). This figure masks the fact of the infinitesimal manufactures exports of the region and the fact that these exports are still in the extremely low technology, mostly semiprocessed, light consumer goods. For more than 85 percent of African countries, therefore, competitive industrialization is a process that is yet to begin. Why is this so?

Explaining Africa’s failed industrialization is coterminous with explanations for the observed growth tragedy. We do not rehearse the familiar debate here.7 The old acrimonious debate has increasingly given way to some convergence of views regarding the importance of the major aspects of both kinds of explanations. Controversies persist, however, about the relative weights to be attached to the factors and, more so, about the sequencing of the necessary reforms. I argue that while the key elements of a stable macroeconomic environment are necessary, they are by no means sufficient. For effective supply response in terms of rapid and competitive industrialization, the other supply side context of the macroeconomic environment is critical. I therefore postulate that the stalled industrialization of most of Africa can be explained by such factors as the initial conditions and, infrastructural, capacity, and institutional constraints, as well as by other factors (domestic and external) that impinge upon the functioning of the various markets, small economies, technological base, export capacity and market access, and so forth.

An example of poor initial conditions is the lack of appropriate sociopolitical environment for the flourishing of private enterprise and growth. Collier and Guillaumont (1996) provide an interesting typology of African countries on the basis of their location within the spectrum of the prerequisites for growth. Focusing on the low-income countries (below $1,000 per capita), they filter the countries through a series of three conditions considered necessary foundations for growth: a minimal degree of social stability, a minimal degree of macroeconomic stability, and a minimal degree of allocative efficiency. The idea is that these form a hierarchy of preconditions for growth: without a minimum of social stability, there is little point worrying about macroeconomic stability. Also, if adequate social order is guaranteed but there is macroeconomic chaos, there is little point in worrying about allocative efficiency. Consequently, low-income Africa is divided into four categories. First are economies without peace. Six countries fell into this category: Angola, Burundi, Liberia, Rwanda, Somalia, and Sudan.8 National accounts statistics are unreliable or unavailable for most of them. However, these countries account for some 61 million (11 percent) of the population in sub-Saharan Africa. Second are economies without a minimum adequate macroeconomic environment. The following 13 African countries, which satisfied the conditions of minimum social order, failed to meet the minimum macroeconomic stability: Comoros, Democratic Republic of the Congo (formerly Zaïre), Equatorial Guinea, Ghana, Madagascar, Malawi, Mozambique, Niger, Nigeria, São Tomé and Principe, Tanzania, Togo, and Zambia. With 240 million people, this group covers some 46 percent of the sub-Saharan African population. Economic statistics are also unreliable in most of these countries. Third are economies without a minimum adequate resource allocation environment. The following countries satisfied the first two conditions but failed on the allocative efficiency criterion: Cameroon, Chad, Congo, Eritrea, Guinea, Kenya, Lesotho, and Zimbabwe. This group has a combined population of 69 million people, or 12 percent of the sub-Saharan African population. Fourth are the countries whose governments were supplying at least modest levels of social order, macroeconomic order, and resource allocation. They include Benin, Burkina Faso, Cape Verde, Cote d’Ivoire, Ethiopia, the Gambia, Guinea-Bissau, Mali, Mauritania, Senegal, and Uganda. Thus, according to this classification, only about 23 percent of the sub-Saharan African population lives in countries with a minimally adequate environment for growth. The emphasis is on the word “minimally,” and some of them could not be said to have basic growth-friendly policies. For example, as the authors observe, “Ethiopia has yet to get in place even elementary property rights: it is not yet possible to purchase land on which to build a factory, and the financial system is rudimentary, until 1995 there being a monopoly state commercial bank. Indeed, none of the countries actually rates high across the board on macroeconomic and resource allocation policies.” On the basis of statistics up to 1996, the authors make the following inference about the growth performance of the different groups (Collier and Guillaumont, 1996): for countries with an inadequate social order, with 11 percent of the population, per capita GDP growth was –4.0 percent in 1990–94; for countries with inadequate macro policies, with 46 percent of the population, growth was –1.3 percent in 1992–94; for countries with an inadequate resource allocation, with 12 percent of the population, growth was –2.8 percent in 1992–94; for countries with a minimally adequate environment, with 23 percent of the population, growth was +6.2 percent in 1995; and for countries that were already middle income, with 8 percent of the population, data were not available.

Evidently, only 23 percent of Africa’s low-income population lives in countries with a minimally adequate environment for growth, while more than 85 percent of the countries have rudimentary industrial infrastructure. In other words, without a minimally adequate environment, discussions about industrial restructuring and the competitiveness of manufactures become sterile. In such circumstances, it is difficult for private investment to flourish, or for government attempts at creating industrial infrastructure to succeed. Since more than 70 percent of Africa had existed in environments without such minimum conditions, it is little surprise that industrialization has yet to take root.

Another aspect of the initial conditions is the fact that the environment in most of Africa has been atypically hostile to private investment. Industrialization is about investment, and investment is about balancing risks and returns. New investment theories (investment under uncertainties and irreversibility of fixed investment) provide insights into why Africans and foreigners choose not to invest in Africa. On a risk-return analysis, Africa is rated as the worst in the world. From the risk rating index used by institutional investors, Africa is rated as the most risky region in the world, and its position even deteriorated during the 1980s from 31.8 in 1979 to 21.7 in 1995. Risk in this sense is related to a gamut of indexes ranging from political instability, volatile macroeconomic environment, civil strife, and natural disasters, lack of effective mechanisms for enforcement of contracts, and so forth (see Table 11). For foreign investors, risk is the most important impediment to investment. For example, a survey of 225 investors identified fear of political instability as the most important of ten constraints (Blakey, 1994). The World Bank’s (1994b) survey of about 150 firms in East Africa found several deterrents to investment, including: political and economic policy uncertainty, the lack of currency convertibility, poor infrastructure and regulation, rudimentary financial and business services, breaches of contract, and high taxation. The risk of policy reversal was ranked as the most important deterrent. Other deterrents cited in the empirical literature include endemic corruption, the uncertain reputation of governments due to a finite possibility of policy reversal, and the illiquidity of firms’ fixed assets (which is attributed both to the breakdown of the private audit profession in verifying firms’ accounts and to the failure of the civil legal system to establish and enforce legal title). In essence, poor institutions interact with volatile policy and political environments to heighten the riskiness of African environments. It is little wonder, then, that relative to other regions, capital flight is very pervasive, thereby denying the region of the scarce investible resources that could potentially make the difference in its quest for industrial diversification (see Tables 11 and 12 for the incidence of capital flight).

