Can Africa’s third decade of industrial development deliver?

Vienna – Industrial development in Africa has been slow for decades. As the aftermath of the COVID-19 pandemic begins, it seems that hopes for better progress, at least in the short term, are fading. But if countries seize the right opportunities, the next decade could bring the industrial change needed to meet the challenges ahead.

Industrialization and development go hand in hand. There is hardly a country in the world that has developed without building a strong manufacturing base. But for Africa – sometimes called the continent of the future – the fruits of industrialization often seem out of reach.

The development of the continent came to a standstill in the 1980s when war, disease, famine and weak government overtook the political and social landscape. A debt crisis, poorly designed structural adjustment policies and a collapse in commodity prices left Africa poorer at the end of the decade than at the beginning.

Many of the same problems persisted for much of the 1990s. By the beginning of this millennium, the Economist magazine called Africa the “hopeless continent”. During two lost decades, joint efforts to bring about industrial development have accomplished little.

The first decade of Industrial Development for Africa (IDDA), launched in 1980 by local organizations and supported by UNIDO, failed and suffered from insufficient national procurement and funding. The second decade came at a time of declining commodity prices, and although there was more involvement in the private sector and grassroots level, progress was negligible. (Lessons Learned, Making It Magazine)

Industrialization was moved to the sidelines. Although the impetus of policymakers and governments grew during the 2000s, coordinated action was only launched in 2016 under the Third Industrial Development Decade for Africa (IDDA III).

Is there now, halfway through IDDA III, hope for success where previous initiatives have failed? The local and international context has changed radically over the past two decades. The objectives of IDDA III are not only supported by UNIDO and the African Union (AU), but also by other UN agencies, by African governments at the highest level, by the private sector, development organizations and financial institutions.

These objectives are linked to the AU’s 2063 agenda to promote development in Africa and are embedded in the Sustainable Development Goals (SDGs), in particular SDG 9 on industrialization, infrastructure and innovation.

There is also a turnaround in support for industrial development policy, which is now recognized as playing an important role in achieving economic development and social goals in terms of health, education and well-being, as well as a fresh approach to its implementation. through the creation of new business models and an innovation drive.

This scale of commitment brings previously lacking dynamism and funding, leading to an increase in the number of technical assistance projects and programs by UNIDO and other partners.

Out of two country partnership programs in Africa in 2015, UNIDO now has eight, each with greater levels of involvement and funding than before. In Ethiopia, for example, four new agro-industrial parks were completed in 2020, and more than $ 600 million was earmarked by a variety of partners to increase state resources.

Despite ongoing challenges and a decline in GDP growth since 2017, many countries have made significant progress in boosting their industrial and agricultural processing sectors, particularly in food and beverage, leather, textiles, automotive and heavy machinery. The diversity needed to really get production started has not yet taken hold, but there is a lot of success.

Ghana, for example, has made progress in adopting a clear industrialization strategy, focusing on improving the business environment and developing special export zones (SEs). In the three years to 2019, the industrial sector was an important component in the growth of the country and it increased by more than 10 percent per year. (AfDB Ghana Economic Outlook 2019)

Uganda’s industrial sector jumped from 20 percent of GDP to close to 30 percent in 2019 due to strong investment in manufacturing. About 80 percent of foreign direct investment in Ethiopia has been destined for the manufacturing sector through the development of industrial parks (ODI) in recent years.

The result was a rapid increase in growth, jobs and exports of horticultural products, textiles and clothing, with the last tenfold jump since the early 2000s.

There is also a thriving business sector in many countries – which is especially missed in industrial statistics due to the size of small businesses and the large number of businesses still operating in the informal economy.

Although many of these businesses cannot be classified as industrialized, they are part of a large business dynamic that helps to increase revenue and develop local local consumer markets as workers increasingly move from the country to different jobs in the city.

The past five years have also seen a huge increase in investment in African businesses, including e-start-ups, with South Africa, Kenya, Nigeria and Egypt investing the best $ 1 billion in 2019 in the region.

In addition, the $ 2.5 billion African Continental Free Trade Area (AfCFTA) will be operational in early 2021. Although trade between African countries, with 17 per cent of exports, is well below the levels in Europe (67 per cent) and Asia (60 per cent), almost half of the trade in manufactured goods is significantly higher than in other regions.

