By Dirk Willem te Velde, Director of Supporting Economic Transformation Programme and Head of International Economic Development Group, ODI
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A cursory look at national and pan-Africa policy statements suggests that many African countries have a strong desire to industrialise. They have a point: manufacturing creates jobs, diffuses technology and makes the economy more resilient. Unfortunately, much analysis points to a reduction recently in the share of manufacturing as a percent of GDP on the continent, although significant progress is being made in selected countries. Real manufacturing value added has grown around 7% annually or more over 2005-2015 in Tanzania, Rwanda or Ethiopia. And few realise that real manufacturing production and exports of manufacturing doubled in sub-Saharan Africa in the decade to 2015.1
However, despite selected successes, many African countries will miss significant opportunities presented by their comparative and natural advantages, rising wages in Asia, and growing regional markets if they do not place a greater practical focus on implementing a co-ordinated strategy around manufacturing. Research2 on economic transformation over several years in various African (and Asian) countries uncovers key characteristics of a good industrial policy regime, factors behind effective implementation and country examples, recognising that whilst there are broad commonalities, the specifics will always be particular to the context.
So, what is a quality industrial policy regime?
Important substantive factors behind industrialisation and job creation include the political commitment to promote investment in employment-intensive manufacturing and the quality of the industrial policy regime. A good quality industrial policy regime includes:3
- an inclusive industrial policy making process;
- an enabling environment around trade rules and trade facilitation;
- attention to industrial clustering and the provision and regulation of special economic zones (SEZs);
- the availability and effectiveness of current investment promotion, facilitation and aftercare services;
- the promotion of activities to support local capacity building, infrastructure planning and development processes;
- a high quality public-private dialogue; and
- the availability of support to build firm capabilities, especially around the provision of finance.
It is not just the content that matters for transformation, but also the way in which strategies are developed and implemented4. Four institutional factors5 for the effective implementation of economic transformation strategies include:
- Building consensus around the direction of an economic transformation strategy;
- Giving one public agency the power to override co-ordination challenges within government;
- Building trust between government and the private sector; and
- Monitoring implementation of the impact of economic transformation plans as well as evaluating and adjusting economic transformation plans where necessary.
The large variety in country actions on these strategies helps explain in part the variety in industrialisation outcomes. A range of positive and negative examples illustrates the importance of institutional factors behind industrialisation. In other words, it is not just “the-what” but also “the-how” that requires attention.
For example, some countries have succeeded in building a shared vision on economic transformation that is embedded deeply in the mindset of politicians despite the presence of short-term electoral cycles. Whilst this is hard to do, the experience in Mauritius, which moved decisively from sugar to manufacturing to services, suggests it is not impossible to do.
Success does not require an ethnically homogeneous country and can potentially have short term pay-offs by using, for instance, SEZs to focus on niches as Ethiopia is currently piloting. In addition to competitive wages in Ethiopia and a good investment climate in Rwanda, strong leadership has been effective in building industrial zones and attracting investors to Ethiopia and Rwanda in recent years. These countries are seen as willing partners in attracting manufacturing investment and solving the problems of investors in a co-ordinated way.
Building a consensus starts by convening the right type of actors at the right time in the design of plans. Consider, for example that building an effective SEZ needs land, energy, streamlined rules, and trade and investment promotion. The political empowerment of leading agencies is necessary. It helps co-ordinate industrialisation policies across government by overriding barriers to effective co-ordination across ministries, departments and agencies in developing countries. And political empowerment is key to addressing the kind of co-ordination problems typically created by the use of ministerial appointments to reward the political loyalty of presidential allies. Performance contracts in the civil service can help co-ordination. They are used in Rwanda and they also were regarded as useful in implementing transport-oriented projects in Kenya in the 2000s.6 But they seem to fall short in kickstarting manufacturing.
Some countries continue to make good progress but also face missed opportunities. Mozambique, for instance, has not used the potential of mega projects in steel and aluminium to maximise local industrial production partly because it did not have the negotiation capacity. Nigeria has had ample opportunities to industrialise, but it has more to do to co-ordinate actors to become competitive and outward oriented. Tanzania recently developed laudable industrial strategies, but the government acknowledges7 that progress in the implementation of development strategies over the last five years has been less effective. A number of factors contribute to this: inadequate sequencing, prioritisation and co-ordination of interventions, incomplete reform processes, poor preparation of projects and attainment of consensus with key stakeholders, and a lack of focus, flexibility and adaptability.
Efforts are underway to address these implementation challenges.8 In Tanzania and elsewhere in Africa, what President Kagame highlighted at the 2016 African Transformation Forum applies: “We have to stay adaptable and flexible. Plans and frameworks should not become a barrier to action or to course corrections. Mistakes will be made along the way and money wasted. But that should not be the end of the road.”9.
1.↩ Balchin, N., Gelb, S., Kennan, J., Martin, H., te Velde, D.W. and Williams, C. (2016) Developing Export-Based Manufacturing in Sub-Saharan Africa Report, Supporting Economic Transformation Programme, London: ODI. http://set.odi.org/developing-export-based-manufacturing-in-sub-saharan-africa/
3.↩ Ansu, Y., McMillan, M., Page, J. and te Velde, D.W. (2016a) Promoting Manufacturing in Africa. Supporting Economic Transformation Programme, London: ODI and ACET, Accra. http://set.odi.org/promoting-manufacturing-in-africa/
4.↩ McMillan, M., Page, J., Booth, D., and te Velde, D.W., (2017). Supporting Economic Transformation: An Approach Paper. http://set.odi.org/set-approach-paper/
5.↩ Ansu, Y., Booth, D., Kelsall, T. and te Velde, D.W. (2016b) ‘Public and private sector collaboration for economic transformation’. Paper presented at African Transformation Forum 2016, Kigali, 14–15 March. http://set.odi.org/public-and-private-sector-collaboration-for-economic-transformation/
6.↩ http://set.odi.org/gerrishon-k-ikiara-kenyas-institutional-structure-behind-industrialisation/
7.↩ Government of Tanzania (2016), A Concept Note for the Preparation of FYDP II Implementation Strategy, Draft.
8.↩http://set.odi.org/27-october-2016-effective-implementation-tanzanias-second-five-year-development-plan-fydpii/
9.↩Hoque, S. (2016), ‘National strategies for African transformation: how to make it happen’, SET blog on http://set.odi.org/category/comment/ http://set.odi.org/sonia-hoque-transformation-strategies-africa/