Table 11.Aggregate Risk Indicators for Major World Regions
RegionMacrofinancial Volatility Index,

Macroeconomic Crisis Index,

Institutional Investor Risk Rating Index,

Capital Flight Stock as Percentage of GDP,

Civil Liberty Index,

Sub-Saharan Africa1.051.141.62905.65
Latin America and Caribbean1.121.691.21303.70
East Asia0.730.550.56184.90
South Asia0.730.550.56204.20
Organization for Economic Cooperation and Development0.460.330.321.00
Other (Oceania and Middle East)1105.15
Source: Nissanke (1997).Note: Elbadawi and Schmit-Hebbers index of macrofinancial policy volatility is an ex post measure defined as the equally weighted sum of the standard deviations of the ratio of public deficit to GDP, the ratio of current account deficit to GDP, the inflation rate, and the real exchange rate. The measure of macroeconomic crisis is proxied by the one-sided deviation of outcomes from sustainable threshold levels of the macroeconomic policy indicators.
Source: Nissanke (1997).Note: Elbadawi and Schmit-Hebbers index of macrofinancial policy volatility is an ex post measure defined as the equally weighted sum of the standard deviations of the ratio of public deficit to GDP, the ratio of current account deficit to GDP, the inflation rate, and the real exchange rate. The measure of macroeconomic crisis is proxied by the one-sided deviation of outcomes from sustainable threshold levels of the macroeconomic policy indicators.
Table 12.Capital Flight Stock as a Ratio of Selected Variables
CountryRatio of Flight Capital Stock to 1991 GDP

Estimated Value of Capital Flight Stock for 1991

(Billions of U.S. dollars)
Ratio of External Debt Stock to Capital Flight Stock, 1991

Source: Computed from data in Claessens and Naude (1993) and World Bank (1997).Note: Stock of capital flight covered the 1981-91 period only. This grossly underestimates the capital flight from a country such as Nigeria, where the bulk of the flight is estimated to have taken place during the oil boom period of the 1970s.
Source: Computed from data in Claessens and Naude (1993) and World Bank (1997).Note: Stock of capital flight covered the 1981-91 period only. This grossly underestimates the capital flight from a country such as Nigeria, where the bulk of the flight is estimated to have taken place during the oil boom period of the 1970s.

These basic elements of risk interact with the poor provision of public infrastructure, complex regulatory environment, high taxation on capital, corruption, and so forth to make investments in Africa highly unprofitable relative to the rest of the world. Where public infrastructure is scanty, unreliable, and very costly, firms often have to accommodate these through private provisions. For example, more than 80 percent of firms in Nigeria have to provide their own electricity generators, dig their own boreholes for water, buy poles and wires to extend telephones to factory sites, and sometimes have to construct access roads to their factory sites. Investors in most African countries have to go through a hell of complicated procedures and red tape of paperwork to register companies. Endemic corruption, which means that investors have to bribe their way through everything, including installing electric generators, constitutes a high level of taxation on investment. Just the hassles of setting up and running businesses in several African countries are enough to discourage the most ardent investor.

As the new investment theories would predict, private investors have reacted to the hostile and uncertain environment in certain rational ways. First, the option value of waiting increases, and it is little surprise that capital flight is pervasive. Second, agents have structured the composition of their domestic investment to emphasize mostly reversible and safe investments that have self-insurance characters. Agents systematically choose safe and liquid assets over less liquid ones. It is no surprise, therefore, that many African countries have become nations of traders, with the distributive trade sector booming at the expense of the productive (industrial) sector. This environment also has implications for the flow of FDI. When citizens do not have the confidence to invest in their own countries, foreigners have little motivation to be adventurous. This explains why most of the FDI flows to Africa have concentrated in the mining (extractive) sectors.

Tangential to the above is the nature of defective or missing markets and the implication for adjustment costs and supply response. The free trade argument is predicated on efficiently functioning markets, with very little adjustment costs and free mobility of productive resources. Evidently, environments characterized by structural and price rigidities, factor immobility, wage rigidity, defective money and capital markets, and so forth can greatly reduce the speed and nature of supply response.

Interlinked with the poor infrastructural base and defective or missing markets is the atypically poor institutional capacity of the state to manage the economy—including industrialization. This is compounded by the atypically low levels of educational attainment and skills development, as well as the small but nascent entrepreneurial class with requisite capital. Africa is the most illiterate region, and one where the critical technical and managerial skills for the operations of modern industry are in most acute short supply. This is exacerbated by the massive brain drain that is complicated by declining investment in education and soft infrastructure in terms of institutions—capital and money markets, audit and accounting standards and facilities; enforcement of contracts; transparent and efficient bureaucracy that reduces the cost of doing business; institutions for business-government dialogue and understanding; and so forth. In this environment, it is not conceivable how merely “getting prices right” through some trade reforms or just macroeconomic stability can elicit sustainable and competitive industrialization.

In addition, export-oriented industrialization requires the building of export competence. Penetrating and sustaining positions in export markets require a level of productivity and managerial and technical skills that is lacking in most sub-Saharan African countries. It is therefore conceivable that part of the observed sluggish export response can be attributed to the weak technological capability and lack of export competence, as well as the daunting infrastructural costs of exporting. Several African countries are landlocked, and access to cheap sea transport is a tall dream. Even for countries with easy access to the seaports, all studies show that Africa faces the highest transport and telecommunication costs in the world. For example, Yeats and others (1997, p. 17) note that:

In 1990/91 Sub-Saharan Africa’s net freight and insurance payments were about $3.9 billion, or roughly 15 percent of the value of the region’s exports, compared with 11 percent in 1970 … Individual country statistics, however, show wide variations. Net transport and insurance payments absorbed more than 25 percent of the value of exports for a third of African countries and exceeded 70 percent for Somalia and Uganda. Net payments averaged 42 percentage points for the landlocked African countries—almost 25 percentage points higher than the average for other African countries. The implication is that a large share of Africa’s foreign exchange earnings that might otherwise be used for productive capacity-building investments is being used to pay for international transport costs.

Finally, there are a number of other constraints, stemming from both the region’s initial conditions and the altered global environment, that obstruct Africa’s industrial development (see Box 1).

Box 1 points to the magnitude of the challenges facing African industrialization efforts. We would return to the implications of these for the design of an effective strategy. Before then, we examine the nature of the consensus about the requirements for industrial competitiveness in developing countries.

Systemic Competitiveness and Lessons from Asia

Even though several of the above challenges might be peculiar, Africa’s state of underindustrialization is not unique. Several countries have passed through similar phases, and some others in other regions are in an identical situation. There are thus some accumulated experiences on how some countries have managed to leapfrog the process, and achieved miraculous industrial transformation. Some East and Southeast Asian countries provide examples of such bold testimonials. Three key aspects of the emerging lessons within the context of the current global environment are the importance of building market-friendly, systemic competitiveness; the active role of the government in creating dynamic comparative advantages; and the need to acquire technological competence.

“Competitiveness” is a word whose meaning in the context of industrialization is replete with controversy.9 However, the World Competitiveness Report (1994) defines it as “the ability of a country or a company to, proportionally, generate more wealth than its competitors in world markets.” Thus, to be globally competitive “is the combination of a country’s assets, either inherited (for example, natural resources) or created (for example, infrastructure), and the processes (for example, manufacturing) that transform them into economic results, and which meet with the test of the international market (internationalization).” Achieving national competitiveness requires systemic competitiveness in the sense of a framework for the interaction of the state and societal factors in creating the conditions for successful industrial development and thus national competitiveness.10 This framework is predicated on the assumption that competitive advantages only partially emerge due to the invisible hand of the market, and are to a significant extent being created by deliberate, collective actions.

