Report says Africa must pursue commodity-based industrialization


African countries should exploit the opportunity to transform their economies through a commodity-based industrialization strategy that leverages on the continent’s abundant resources, current high commodity prices and changing organization of global production process, an annual Economic Report on African (ERA) recommended.
According to the 2013 edition of ERA launched in Abidjan, Cote d’Ivoire, on March 26 such a policy is necessary if the continent is to become a global economic power that can address the challenges of youth unemployment, poverty and gender disparities.
Co-authored by the Economic Commission for Africa and the African Union Commission and launched at the closing of the week-long 6th Conference of African Ministers of Finance, Planning and Economic Development, the report refers to specific commodity-based boost example of the approach it recommends.
Ethiopia’s modernization and value addition in coffee and tannery; Algeria’s agro-industries; Nigeria’s case of linking oil industry with the rest of its economy; Kenya’s vegetable sector and Ghana’s increased processing of cocoa are some of the country cases the ERA 2013 used to justify its recommendation.    
“Maximizing Africa’s commodities for industrialization involves adding value to soft and hard commodities and developing forward and backward linkages to the commodity sector,” says the report whose theme is “Making the Most of Africa’s Commodities: Industrializing for Growth, Jobs, and Economic Transformation.”
Apart from providing employment, income, price and non-price benefits, African countries, by adding value to their raw materials locally, could also bring about diversification of technological capabilities, an expanded skills base, and deepening of individual countries’ industrial structures, the report stated.
Although Africa boasts about 12 percent of the world’s oil reserves, 40 percent of its gold, 80 to 90 percent of chromium and platinum group metals, 60 percent of arable land and vast timber resources, value addition is still limited, culminating in the paltry receipts for the export of its primary commodities.
A case in point is the coffee industry where up to 90 per cent of Africa’s total income from the commodity, calculated as the average retail price of a pound of roasted and ground coffee, goes to consuming countries in Europe, North America and Asia. African producers like Ethiopia too can benefit more from this, the report says.
While some African countries have made modest progress in forward and backward linkages to their commodity sectors, others still have some ground to cover, according to the report, adding that interventionist state policies and continental initiatives could help improve the situation.
“Moves by the government (of Ethiopia) to improve linkages between coffee grower and exporters together with improved storage, transport and other post-harvest services will help boost value addition in the coffee sector,” according to ERA 2013.
The report also praises the introduction of 150 percent tax on the export of semi-processed hides and skins by Ethiopia for resulting in near total local processing of raw skin into finished products and boosting the production of items such as shoes, leather gloves and leather garments.
“In both sectors, significant gains in value addition reside in the value chains leading to final processing of the products,” the report added. 
To further boost current levels of linkages, the report calls for urgent moves to reduce the infrastructural constraints and bottlenecks on the continent.
It also recommends improved policy implementation through coordination among relevant ministries in order to reduce incidents of coordination failure that have for long plagued the continent. It also encourages state intervention policies and support to domestic firms to ensure African countries are on the path of commodity-based industrialization.
“Interventionist state policies play a critical role. Upgrades in commodity processing require supportive policy environment, domestic firm capabilities, and sector regulatory frameworks,” the report read. “Export restrictions have increased the value added content of exports and domestic production.”