AfCFTA is developing economies of scale by providing continental access for people and goods in 54 countries. AfCFTA needs to improve resource allocation, increase competition, increase competitiveness and contribute to more sustainable growth in the long run.

If successful, it could provide an environment for local industry to grow at a time when the pandemic has further dampened demand in traditional African export markets, while counteracting the growing global trend towards market regionalization. (recently seen in the signing of the largest trade area in the world in Asia, the Regional Comprehensive Economic Partnership).

These developments will also be supported by the rising middle class of Africa defined by the African Development Bank as those who can spend between $ 2 and $ 20 a day. By the middle of the century, this middle class is expected to reach about 40 percent of the population, which would then mean more than one billion people. Although many of the building blocks to being successful are in a way they were not two decades ago, old obstacles remain.

Africa is still the least industrialized world. Its share of global manufacturing value (VAT) remains low at 1.8 percent and has even risen downwards since 2014. The VAT as a part of GDP, as a measure of industrialization, has stagnated over the past ten years.

In 2018, the most recent year for which data is available, it stood at 10.5 percent compared to more than 16 percent in the early 1980s – a sharp contrast to VAT / GDP of more than 25 percent over the past years have been achieved by Asia.

Some have argued that the continent may have missed all of its chances. Competition from more developed markets, especially East Asia, shifts in demand and rapid technological change make it harder for most of the still resource-dependent African economies, where business costs are high and productivity is low, to follow a traditional route to industrialization. follow.

A new threat – and the way forward

There is also a major new threat to African economies: it looks like the COVID-19 pandemic will hit them hard, despite the fact that the health crisis there was less severe than in other regions.

The region is facing its first major recession in 25 years. The World Bank estimates that the loss in GDP between 2020 and $ 37 billion to $ 79 billion. The disruption of trade and supply chains and a steady decline in demand, especially from Africa’s largest trading partner, China, are driving growth, and investment flows have stopped. .

UNCTAD says exports of Africa’s merchandise could fall by as much as 17 per cent this year, curbing tax revenues and limiting the government’s ability to sustain public spending and invest in the policies needed to promote industrialization .

Production is expected to suffer heavy losses, especially in the automotive, airline, energy and base equipment sectors. A large number of African policymakers expect total operating revenues to fall by at least 25 percent by 2020, according to a new UNIDO survey.

The crisis threatens to reduce jobs, intensify migration, increase poverty and hamper the fight against climate change. These challenges make it all the more urgent to build resilience and sustainability, further strengthening the case for industrialization.

To get there, Africa must see the pandemic as an opportunity to bring about change, invest in new business models, support innovation and diversify its products. The shift after global markets to COVID-19 gives extra importance to the development of local and regional supply chains to take advantage of a growing domestic market.

This will mean that the new AfCFTA will be given full support. In addition, it will require concentrated measures to support enterprises in the manufacturing sector, including services in technology upgrading, quality compliance development, product development, marketing and investment promotion.

Infrastructure development should also be a priority, driven by the state with support from the private sector. Poor quality roads and unreliable transportation contribute to the high cost of doing business in many countries, which impairs competitiveness. In some countries in sub-Saharan Africa, for example, the cost (per unit unit) for transporting goods can be up to five times higher than in developed countries.

At the same time, more investment in internet connectivity is needed to prepare for a digital future, as well as improvements to the continent’s energy infrastructure, which builds on green technologies such as hydropower and wind power.

Africa also needs to invest more in education and skills, which should make science and technology a priority to take advantage of the ongoing digital revolution.

But economies must also get the basics right. This means focusing on upgrading less high-tech sectors such as food and beverages, clothing and paper in local and regional markets. And with 60 percent of the working population still working in agriculture, more investment in agribusiness will help increase incomes and create new jobs.

The pandemic has shown the need for independence and resilience, and the reforms needed to transform the economies of Africa must develop both. But it also showed the importance of partnership and collaboration.

Despite the challenges, Africa has changed its political and economic landscape over the past two decades. This transformation and commitment to change at national and international level means that the objectives of IDDA III are now more achievable than ever before.

By working together, the African future can finally be within reach.

Jenny Larsen is an expert communications, directorate of external relations and policy research at the United Nations Industrial Development Organization (UNIDO), a specialized agency of the United Nations that promotes industrial development for poverty reduction, including globalization and environmental sustainability.

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