Box 1.Obstacles to Successful Industrialization in Low-Income Africa

The countries in low-income Africa face several obstacles to successful liberalization.

  • Their comparative advantage lies chiefly in low labor costs (sometimes also relatively low raw materials and energy costs). These “lower-order” comparative advantages are increasingly less important in global competition today.

  • Their main competitive strengths are in precisely those industries where demand growth is slowest and where international competition, especially from low-cost Asian suppliers, is increasingly intense.

  • They are not part of any cluster; there is no Japan, Hong Kong, or Singapore to undertake FDI on the scale witnessed in East or Southeast Asia.

  • They are at a serious disadvantage with respect to infrastructural costs, especially transport.

  • They are at the bottom of the global league in terms of industrial sophistication and technology.

  • The private sector is very weak in Africa, dominated by a relatively small number of major multinationals at one extreme and by a mass of small and microenterprises at the other, the “middle”—made up of medium-sized indigenous firms—is missing.

  • The technological terms of trade have moved against late starters. The admission fee for the acquisition of new technology has risen, both in money terms and—more important—in terms of the skills needed by operators, technicians, and managers.

  • The increasing importance of labor quality in the attraction of FDI counts against Africa when firms consider offshore investment in manufacturing.

  • The region has become excessively and unsustainably dependent on external support, including foreign technology and expatriate skills.

Source: UNIDO (1996), p. 122.

Lessons of experience show that the sterile debate about state versus markets in industrial development is misplaced. Both have played significant roles in the success stories. The secret of success lies in finding the optimal balance between intervention—formulation and implementation of targeted policies to stimulate and shape industrial development—and market forces. Finding such a balance is not easy and remains the key challenge of industrial development in developing countries. The key elements of the market-state balance involve analysis and actions at four key levels: meta, macro, meso, and micro (see Altenburg and others, 1997, pp. 5–22).

Meta level: This refers to the nature of the control and governance capacity of government and collective problem-solving arrangements. Systemic competitiveness cannot happen without social transformation and social integration. This is more so in the context of the weak markets, weak firms, and weak states that characterize many developing countries. In some countries, this has further deteriorated due to SAP, and failure to establish regulatory and governance capacities (government reform, formation of complex linkages between strategic actors) and the requisite social structures. The governance structure should produce a basic consensus on the necessity of industrial development and integration into the global system.

If fundamental differences exist on these issues, macro and meso policies designed to support industry will be erratic, and firms will develop a defensive posture to be able to react quickly to changes in the rules of the game. Thus some of the major elements of this level include the development-oriented pattern of politico-economic organization, the ability to formulate strategies and policies, learning- and change-friendly value attitudes, and social cohesion.

Macro level: This requires an enabling and well-functioning macroeconomic environment: developed and well functioning factor, goods, and capital markets, as well as a stable and predictable macroeconomic framework. This should include a realistic exchange rate policy and a general trade policy regime that stimulates local industry. Generally, it is almost impossible for firms to become globally competitive when the national macroeconomic environment facing them is not competitive.

Meso level: This refers to specific policies and institutions targeted to shape industries and their environment. In the current world order, it is no longer only individual firms that compete with each other but industrial clusters, groups of firms organized in networks, whose dynamic development depends on the potential of the particular location, in other words continuous and close contact with research and development facilities, technology formation and dissemination institutions, universities, training institutions, finance institutions, export information, and other institutions. There are increasing demands on the local, regional, and national levels to create and support a business-friendly environment, and this applies to demands on business associations and other nongovernmental actors as well as to demands on government at all these levels. The key point here, is that in the highly competitive world trading system, national and regional governments are under pressure to devise institutions to nurture and promote the competitiveness of the industrial clusters and groups of firms.

Thus a major aim of meso policies is to create specific locational advantages. This, among other things, requires actions on the following: (1) technology (contract research, technology extension, consultancy, business associations, universities, selectivity, and networking); (2) education and training (public and private institutions, technical orientation and specialization); (3) finance (investment credit, working capital, equity, insurance, export finance, patience, and risk-friendly disposition); (4) infrastructure (rail, road, water, air transport, harbors, telecommunication, energy, and so forth); (5) exports (foreign market information, design, trade insurance, and trading companies—specialization and close links to private business); and (6) environment (supervision, pressure, support, and so forth).

Furthermore, two key aspects of the mesolevel task with the central government pertain to large-scale technology initiatives and the formulation of an overall long-term strategy. Competitive advantage is increasingly less a function of cost or price and more one of quality, style, design, and timely and after-sales service. For many developing countries, acquiring the necessary competence and sustaining technological upgrading in these areas requires interactions between the various actors.

Micro level: Industrial development requires capable and competitive firms, and networks of firms with strong externalities. To be competitive, firms have to optimize on cost-efficiency, quality, variety, and responsiveness to changes in demand and new opportunities.

The above levels of analysis and requirements for systemic competitiveness can be regarded as a model of industrialization. The four key elements are interrelated, and emphasize the kind of strategic partnership that should exist between business and government. Most advanced industrial countries have passed through such phases, and continue to deepen the interactions. The most recent examples of the payoffs of such strategic process is the East and Southeast Asian experience.

Despite the continuing controversies about the interpretations of some aspects of the experience and the relative weights to be attached to the critical factors, there is a broad consensus that the four elements discussed above played important roles. It is generally agreed that there is no unique Asian model as the detailed strategies differed from country to country. However, certain broad elements characterize much of the experience. The first key element in all the success stories of Asia is the ability to articulate and pursue a strategic long-term vision of industrialization and economic transformation. UNCTAD (1996, pp. 11–12) summarizes four other major elements of the strategy, as follows:

First, policies and institutions were developed to promote profitinvestment nexus, which entailed three activities. (1) A stable political environment and pro-investment macroeconomic policies were fostered to sustain the investors’ confidence. (2) Both general and specific investment incentives were provided through measures to create artificially high profits. This was achieved in two ways. First, a range of fiscal instruments was used to supplement corporate profits and to encourage their retention to accelerate capital accumulation; tax exemptions and special depreciation allowances were applied both in general and to targeted industries. Second, a set of trade, financial, and competition policies was used to create “rents” that boosted corporate profits and thus provided investable resources available to corporations. Such policies included a mix of selective trade protection, controls over interest rates and credit allocation, and various strategies to manage competition. (3) Entrepreneurs were disciplined by closing off channels for unproductive investments and capital flight, and restricting luxury consumption. Consumption was restricted directly through curbs on the importing and domestic production of luxury consumption goods, and indirectly through high taxation and restrictions on consumer credits.

Second, an export-investment nexus was promoted by (1) initially promoting traditional exports (primary commodities and labor-intensive industries) to maximize foreign exchange receipts to buy capital goods that embody more advanced technologies; (2) promoting more demanding industries identified on a number of criteria (for example, productivity growth potential, conformity with domestic technological capabilities, demand prospects) through the creation, manipulation, and timely destruction of rents; and (3) upgrading through strategic integration with the international economy, using the disciplinary power of international markets alongside measures of export promotion, and using FDI selectively and strategically to access more advanced technologies abroad.

