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Prospects for Africa’s industrial revolution

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Let me express how delightful I am to be among you in this beautiful city. Rabat is unique in its character and ambience as a combination of Africa, Europe and Arabia. I am encouraged by what has been achieved in Morocco in terms of social and economic development under a forward-looking and enlightened leadership.

For centuries our relationship with Europe has been defined in terms of the exports of raw materials and imports of finished industrial products. Over the decade, there has been a secular tendency for raw materials to fall in price while industrial goods continue to do the opposite in terms of value. The “unequal exchange” thesis was propounded several years ago by radical political economists such as Aghiri Emmanuel, Paul Baran, Andre Gunder Frank and the late Samir Amin of blessed memory. Those developing countries that anchored their development on the basis of extractive raw materials experience not only the volatility of international commodities but also long-term secular fall in the value of such products. They also miss out in terms structural transformation and economic diversification. The net outcome is falling income, worsening poverty, slower growth and generally diminished economic expectations.

We need an Industrial Revolution for several reasons. First, modern industry contributes significantly to accumulation of physical and human capital; secondly, it provides a vehicle for mass job-creation for unskilled and semi-educated workers, most of whom are in the informal sector; thirdly, it increases household income, thereby boosting aggregate demand; fourthly, it enhances backward/forward sectoral linkages while providing opportunities for suppliers, distributors, retailers and business services; sixthly, it boosts demand for agricultural products, mining, and other raw materials, energy and ICT; seventh, it improves the external account balance by decreasing imports at the same time diversifying export earnings; and finally, it enhances resilience to external shocks as contrasted with dependence on monocultural primary commodity exports.

Although African manufacturing grew impressively during the sixties and seventies, by the mid- 1980s, it was falling into terminal decline. This was largely on account of external shocks in terms of oil price increases, commodity price decreases, real interest rate rises and worsening national debts. And if the truth be told, another factor was Structural Adjustment Programmes (SAPs) which were imposed on many of our countries by the Bretton Woods Institutions under pressure from Shylock international creditors. Uncontrolled liberalisation that came with such reforms led to many of our infant industries folding up. In the case of my country Nigeria and other African oil exporters, relatively high oil prices led to the Dutch Disease syndrome. This often meant keeping exchange rates artificially high. Cheap imports kept the urban elites happy while the relatively high price for exports meant that local farmers and manufacturers were discouraged.

Africa started off with poor initial conditions in terms of lack of basic infrastructure, low level of human capital, lack of financial depth and structural barriers to entry. Not many of our countries, with possible exception of Tunisia and Mauritius, invested in the type of human capital that mattered or in the institutional reforms that could have accelerated industrial exports.

Little or no attention was paid to special economic zones (SEZs) while real commitment to FDI was weak. In addition, economic reforms in those countries that implemented them were not accompanied by efforts to improve logistics trade and industrial competitiveness. Until recently, much of our geopolitical landscape was also marred by war, violence and bitter strife – hardly the sort of eco-system in which manufacturing industry could flourish. Linked to this was the reality of macroeconomic instability, poor policy choices and lack of vision and leadership.

Today, Africa lags way behind the rest of the world in terms of industrial development, particularly East Asia and the advanced industrial democracies. In 2017, Africa’s manufacturing value added (MVA) was a mere $145 billion dollars, with 70% of it concentrated in 4 countries, namely, South Africa, Nigeria, Egypt, Morocco. And much of our continent’s industrial production remains centred on resource-based manufacturing.

Despite the bleak picture, there are signs of hope. Manufacturing in Africa has grown 3.5% annually from 2005 to 2014, faster than the rest of the world. As a matter of fact, Nigeria and Angola had annual increase in output of over 10 percent. Total manufacturing production in Africa has increased from $75 billion in 2005 to over $140 billion in 2017. The prospects look even stronger in the years to come.

The key drivers of African industrialisation in recent years include human capital, demographics, cost effectiveness and improving supply networks. Education, training and skills have improved in Africa, although considerable skills gaps still exist. Linked to this is the fact that Africa has a youthful population as contrasted to the average for OECD countries. Africa’s current population of 1.2 billion people is set to grow in exponential terms in the coming decades while that of Europe is steeped in secular decline. There is also the fact that Africa has a competitive advantage in terms of relative labour costs. Supply networks are also improving due to improvements in transport and infrastructures development and as a result of deepening globalisation and integration of world markets.

Africa’s industrial revolution must be predicated on the imperatives of structural transformation. While agriculture is more effective in reducing poverty compared to other sectors, it is widely acknowledged that manufacturing is unique in its potential to transform productivity and induce rapid economic growth. Several countries have leapfrogged across the manufacturing barrier from informal agriculture directly into low-productivity urban-based retail services. But that transition, in my view, has been ‘growth reducing’ rather than growth enhancing. Structural change through industry/MVA enhances social transformation better than the extractive economy model allows. It ensures diversification and reduces monocultural dependence while boosting labour productivity and ensuring more inclusive development

Leveraging on fourth generation new technologies, I believe we in Africa have opportunity to accelerate economic transformation into higher rates of productivity and growth. The ambitious African Union (AU) Agenda 2063 puts a big emphasis on industrialisation. The African Continental Free Trade Area (ACFTA) which was launched in Kigali in March 2018 is projected to double manufacturing from $500 billion to $1 trillion in 2025 while creating additional 14 million jobs. When fully implemented, it will be one of the largest free-trade areas, with 1.2 billion people and over $4 trillion market.

Europe and Africa are partners of destiny. Although Africa-EU cooperation has been weak in the area of industrial development, we believe there are potentials for win-win solutions going forward. I believe the EU could do more to support private-sector initiatives in Africa. We need to promote investments both ways. Europe needs to eschew old attitudes. The media image of Africa as a hopeless basket-case is born of age-old prejudices which do not reflect the true image of our new Africa. Europe also needs to do away with its “fortress” mentality and open up to our continent. We should also count on their assistance in such areas as support for governmental capacity; educational and scientific cooperation; support research and innovation; private sector financing; and knowledge sharing.

We in Africa must take full responsibility for our own future. We must also design more effective industrial strategies while deepening economic reforms and enhancing national competitiveness. Leaders in key growth-locomotive countries such as Nigeria, South Africa, Egypt, Ethiopia and Morocco must also work more closely together in coordinating strategies and driving the agenda of continental integration. It is evident that national industrialisation efforts will require well administered, supportive public policies and effective administrative systems. More investment in human capital is required especially in STEM disciplines, business and skills training, and in vocational/technical education.

The future is bright. Africa has all it needs to become a global industrial power-house. Our continent possesses 50% of the world’s strategic minerals. We have some of the world’s largest reservoirs of fresh water and uncultivated fertile lands. Ours is the world’s second largest continental landmass. We have a youthful population. And we are the cradle of civilisation itself. Welcome to the African millennium!

 

 

  • Being the Text of a Lecture on the Future of EU-Africa Cooperation Held at the Policy Institute for the New South, Rabat, Morocco, Monday 11 March, 2019

 

Obadiah Mailafia 

 

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