Millennium Post

India must help Africa with industrialisation

While India has increased its trade, foreign direct investment (FDI) and foreign aid programmes with many African countries, one of the most important things it can do for Africa is to help it industrialise. There has been much recent talk of ‘Africa rising’, with many commentators suggesting it will become the next global economic powerhouse following in the steps of East Asia. But much of this rhetoric is overblown, because African countries are in fact very behind in their manufacturing and industrial development, and without industrialisation, Africa will not get far.

Of course African countries cannot industrialise as have others before them. They need help in establishing new low-carbon and renewable energy technologies for their future industries. And they need to use, produce, consume and recycle the resources used in manufacturing processes much more carefully. But they must move into manufacturing.

While many African countries deserve credit for recent successes in building certain service industries and raising per capita incomes, the popular ‘Africa Rising’ narrative is overplayed. Although there has been an increased use of mobile phones, higher GDP growth rates, and new roadways being built on the continent, these indicators fall far short of telling us how well Africa is actually developing or not. In fact, most African economies are still largely based on primary agriculture and extractive industries and are way behind schedule on their transition into economies focused on manufacturing and value-added services.

A 2011 joint study by the United Nations Conference on Trade and Development and the United Nations Industrial Development Organisation found that despite some improvements in a few countries, the bulk of African countries are either stagnating or moving backwards when it comes to industrialisation.

In order to industrialise successfully, African countries should be encouraged to use industrial policies – even to the extent they violate free market precepts – such as temporary trade protection, subsidised credit and publically supported research and development with technology and innovation policies. They need to use such policies for much the same reasons that such policies were used by England, the US, Europe, Japan, Asia’s ‘4 Tigers’ and China when they were first industrialising. However, according to today’s dominant ideology of free trade and free markets, many of these key policies are condemned as ‘bad government intervention’. Loan conditions and policy advice by many bilateral and multilateral aid donors advise against them. World Trade Organisation (WTO) agreements, many new regional free trade agreements (FTAs) and bilateral investment treaties (BITs) between rich and poor countries frequently outlaw them.  This presents a major problem and significant barrier for the development of African economies.

Critics of industrial policies are correct to cite some historical cases where industrial policies have misfired in developing countries. But these critics are often selective in their criticisms, ignoring successful cases and neglecting to explain why industrial policies worked so well in the United States, Europe and East Asia while failing so badly in Africa and elsewhere.  From the 1950s to the 1970s, particularly in Africa and Latin America, many industrial policies failed because they were used inappropriately, with poor sequencing, and were often driven by political considerations or corruption rather than economic analyses or strict efficiency grounds. In Latin America, often the industrial policies were kept in place too long, and were too inwardly focused on small domestic markets, overlooking the need to develop international competitiveness. In contrast, the political economies of East Asian countries included institutions that tended to enforce stricter rules for which industries got subsidies and trade protection, and which got cut off from them when they failed to meet performance targets.

Some commentators often claim industrialisation is not needed for Africa. It is commonly claimed that Africa should stick to only producing raw materials and agriculture and perhaps some services. However, as a recent African Development Bank study observed, ‘Africa’s growth tends to be concentrated on a limited range of commodities and the extractive industries’ and these sectors are not generating the employment opportunities that would allow the majority of the population to share in the benefits. This is in marked contrast to the Asian experience, where the growth of labour-intensive manufacturing has helped lift millions of people out of poverty … .’  While the new services industries springing up in some African countries are important, they alone will not enable African countries to get their per capita incomes up to high-income country status. History clearly shows that only the higher wages associated with manufacturing jobs will enable them to achieve this. Today many African economies are still characterised by very low employment diversification with very few options beyond low productivity activities in agriculture and services, and it is highly doubtful that services industries alone will provide adequate employment for Africa’s burgeoning urban areas. Africa’s challenge remains how to diversify and upgrade its economies, which cannot be achieved without industrialisation. As all rich countries figured out long ago, industrialisation is the key to generating higher economy-wide productivity growth and increased consumer demand through raising incomes.

While India’s big increase in foreign investments in minerals, oil and gas and agriculture in Africa have grabbed recent headlines, Indian companies and foreign aid programmes can actually be much more helpful by sharing technology and making investments in African agricultural firms to increase agricultural productivity. Such improvements would allow African countries to redirect the savings into more productive investments.

Indian firms can also be especially helpful by sharing its latest technology in solar power and other renewable energy production. India’s government could also give African industrialisation a boost by streamlining its duty-free/quota-free scheme which allows exports from the world’s poorest countries unhindered access into India’s market.

While this programme has been in place for a few years, some African countries have complained various rules and restrictions continue to keep their goods from easily accessing India’s market. The real test of this scheme will be India’s willingness to import industrial goods if/when they are produced in Africa. Lastly, India’s foreign aid and training programmes can also be better targeted at improving the skills needed for industrialisation in Africa.

Conceived by Kalyan Mukherjee, Consulting Editor, Africa Research by Aman Ramrakha

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