Third, a strong government-business network was created by (1) promoting an independent economic bureaucracy, including a network of agencies at the sectoral level; and (2) establishing strong links between industrial firms and the financial sector in ways to promote productive investment.

Fourth, the danger of marginalization was addressed by (1) supporting small-scale producers both in the rural and industrial sectors through targeted public investment, subsidized credit, and appropriate advisory services; and (2) supporting upgrading by linking small producers to large firms and public research institutes.

One striking feature of the Asian experience is the successful interaction between the state and the private sector, and more so the ingenuity of the state in creating the institutions (meta and meso level) for industrialization. Both the nature of this strategic partnership between the state and the private sector, as well as the kinds of interventions, raise important questions about the replicability of such an experience in the African context. This concern is ostensibly because of the weak state-weak private sector situation that characterizes most of Africa, and the changed rules of the game under the WTO and deepening globalization. An unresolved question is the nature of industrialization strategy that Africa should adopt in the light of its own initial conditions and the realities of the global setting.

Globalization and Industrialization

“Globalization” is the new buzzword that both describes the breakneck technological changes and rapid market integration, as well as prescribes the set of homogenous (neoliberal) policies toward which all countries are expected to converge. It captures the increasing harmonization of national policies regarding trade, investment, industrialization, and competition, and related issues, especially under the aegis of the multilateral institutions—particularly the WTO. In the light of the extension of issues beyond trade into other areas such as intellectual property, investment and investment measures, agreements on services, communications, information technology, and the environment, the WTO’s scope for affecting national policies extend beyond trade. Accession to the WTO has profound implications for the strategy of industrialization as it presents both opportunities and constraints.

In the area of industrialization, two key provisions of the WTO rules with near-term implications are the phasing out of the MFAs on clothing and textiles over 10 years and tariff cuts. Tariffication of NTBs and lowering of tariffs are the hallmarks of the new regime. For developing countries in particular, average tariffs will be cut by about a fifth, and this agreement on tariff binding will mean that developing-country imports of products subject to bound tariffs (that is, that cannot be raised) will increase from 25 percent to 75 percent of their total imports.

Two other aspects of the Uruguay Round-WTO rules that would affect industry are trade-related investment measures (TRIMs) and trade-related intellectual property rights (TRIPS). Under TRIMs, developing countries are required to abolish local content requirements and trade balancing tests within five years (least developed countries have seven years to do so). The TRIPs are designed to protect intellectual property (currently owned mainly by the OECD firms). This eliminates the prospects of copy-technology (reverse engineering), and forces potential users of foreign technology into licensing agreements and royalty payments. This has some adverse consequences for technological upgrading and adaptation.

On the benefits side, market access is expected to improve significantly, and there is an insurance policy against future barriers to the export markets. Beneficiaries of some aspects of the Uruguay Round will be the exporters of leather, rubber, footwear, and travel goods (all of whom will enjoy tariff reductions) and exporters of tanned leather, wood and paper products, and yarns or jute (who gain from the reduction in tariff escalation).

However, even though market access might improve, the generalized system of MFN status and trends in regionalism are likely to reduce the preferences enjoyed by African countries under the Lomé convention and concessions for the least-developed countries under the WTO. As the OECD-based regional blocs extend preferences to one another, any potential preferential and differential treatments granted to the least-developed countries are likely to be eroded. Since the least-developed countries are unlikely to compete on equal footing with the OECD economies, the objective of the WTO in granting them preferential treatments is defeated by regionalism.

In other words, the new global environment and the rules of operation have significantly altered. As UNCTAD (1996, p. 25) observes:

It is undeniable that the global economy is currently going through significant changes. The new trading regime under the WTO has reduced the scope for using some measures which call for trade-related subsidies, lax enforcement of intellectual property rights, and strategic conditions imposed on foreign investments, which were integral parts of the East Asian development strategy. Certainly, the more generalized protection which provided a backdrop for targeted policies in East Asia is no longer possible, and many of the export promotion policies no longer appear permissible. It may also be true that the changes will reduce the scope for policy maneuver for the developing countries which wish to pursue a strategy involving vigorous infant industry protection and export subsidies.

The situation may not be as hopeless as depicted above (see Soludo, 1997b). Even though the WTO has tried to provide a homogenous set of multilateral obligations, it has also made some “differential and preferential” provisions for the “least-developed countries” as listed in Annex VII to the Agreement on Subsidies and Countervailing Measures. The major threat to the effective deployment of these provisions is the intra-OECD preferential treatments under regionalism as discussed earlier. But there is still some room to maneuver. For example, the infant industry protection can creatively be deployed by developing countries meeting the balance of payments criteria, although the “Understanding” relating to this Article strongly discourages resort to quantitative measures and also provides for stricter multilateral surveillance. To the extent that tariffs remain unbound or bound at ceilings above currently applied rates, countries can creatively deploy the provision for infant industry protection. Furthermore, the Agreement on Subsidies and Countervailing Measures contains some of the most favorable provisions on differential and more favorable treatment, some of which have no precise time limits. The least-developed countries and other 20 countries with per capita GDP of less than $1,000 are exempt from the prohibition of export subsidies as long as they remain in these categories and do not exceed certain thresholds based on shares of world markets for products benefiting from export subsidies. In summary, although the changing international environment could constrain the freedom to conduct East-Asian-style interventionist policies, “There is considerable scope for maneuver, if countries skillfully use various ‘permissible’ subsidies, balance of payments clauses, non-trade-related policy measures, and are more creative in interpreting the new international trading rules” (UNCTAD, 1996, p. 29).

The major conclusion from the foregoing is that though their scope and pervasiveness have diminished, strategic and selective policies can still be implemented, albeit under different modalities/instruments and changing circumstances. Also, it seems fairly intuitive from the discussions above regarding the plethora of market failures, the disadvantages of late starters, the structure of African industry, and peculiar geographic and structural constraints, that some selective, targeted policies are still necessary (despite globalization). This point is evident also from the discussions on the requirements for systemic competitiveness above. The major challenge pertains to the specific nature of such policies, and whether or how African countries can effectively design and implement them.

Designing an Industrialization Strategy in the New World Order

The Framework

What is evident from our discussions so far is that industrialization strategy in the years ahead cannot be business as usual. Neither the extreme statist model of the orthodox ISI nor the laissez-faire model under SAP will do. An appropriate model, especially for the least-developed countries of Africa, must be of the eclectic, middle-of-the-road kind in which the actors (state and private sectors) strategically cooperate to achieve a well-defined national industrialization vision. Experience teaches that dynamic comparative advantages are not destiny; rather, they are the products of deliberate creations by societal forces. As we noted in the review of the model of systemic competitiveness and also from the latest rediscovery of the state by the World Bank (1997), it is evident that, without an active state working in strategic partnership with the private sector to create and maintain such advantages, they would not happen. A viable blueprint to create and sustain such dynamic comparative advantages and international competitiveness would, among other things, require policies to build and liberalize markets, tackle various facets of market failures, provide critical public goods, and address major capacity and institutional constraints that would not only guarantee property rights and enforcement of contracts but also eliminate the myriad regulatory nightmares that increase the hassle effects of productive investment and enterprise. Details of the policy areas would depend on each country’s initial conditions, time horizon, and capacity.

