- Growth aggravates inequality
- Industrialization seen as a way out
Africa’s narrative has changed with its rapid economic growth over the last decade. The continent is re-nicknamed the “new frontier” from the prejudiced the “hopeless continent” not so long ago.
Nevertheless, the new frontier still has a long way to go for its economic progress is yet to help it lift millions out of poverty, give jobs to its population bulging with youth and reduce inequality among its haves and not haves, African finance and economic development ministers agreed last week.
With at least six of 10 fastest growing economies belonging to it, Africa boasts as the second fastest growing region in the world trailing only emerging Asia. Even with its growth rate slowing from 5.7 per cent in 2012 to an estimated four per cent in 2013, it is still almost twice as high the global average. To the delight of authorities on the continent’s economic matters, the growth recorded in 2013 was shared by both natural resource-rich and not so resource-rich countries, reversing the trend earlier in the decade that made Africa’s growth seem an exclusive club of the mineral-rich.
Africa still continues to register economic growth through a global economic turmoil and its aftermath; nevertheless, concern reigns why the growth hasn’t translated into increased employment as well as decreased poverty and inequality to the expected level prompting discussions on the way to get there.
Such were the mood and issues debated throughout the annual Conference of African Finance, Economic Planning and Development Ministers. On its 7th edition this year, this ECA-AU flagship conference was held in Abuja, Nigeria, from March 25 to 30 under the theme “Industrialization for Inclusive and Transformative Development in Africa”.
“… in spite of the average growth rate of five per cent achieved over the past decade, our countries have had some difficulties in making growth fully inclusive and in reaping maximum productivity gains,” reads the Ministerial Statement issued at the conclusion of the meeting last Sunday. “As a result, overall factor productivity has been lacklustre, unemployment – especially among young people – remains rampant, and inequalities are worsening.”
Growth in Africa has generally continued to benefit from high commodity demand and prices in the international market, rising domestic demand associated with urbanization and rising incomes; increased public spending on infrastructure, and improved macroeconomic management.
Nonetheless, political instability and disruptions in oil production adversely affected growth in Africa’s major oil-producing economies. But, oil–exporting countries still remained among the leading drivers of Africa’s growth in 2013, with oil alone accounting for about 24 per cent of the continent’s growth.
“New Brand Africa” emerges but, …
According to Carlos Lopes, the Executive Secretary of the UN Economic Commission for Africa (UNECA), a new brand of Africa is emerging; “one that exudes confidence, attractiveness for investments and that has considerably lowered risk, with investment reaching $50 billion in 2012”.
His assertion is not without a background. Partly provoked by Chinese phenomenal penetration to the villages, almost the entire developed and developing world seems to compete for a place in Africa’s emergence. Evident expansion aspirations by Walmart and KFC are but very few examples to attest to that.
“But, there is a but…we still need to move from five to six per cent average growth, to the magic seven per cent!, the minimum required to double average incomes in a decade,” Lopes told the opening of the ministerial segment of the conference on Saturday, March 29. This segment was preceded by a meeting of experts who debated on the issue almost throughout the week of March 24, save the weekend for the ministers. “There is still a long way to go as poverty remains high, access to social services weak and pervasive conflict undermines gains.”
Further, the growth in Africa has not trickled down to the majority because many still suffer poverty and unemployment. It has only created wider gaps in some countries of Africa, Albert Mabri Toikeusse, Minister of Planning of Cote d’Ivoire, whose capital – Abidjan – hosted last year’s conference, said. Its President, Alasan Outara, stated the same concern at that conference.
Time to industrialize
African countries need to channel their resources to activities in industry, manufacturing and modern services in order to create more employment and improve the welfare of vulnerable groups, according to Abdalla Hamdok, a Deputy to Carlos Lopes.
He advised focusing on developing a manufacturing sector that is interlinked to other sectors of the economy and is capable of raising productivity. One reality that needs to change is Africa’s over dependence on primary commodities sector which is failing to substantially create new jobs and inclusive growth, he added.
“Both resource-rich and resource-poor African countries should also build capacities to invest in new non-commodity-based industries,” Hamdok said.
The rationale for industrialization in Africa is grounded in the fact that most African economies concentrate economic activity in the extractive and commodity-producing sectors.
The capital-intensive nature of the extractive sector and the limited inter sectoral linkages between the primary sector and other sectors of the economy create limited opportunities for value chain development, value addition and job creation. Further, the primary sectors are characterized by low productivity and low wages which render employees vulnerable to poverty.
Therefore, as Anthony Mothae Maruping, Commissioner for Economic Affairs of the African Union Commission (AUC), sees it, most African economies have just been performing well in terms of headline numbers without significant impact on the lives of the people.
“Africans are, therefore, calling for major structural transformation to sustain the current economic performance,” he said, stressing that the next critical level is industrialization as the means to “meaningfully join the global value and supply chains where opportunities and jobs are created.”
