In this newsletter we focus on industrial development and policy for Africa. Since the COVID-19 pandemic struck and countries across the world responded by adopting trade restrictions, the lack of diversity and depth of productive capacity across the continent have become even more urgent policy concerns. Recommendations that all should strive to produce essential goods, such as personal protective and other medical equipment, and pharmaceutical products, have become part of the industrial policy advisories to African countries.
An important lesson from the pandemic concerns the trade-industrial policy interface. Discussions about reconfiguration of value chains away from truly global to regionally-concentrated production networks are important. Such developments involve industrial restructuring, possibly investment in new locations and implications for trade. The often-used phrase ‘no nation can prosper in isolation’ remains true, even for a post-COVID world. The pandemic provides an opportunity to consider what, how, for whom and where we produce goods and services. Efficiency and competitiveness imperatives are shifting, and nations have an opportunity to appraise their industrial and broader productive capacity development priorities to support economic transformation for ‘our new normal.’ This means also taking account of adjustments in consumer preferences, as many households are experiencing incomes losses, and also recalibrating their priorities under these new circumstances.
Among the important considerations for reimagining industrial development and policy for Africa in a post-COVID era are:
COVID-19 is a wake-up call. We are reminded that our planet, our economies and our societies are incredibly vulnerable to climate disasters, pandemics and many other crises. We are also reminded that this pandemic will be followed by other crises – and some will definitely be climate-related. Sustainable production and resource use have to become the ‘norm’. Production arrangements must also be anchored on work arrangements that support sustainable livelihoods for workers.
It is notable that the fastest growing standard, globally is ISO 50001. This standard is designed to assist in improving the performance of a company’s energy-intensive assets, contributing to costs savings and emission reduction. While adoption of ISO 50001 is particularly prevalent in Asia, Europe and North America, some African countries, including Morocco, Tunisia and Egypt, are among the leading adopters. Supporting companies to adopt and implement standards such as this should be a standard feature of a green industrial policy. This requires that we strengthen our standards bodies – they are essential institutions for effective industrial policy implementation.
Trade facilitation matters for industrial development
Most economic activities in the industrial sector, agriculture and services are trade-dependent in some way; sourcing inputs, services or exporting products or services. A broad view of trade-facilitation support requires focusing on improvements in the customs and border management value chain, reducing transport and other trade transaction costs, and ensuring that infrastructure services regulation supports access to costs effective and reliable transport, communication and other services. Good governance is a prerequisite for effective trade facilitation and should also include access to administrative law remedies so that officials are accountable for the powers and discretion that they exercise in the discharge of their trade facilitation duties.
Agriculture is an industry – food security concerns must inform industrial policy
Agriculture is an industry as is automotive or garment manufacture. Just as much as agriculture requires specific policy and other support, industrial policy interventions impact the agriculture sector – production and processing – just as they do ‘core manufacturing sectors’. So-called ‘horizontal’ industrial policy interventions that have economy-wide impact play a very important role in improving efficiency and competitiveness of the agriculture sector. Supporting agriculture – across the entire spectrum from micro, small, medium to large scale enterprises – has to feature in our industrial development discourse too. Only if we address the myriad constraints that hamper development of our agricultural sectors, improving quality assurance and related standards as well as the specific trade facilitation problems that agricultural trade faces, will we be able to address the food insecurity challenges of the continent.
The role of foreign direct investment in industrial development
Improving and diversifying our continent’s productive capacity for goods and services requires investment. Investment in infrastructure, including digital infrastructure; in new productive capacity; and in expanding, renewing and upgrading existing capacity are all required. While there is increasing evidence of cross-border investment across the continent, even at small scale, we need investment from global sources. COVID-19 is, according to UNCTAD, expected to reduce foreign direct investment significantly this year and perhaps for some years. But we are seeing interest from global investors, generated by the African Continental Free Trade Area (AfCFTA). Establishment of commercial presence in a State Party of the AfCFTA will mean that these enterprises will of course benefit from the enhanced market access and other benefits of the AfCFTA. This will contribute to the dynamic benefits of the AfCFTA.
Our Blogs this month cover a range of issues that are integral to the discourse and industrial policy agenda to expand and enhance Africa’s productive capacity.
We have come to understand the role of services across our economies, and specifically also in manufacturing competitiveness – recognising, for example, that it is not possible to be a competitive motor vehicle assembler or producer without competitive services inputs. The regulation intensity of services reminds us that regulation and good governance matter for Africa’s industrial development. In this Blog, Industrial development – the importance of services, regulation and good governance, we discuss these matters.
While recognising that industrial policy is a national competence, African countries have elevated the industrial development agenda to regional and continental levels too. Most regional economic communities have developed regional industrial strategies, and at African Union level, one of the flagship projects – Accelerated Industrial Development for Africa (AIDA) – has become the focal point for initiatives to support a range of sector development initiatives, including support to grow and enhance pharmaceutical production. A key focus of the discourse at regional and continental level is regional value chain development. Many enterprises import inputs from global sources – linking value chain development to transit trade as inputs make their way from point of entry to the enterprise where the inputs will be used. We’ve examined transit trade data during the pandemic, from point of entry in South Africa to track regional value chain linkages. We reflect also more broadly on the on impact of COVID-19 on Africa’s industrial development in these Blogs: COVID-19 – Lessons for Industrial development and policy for Africa and Regional industrial development – how can COVID-19 responses contribute?
Special economic zones feature increasingly in the industrial development suite of interventions for African countries. Experience across the continent and elsewhere provides important lessons. Rwanda’s SEZ experience provides insights into the potential for attracting FDI and diversifying productive capacity – including the establishment of a smart phone manufacturing plant.
Enhanced market access through trade agreements – such as the AfCFTA – provide opportunities to achieve economies of scale and scope. These opportunities provide a sound rationale for investment to expand and diversity production, bringing dynamic benefits from these agreements. Trade arrangements such as the African Growth and Opportunity Act can have a similar effect – Lesotho’s clothing and textile industry is a good example. This is a strong reminder that the relationship between trade and industrial policy is a very close one.
We look forward to your feedback.
Be safe and stay well
The tralac team