It is easier to agree on the long-term goal of rapid structural transformation, diversification into manufactures, and achieving and sustaining industrial competitiveness. For individual countries, such a goal might be translated into quantitative targets, for example, the alteration of the composition of exports so that manufactures account for, say, 60 percent by the year 2020. The harder job is the design of effective strategy to attain the goal. Effective design of a blueprint must take full cognition of the differentiation in Africa. As indicated above, African countries differ significantly with respect to several key initial conditions that would make a one-shoe-fits-all strategy inappropriate. For example, the first question policymakers face is whether to deepen efforts at fullest exploitation of the static comparative advantages in the primary sector or to become more ambitious in terms of diversification.11 For some analysts, sub-Saharan Africa should pursue a systematic process of industrial and technological upgrading—initially emphasizing industries that maximize the exploitation of the region’s comparative advantages in agriculture and agro-allied industries and over time upgrade to medium-scale and perhaps ultimately (long-run) venture into high-technology, capital-intensive manufactures. This is a matter for individual countries to decide upon, depending on their initial conditions. Some countries (Botswana, Cote d’Ivoire, Ghana, Kenya, Mauritius, Nigeria, South Africa, Zimbabwe, and others) can afford to be more adventurous in their bid to develop into best practices, networking, and targeting globally competitive small and medium-sized enterprises. For some others, the key challenge might lie in creating the enabling environment for even the most basic micro and small enterprises to take root. Once the long-term national vision (and perhaps also the sequencing and phasing of the process) is articulated, the next task is that of devising detailed strategies to accomplish it.

Elements of the Strategy

The elements of any country’s strategy must be rooted in its initial conditions and circumscribed by the globalizing process. Very broadly, UNIDO (1996) has summarized some of the useful lessons for developing countries (see Box 2).

Box 2 is a useful template, which could be elaborated on or modified to suit individual countries. For the specific case of low-income (pre-industrial) sub-Saharan African countries, we elaborate on several major elements: reorientation to a private-sector-led industrialization strategy and role of the state; appropriate trade policy for industrialization and the role of the international donor community.

Private Sector Investment

A major development experience is that, though the state can do much to create and foster systemic competitiveness, it is ultimately firms that compete in the global arena. Four key ingredients for successful industrialization include competent firms with a strategic vision, a demanding domestic market, highly capable supporting industries, and a well-developed environment of specific supporting institutions (Altenburg, and others, 1997, p. 9). Emphasis is laid on “capable” firms, which arise in an environment that promotes private investment and profitable enterprise.

Rodrik (1995) has shown that the Asian miracle was predicated essentially on governments’ ability to “engineer a significant increase in the private return to capital. They did so not only by removing a number of impediments to investment and establishing a sound investment climate, but more importantly by alleviating a coordination failure which had blocked economic take-off.” Rodrik observes, however, that “for economies at the other end of the spectrum—lacking both skilled labor and capital—the coordination issue is moot because the modern sector is not viable in the first instance.” Most sub-Saharan African countries fall under this second category, and therefore have not reached the threshold required to trigger a profitable investment boom. Evident from discussions of reasons for industrial stagnation is the fact that critical preconditions for industrial takeoff (physical, skill, and institutional mechanisms) are lacking.

Box 2.Elements of the Emerging Consensus on Strategy for Industrialization in the Least-Developed Countries

There is an emerging consensus on the strategy for industrialization that the least-developed countries need to follow. The elements of the growing consensus include the following:

  • Because there is no single East Asian model to emulate and no firm consensus on precisely what form of intervention will optimize growth in developing countries, and especially least-developed countries, industrial policy is best viewed as a menu of options. The range of choice open to governments is narrowing as globalization takes hold because although globalization does not eliminate the need for industrial policy, it limits the options.

  • The shift in strategy on the part of the East Asian newly industrialized economies themselves, partly in response to the forces of globalization but also reflecting the evolution of industrial policy, suggests that developing countries have more to learn from the recent experience of Southeast Asian economies (Indonesia, Malaysia, and Thailand) than the four original newly industrialized economies.

  • One of the most important lessons of East Asian experience is that intervention worked where it was carried out in close coordination with the private sector. Industrial policy responded to the problems and needs of private enterprise rather than seeking to impose elaborate schemes according to the dictates of grandiose national plans.

  • Ultimately, competitiveness succeeds or fails at the enterprise rather than the national level. Governments must create an enabling environment for business and investment, but the choices of what to make and sell, and how and where to do it, must be left to entrepreneurs.

  • There is broad agreement on the need for some selective, targeted interventions and on the importance of outward-oriented strategies, whereby a country’s manufacturing sector is driven by the discipline of market competition.

  • Where selective interventions are used, these must be closely coordinated and integrated. Uncoordinated intervention in factor markets without appropriate measures in product markets will be ineffective or even counterproductive.

  • Because resources are limited, only a few activities should be supported at any one time. Targeting is crucial.

  • Incremental measures and modest technological advances are preferable. Learning is cumulative, and intervention must support activities that have a base in existing skills.

  • The more prosperous the developing country, the greater the range of choice. Least-developed countries in tiny markets, with weak infrastructures and a poor skills and technology base, have little option but to focus on simple, consumer-based industries, initially at least. Given their small markets, their prospects for attracting major FDI inflows (other than into natural resource industries) are poor. For such states the option of shutting out technology and FDI has no advantage, and they may need to concentrate on fostering labor-intensive operations and on developing an export-platform strategy, as in Mauritius.

  • Technological upgrading and human capital investment are crucial to competitiveness beyond the year 2000. There is a clear role for the state—and for UNIDO and other international agencies—in both fields.

  • Domestic rivalry is a prerequisite for competitiveness.

  • Clusters and industrial districts have an important role in the development of globally competitive small and medium-sized enterprises.

  • Incentives are more likely to succeed than sanctions. Efforts to constrain FDI or limit technology imports run the risk of deterring investment altogether.

  • SAPs should include a specific strategy for manufacturing. The expectation that manufacturing will blossom in the absence of a coherent strategy has not been borne out by African experience.

  • Global competitiveness is two-tier in nature, requiring a blend of national (comparative) advantage and enterprise-driven, strategic advantage. Industry-level competitiveness in global markets invariably depends on a combination of the two. Even in globalized industries—and not all industries are global—the home base, and with it national economic policy, is of major importance. Industrial development cannot be imposed from abroad; indigenous industry capability and productive systems are crucial for long-term industrialization. The home base shapes a company’s capacity to innovate rapidly in technology and methods and to do so in proper directions. It is the place from which competitive advantage ultimately emanates and from which it must be sustained.

Source: UNIDO (1996).