Governments would have to develop institutions that can effectively implement industrialisation plans and strategies, he emphasized.
The same message is echoed in the Economic Report on African (ERA) 2014, also jointly authored by the ECA and the AU and launched on the last day of the conference. But the ERA puts emphasis on promoting human development.
Structural transformation is essential for rapid and inclusive growth and employment creation in Africa. And renewing their focus on industrialization, policymakers are declaring they are committed to ensure that economic growth translates into wider access to basic social services, decent job opportunities and a hefty reduction in inequality and poverty, the report states.
The continent is still off target for most of the MDGs. At 48 per cent, nearly half of Africans are in extreme poverty, and 72 per cent of the youth population lives on less than two Dollars a day, the Report reveals. Burundi, Ethiopia, Nigeria, Uganda and Zambia have a youth poverty rate of more than 80 percent, ERA 2014 added quoting 2012 research.
“To overcome persistent human development deficits, Africa needs economic growth and transformation strategies that also promote human development,” it reads.
As the conference’s main objective was to provide a platform for policy makers to articulate proposals for speeding up the implementation of the Accelerated Industrial Development of Africa (AIDA) and increase commitment and actions to advance Africa’s industrial development, both the AU and ECA outlined what they believed should guide African countries.
But the anecdotal analysis by ECA’s Executive Secretary outlining the economic path he recommends Africa should follow was captivating.
From the dramatic transformation of Prato, Italia’s textile capital, fueled by the surge of Chinese investment that brought 50,000 Chinese workers churning out the “made in Italy” fashion clothes like Fendi, Salvatore Ferragamo all the way to low cost Zara or Topshop; to Mexico’s “Maquiladora”, a free-trade-zone manufacturing operation where factories import material and equipment on a duty-free and tariff-free basis for assembly, processing, or manufacturing, and then export the assembled, processed or manufactured products back to the country raw materials originated from, Lopes brought real life examples to Abuja’s Transcorp Hilton Congress Hall before saying his recommendations for Africa.
“In order for Africa to grow and transform we need to have a clear understanding of our times. We are not new in the business of transformation. But Africa has, nevertheless, to innovate in the business of transformation,” Lopes started emphasizing that a unique competitive edge is of paramount importance for an economic marvel.
According to him, the changing landscape of international trade and investment has completely overhauled the understanding of Global Value Chains. Since the 1990’s there is a growing trend for enterprises to spread across several countries for the different stages and activities of the production process.
“It is not even one firm anymore that produces from A to Z. Production is no longer limited to borders,” he told the gathering ministers. “Complex and innovative financial systems, capital and venture arrangements, global standards and dispute settlement mechanisms have all contributed to a world where crude protectionism does not work.”
However, in the current world “everybody practices smart protectionism, better defined as the ability to make the rules work for you and outsmart the systems to attract investment, equity and markets,” he added essentially suggesting stronger state roles in African economies as well.
In addition, the rise and expansion of global value chains is not primarily due to the increasing trade of goods, rather it is focused on technology, finance, investment, and other modern services. “We see this, for example, in the comparative advantage exercised by China in Prato, not only because of cheap labour, but due to the ability of the Chinese to quickly produce and alter production patterns overnight. The main focus of industrialization in the 21st century is, therefore, innovation and flexibility.”
He went on to the changes in the requirements for industrial policy development from what it was four decades ago. For example, instruments of economic policy have changed from an overwhelming reliance on administrative direction to placing greater emphasis on modifying market processes through taxation, subsidies and public expenditure measures, in order to correct market imbalances, the eloquent Executive Secretary elaborated. “In addition, industrial policy development has become more polycentric and more eclectic in its simultaneous pursuit of a variety of objectives rather than being solely centered on just promoting rapid growth.”
To this end, Lopes concluded that Latin America’s industrialization models of import substitution, or Southeast Asia’s export driven model, are no longer an option for Africa.
With this niche occupied and mostly gone, Africa is, therefore, left to find its own unique competitive advantage to industrialize and transform.
Lopes, thus outlined three conditions that will enable Africa formulate a sophisticated and unique path to industrialize. These are, the full use Africa’s bargaining position by maximizing the demands for value addition in the commodities it has a dominant position, such as precious metals and other minerals; pursuing a combination of a green and clean energy pathway and leap-frogging old carbon-intensive industrial models, since Africa is not locked in any technology preferences; and focusing on its domestic consumption that can be justified by Africa’s rising population, growing middle class and rapid urbanization that will continue to increase demand for consumer goods, hence making agribusiness the key to meet this demand.
Jointly organized by the ECA and the AUC, in collaboration with the Nigerian government, the conference also saw the first gathering of governors of African central banks as a side event on March 27 at Central Bank of the host, signaling the financial sector is considered a key factor for the success of the industrialization and transformation ambition. Leaders from across the African private sector were also represented.
Omer Redi can be reached through [email protected]