Therefore, the first order of business for a majority of countries is to take immediate action to lay the foundations for private investment to thrive and flourish by investing in education and training, especially with respect to science, engineering, and management; provision of basic infrastructure (including the privatization or commercialization of telecommunications and utilities companies); the creation or strengthening of the financial system to finance investment in industry; and promotion of technological learning, acquisition, and adaptation/innovation. “The need for ‘critical mass’ is paramount—progress must be made on several fronts simultaneously. Policymakers must tackle trade, fiscal policy, law and order, transparency and accountability, infrastructure, human resource development, privatization, agricultural development and industry strategy. Progress on one or two fronts alone is insufficient” (UNIDO, 1996, p. 130).

A strategy to tackle the supply-side constraints might be to resuscitate or create the industrial banks, the import-export banks, and insurance companies. These could be charged with responsibility of financing investment in industrial restructuring, technological upgrading, investments in risky or high-cost projects, extension of credit to industrialists at concessional interest rates (with an incentive system that demands accountability and performance), export subsidies, and/or export promotion measures. The major principle here is that urgent actions are needed to restructure the factor and product markets, and the credit and capital markets are central to any such transformation. More broadly, the financial sector needs to be strengthened to effectively maintain the fine balance between necessary risk-taking and prudent management of shareholders’ and depositors’ assets. Trade and industrial courts could also be established for dispute arbitration and adjudication over contracts and other industrial matters.

The role of the state should be circumscribed by the requirements to build and strengthen the private sector. To address the issue of the state capability requires honest and serious actions to redress the myriad institutional weaknesses. The World Bank (1997) identifies three conditions that must be present before active state intervention can enhance market operations: “First, and perhaps most important, companies and officials need to be working on a basis of mutual trust… Second, initiatives to promote industrial development must be kept honest through competitive market pressures … Third, a country’s strategy for industrial development has to be guided by its evolving comparative advantage.” While the third might be controversial, the first two are not. The first requires ingenuity in creating government private sector partnerships that involve credible government commitment to involve the private sector in industrial policy design and implementation. Indeed, according to Altenburg and others (1997, pp. 21–22), the two most important “preconditions for a dynamic industrial development process are: first, the key actors in a society (political-administrative system, private sector, trade unions, other parts of civil society) need to share a clear development commitment. Second, there must be a clear consensus about the desirability of an industrial development process (rather than, for instance, a predominant view that the nation’s vocation is rather exploitation of natural resources).”

These conditions presuppose the existence of a capable state and a strong private sector. However, aside from a few countries that can be characterized as having both a strong state and a strong private sector, others mostly have one or the other of the three typologies of strong state and weak private sector, weak state and strong private sector, or weak state and weak private sector. Therefore, what makes strategic industrial policies more circumscribed in most of Africa is the unique paradox that, whereas in other regions, the bourgeoisie created the state or collaborated with it, in most of Africa the same poor, and weak states are expected to create and nurture the capitalist class. Evans (1992) has described the kind of institution that propelled the Asian interventionist policies as “embedded autonomy,” in which the Weberian bureaucracy interacted actively with private sector (capitalists) to realize the national objectives. Such kinds of interactions requires not only a relatively developed capitalist class but also that they are dominated by “indigenous” capitalists with whom the state can work in pursuit of “national interests.” Creating and empowering such a class in much of Africa with diminishing resources, and even more in the context of the WTO and globalization, pose monumental challenges. Furthermore, in some African countries, governments see the emerging capitalist class as potential competitors for power and influence and thus do everything to obstruct them. With the sense of rivalry and mistrust rather than partnership, the private agents have often reacted by keeping the bulk of their wealth abroad or in liquid assets. Such an environment is hardly conducive for effective design and implementation of industrial policy. Creating trust and partnership takes time and effort, and governments must lead the way.

State capacity is not destiny, and ultimately there is no detour around the issue of having a capable and visionary state. While conscious efforts have to be taken to strengthen state capacity to engineer long-term competitiveness, in the short to medium terms, a weak state should recognize its shortcomings and emphasize effectiveness in the delivery of a modest menu of services. Furthermore, some states with some modest capacity should seek to strengthen or create relevant agencies to design and coordinate the implementation of industrial policies. Many countries have ministries of trade and industry, with several other activities that impinge on policy implementation dispersed among a multiplicity of other agencies. A task force on industrial competitiveness could, for example, be created and located within the presidency to coordinate the activities of the numerous agencies and report directly to the president on regular basis. A key goal of the coordination is to ensure transparency, ease of doing business, and effective implementation. Continuing dialogue and exchange between the organized private sector and the agency should be the hallmark of the efforts.

Finally, building market shares and achieving dynamic comparative advantage requires climbing up the technological ladder and shifting from inherited or endowed comparative advantage to dynamic or created advantage. Technological learning and upgrading are critical here. Path dependency in technological learning implies that an enterprise’s ability to learn depends on its past learning. Accumulated capabilities therefore significantly influence not just the cost of today’s learning but also whether new learning is possible at all. Here, state actions and policies in helping firms break out of the vicious circle of poor initial conditions and thus perpetuation of low-technology equilibrium are critical.

Appropriate Trade Policy Stance

The choice of an appropriate trade policy regime that is consistent with the stage of, and requirements for, industrialization in Africa is a contentious one. Broad consensus exists however about the need for outward-orientation (as opposed to earlier model of ISI). Consequently, there is increasingly a convergence of views about the imperatives of a competitive exchange rate regime, export promotion measures, tariffication of nontariff barriers, and simplification of the tariff structure. Controversy persists about the magnitude, speed, and sequencing of import liberalization. The debate is mostly about whether the nascent industries need any protection, and the consistency of high import tariffs with the requirements for export promotion.

On the need for trade protection, it should be stressed that the infant-industry arguments continue to be valid, and even the special provisions of the Uruguay Round for the least-developed countries recognize these. As some World Bank economists (see Biggs and Srivastava, 1996, p. 25) suggest, “regarding trade policy, there is no a priori reason why Africa should not benefit from some form of infant industry protection to promote learning in domestic firms, as has been evident in the cases of most successful developers in this century.” Ndulu and van de Walle (1996, p. 21) corroborate this by noting that “given various disadvantages and constraints facing private investors, states probably need to implement targeted policies to favor key sectors, subsidize the acquisition of needed technologies and skills in the working-age population, or to protect infant industries judiciously and encourage small and medium enterprises.” In other words, “there are … some problems which might be lessened by proactive, industry-level policies” (Biggs and Srivastava, 1996). For late starters, there is hardly any way to start and become competitive without some form of initial protection.

The emerging consensus on trade reform favors a more graduated approach to liberalization, which usually starts with a tariffication of all trade restrictions, and then followed by the lowering and simplification of tariffs. On the speed of rationalization and lowering of tariffs, it is reasonable to suggest that such speed would depend on each country’s initial conditions and the response of its export sector. Industrial and technological restructuring and upgrading are slow and risky, and require some learning and adjustment costs. Thus, the speed of liberalization should be consistent with the learning and adjustment costs that are required. Williamson (1995, pp. 3–4) corroborates this, and in fact, argues that export-orientation and import substitution can or should cohere:

It would be wrong to see export expansion and import substitution as mutually exclusive, but exports drive the process; that is the essence of what is meant by export-led growth … Note that I do not include general import liberalization (as opposed to giving access at world prices to the imported inputs needed for export production) as a prerequisite for export promotion. … I favor instead a policy of liberalizing imports gradually as the balance of payments situation provides scope for doing so, but preannouncing one’s intentions so as to discourage new investment in import substitution industries that depend upon protection to be profitable.

Thus, there is a sequencing process that runs from export promotion to import liberalization (a reversal of the sequence that the anti-export bias literature proposes). In foreign-exchange-constrained economies, exports provide the critical means with which to purchase increased imports made available through trade liberalization. Therefore, a good export performance (to earn foreign exchange) is critical to sustaining import liberalization. In the light of this, some scholars argue that in countries with clearly defined development strategies and adequate capacity to implement them, appropriate export promotion measures can be used to ensure outward-orientation before a full-scale import liberalization. In other words, the experience of de-industrialization and the payments-incompatibility that have accompanied all the non-aid-driven reforms caution on the need for adequate preparations (in terms of supply-side measures and institutional arrangements to elicit desired export-supply response) to be made before embarking on full liberalization.

Export promotion should also entail selective import liberalization, emphasizing first a tariff structure that allows manufacturers of export goods to have access to inputs at world prices. Second, tariffs on light consumer goods—which form the foundation of initial industrial infrastructure—should be higher (but with a target of its gradual, phased liberalization over time). In other words, the key lesson of economic history that no industrial country attained international competitiveness without some form of protection is still valid. The experiences of Argentina, Brazil, South Africa, Zimbabwe, the East Asian economies, and to some extent Mauritius, bear out this principle. In many of the more successful exporters following liberalization, economic history teaches us that most of the firms and industries that were able to compete and export in the international market matured during the previous ISI phase.

More fundamentally, countries should be wary about appropriate administration, monitoring, and enforcement of the strategic policies. First, governments must design institutional mechanisms to prevent the implementation process from being subject to capture by special interests and ridden with corruption. Second, the principle of ISI should be taken with care, especially for very small economies where the constraints of minimum efficient plant size prevents the exploitation of economies of scale and division of labor. Third, care must be taken to ensure that protection does not lead to infant industries that never attain adulthood. It is therefore necessary to get the incentive structure right, and aggressively promote competition. Complementary policies are needed to build up and strengthen factor, product, and capital markets, and to develop active technology policy. These considerations make the aggressive pursuit of export orientation a desideratum for sustainable industrial takeoff. It is this combination of aggressive export promotion with selective and gradual import liberalization that was the winning strategy of the East Asian tigers. The ISI failed in Africa and most of Latin America because of the lack of compensating pressures to encourage efficiency and international competitiveness.

Regional Integration

Modern industry is large scale and needs a certain minimum scale of operations for maximum efficiency. Clearly, the national markets of most African countries are too narrow to provide adequate incentives for large-scale industries. In this circumstance, industrial productivity is likely to be low in each individual country and, given the implied higher costs of production, such industries are likely to seek and obtain a high level of protection to stay in business. The danger here is to have protected inefficiency within small, self-contained markets. Restrictive economic nationalism is therefore unlikely to provide a lasting, long-term solution to the “small country” problem, and confer benefits of large-scale production and dynamic efficiency.

This limitation of the national markets, and recognition of the constraints of the international trading regime, have encouraged increasing regionalism among developing countries. In Africa, despite the results of empirical research that question the usefulness of regional integration, it is still high on the agenda of African states. A regionally protected market is believed to circumvent the constraints of narrow national markets, and would also make it possible (1) for countries to use existing agricultural and industrial capacities more fully in supplying one another’s needs; (2) for new investment to take place in industries that would not be viable if confined to individual national markets; and (3) for both old and new industries to reduce costs through economies of scale and specialization (Dell, 1991, pp. 98–99). Regionalism in this case could serve as an important learning ground where regional firms compete freely and mature, and ultimately become competitive globally. Even within the region, there are still conflicts between nationalistic considerations (to protect home industries and extract government revenues) and the goal of allowing regional firms a free reign of competition to mature. How far individual countries are willing to realize the professed goals of regional integration remains to be seen. But it is difficult to see how significant industrial activities can take place in many countries or even attract FDI without the promise of the regional markets. For countries that resist regionalism on account of the implied short-run costs, the issue is not whether or not it is costly. It is rather a case of integrating now and incurring some costs or integrating later and incurring even more costs. Beside the issue of economies of scale in production, regional integration provides a framework to strengthen the bargaining power of African countries vis-à-vis other regional blocs in North America, Europe, and Asia.

The International Community

Africa, with its dominantly pre-industrial stage of development, faces monumental challenges in its bid to join the rest of the industrialized world. Our analysis so far places the bulk of the adjustments and reforms at the doorsteps of the individual African countries themselves. However, several constraints emanate from the distorted nature of the global playing field. As part of the leveling of the playing field, the international community, especially under the auspices of UNCTAD, UNIDO, and WTO, should mobilize international support for eliminating the obstacles that impede Africa’s integration into the global system. Two key elements should characterize the compact with the international community: trade and the mobilization of donor resources toward infrastructural development.

With regard to trade, Sachs (1996, p. 21) proposes a simple but effective solution: “The biggest source of support from donor nations would also be the cheapest. America, Europe and Japan should launch a ‘New Compact for Africa,’ guaranteeing open markets for African exports and committing themselves to help reintegrate Africa into the world economy. The commitment would help prove to both sides that the long period of economic marginalization is over, and would energize both African nations and the West to overcome the practical obstacles to a new dawn of rapid growth throughout Africa.” Furthermore, Yeats and others (1997) articulate a number of other proposals for actions by the OECD to level the playing field (see Box 3).

Box 3.Required OECD Actions to Level Global Trading Field for Africa

For the countries of Africa to have a level playing field in global trading, the OECD needs to take the following actions:

  • Regional arrangements, like the EU or NAFTA, provide industrial countries trade preferences to each other’s markets and discriminate against African and other developing countries. Policy initiatives are needed to, at least, place the latter on an equal basis with OECD members in these arrangements. Some labor intensive products like textiles, clothing, and footwear played a key role in the early stages of the newly industrialized countries’ transformation, and have a similar potential for Africa. Where they are now excluded (as in United States) these goods should be incorporated into existing GSP schemes—particularly so since intra-OECD preferences in regional free trade areas may severely disadvantage these exports.

  • Since African exports are highly concentrated in primary commodities, there is a strong interest in utilizing natural-resource-based industrialization strategies for their industrialization. Where further processing is suitable for developing countries, OECD preferences should be extended to all stages of a processing chain. Also, an accelerated phase-in of OECD Uruguay Round tariff cuts should be adopted on products of export interest to Africa. This could assist Africa in gaining additional experience in potentially important markets (such as those for textiles and clothing), which will come under increased competitive pressure due to the MFA phaseout.

  • Ceilings and quotas should be eliminated from industrial-country preference schemes to be made consistent with unrestricted intra-OECD preferences extended under FTAs. Ceilings considerably reduce the potential worth of the GSP to African countries since, aside from their trade effects, they also introduce further uncertainty regarding the operation of the system (that is, African exporters may not know whether a shipment will qualify for GSP treatment until its arrival in the import market). It is also being alleged that ceilings are sometimes set below minimum efficient plant size. This negates the intended trade and investment increasing incentives of the preferences.

Some OECD policy initiatives are required to alleviate Africa’s transport problems:

  • Technical assistance: International shipping has undergone a major transformation in which procedures for cargo utilization, port operations, and related logistical functions have evolved into highly complex operations, requiring a considerable degree of technical expertise. Since most African countries have limited access to such expertise, technical assistance programs (such as those provided by UNCTAD and the World Bank) should be expanded and also extended to related activities (such as customs clearance procedures) that impinge on the efficiency of international transport operations.

  • Finance and development: Due to insufficient attention and funds, many African countries’ fleets, ports, and connecting inland transport infrastructure have deteriorated, or have become technologically outmoded. OECD countries should sponsor a comprehensive survey and report on Sub-Saharan Africa’s transport problems along with policy proposals for their alleviation. Given the small size of many African countries, and its influence on cargo volumes and the utilization of efficient transport technologies, further attention should be given to the development of regional ports and required inland infrastructure.

  • The situation of landlocked African countries needs special attention given the major problems these countries face in crossing their neighbor’s territories. A major effort should attempt to identify the special trade problems of the landlocked African countries and formulate policy suggestions for their reduction.

The actions on infrastructural development do not necessarily require additional funds. They may need a redirection of existing resource flows. For example, foreign technical assistance costs some $4 billion annually. This amount could go a long way to finance the building and retention of critical skills on the continent, as well as provide some basic infrastructure. A redirection of donor funds from balance of payments purposes to project lending would provide the needed boost for the industrial restructuring.


As the world’s last frontier, still awaiting an industrial revolution, Africa faces unique historical challenges. It would be the only region in history that is expected to industrialize and compete but without benefit of much of the preferential and differential treatment that earlier industrializers enjoyed. Clearly, policy options and directions cannot be business as usual. Competition is the only game in town. How countries, as well as groups of countries, brace themselves for this game will largely determine the prospects into the twenty-first century. While the private sector is clearly going to be the flagship of such a new era, much ingenuity in policy design, strategic interactions between state and society, as well as a redefined compact with the international community, would be required. Africa’s industrialization is a desideratum and a collective responsibility, but one for which Africans themselves must take the driver’s seat and be prepared to think and do things differently and effectively.


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Africa is the only region whose share of global trade has shrunk from nearly 4 percent in 1950 to about 1 percent in the 1990s; the only region whose production structures have intensified concentration in low technology activities, and the only region whose exports are further concentrated in primary commodities rather than diversification as promised under liberalization. The share in global manufacturing value added (MVA) has shrunk from 0.6 percent in 1970 to 0.3 percent in 1995; growth of MVA deteriorated from 2 percent in the 1970–80 period to 0.1 percent in 1991–95; total export growth per capita deteriorated to –1.6 percent in the 1991–95 period; and manufacturing employment declined from an average growth rate of about 5.3 percent in 1970–80 to –1.1 in 1985–90. More fundamentally, the liberalization schemes have been shown to be incompatible with the goals of balance of payments and fiscal viability. Indeed, aside from two or so countries whose trade liberalization has been buoyed up by massive aid inflows, most of the other liberalizations have suffered from some reversals (see Soludo, 1997b).

For Africa, the issue is no longer whether or not to liberalize trade, or whether trade and outward orientation matter for growth. Such debates are now sterile because most countries have signed to binding and enforceable liberalization of trade under the WTO. In the light of the evolving global environment, there is little choice except outward orientation.

This is more so since most of the advantages of outward orientation accrue to trade in manufactures and services.

See Mkandawire (1988) for a detailed review of the evolution and analysis of determinants of industrialization in sub-Saharan Africa since 1914.

This point is very critical, especially in the light of the several casual references to the fact that Africa has implemented the Asian types of interventions and failed. The motivations, circumstances, and in fact the design of such interventions were dramatically different. In reality, only Mauritius could be said to have implemented the kind of “strategic and selective” interventions of the Asian model, and it has succeeded.

(1) Of 35 African countries for which data are available in the World Development Indicators 1997, only five countries have a manufacturing share in excess of 20 percent of GDP (Burkina Faso, with an industry share of 27 percent and a manufacturing share of 21 percent; Mauritius, with an industry share of 33 percent and a manufacturing share of 23 percent; South Africa, with 31 percent for industry and 24 percent for manufacturing; Zambia, with 40 percent for industry and 30 percent for manufacturing; and Zimbabwe, with 36 percent for industry and 30 percent for manufacturing). (2) Out of the remaining 30 African countries, another five could be considered as marginal cases with a manufacturing share between 18–20 percent of GDP. Three of these five have a share of 18 percent of GDP for manufacturing (Cote d’Ivoire, Lesotho, and Malawi), while two have a manufacturing share of 19 percent (Morocco and Tunisia). The share of the industrial sector in these countries varies from a high of 56 percent for Lesotho to a low of 20 percent for Cote d’Ivoire. (3) For the remaining 25 countries in the sample, the share of manufacturing varies between a low of only 3 percent of GDP (Angola, Ethiopia, and Rwanda) to a high of 16 percent in Chad (with Egypt’s manufacturing share being 15 percent of GDP).

According to the neoliberal framework that underpins SAP, the chief culprit is the poor macroeconomic environment that is hostile to competition and profitable enterprise (macroeconomic instability and inflation; exchange rate overvaluation and volatility; protective trade regimes; and so forth. While this school of thought believes other factors could be important, it lays overarching emphasis on “getting prices right.” Once the markets are liberalized under a sound macroeconomic environment, competition would be unleashed and enterprise and industrialization should boom. Conversely, the adherents of “industrial policy” point to the plethora of structural, capacity, and institutional constraints that prevent profitable and competitive industrialization.

This categorization was done in 1996. With the recent election in Liberia, peace is expected to return to the country. However, some other countries have quickly taken its place: Sierra Leone and the Republic of Congo.

Controversies abound, not only about the meaning, measurement, and key characteristics of competitiveness, but also about the extent of application of the term. Some leading economists argue that nations do not compete, because they do not go out of business … they have no well-defined bottom line.

See Altenburg, and others (1997), and Kurozumi (1995) for detailed discussions of the elements and ramifications of systemic competitiveness. Much of the discussion here benefits from these.

Currently, sub-Saharan Africa’s competitive advantage is restricted to resource-based activities, oil, energy, mining, agriculture, and processing industries, with tight primary sector linkages such as food processing and minerals, low-wage labor, and tourism. Should countries risk the deepening of their vulnerability by specializing in natural-resource processing, or should they venture into high-technology, skill-intensive manufacturing? Global competitiveness in manufactures is about skills, and this is where Africa (with the exception of South Africa) is grossly deficient.

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