Industrial transformation is important but dynamic industrial policy is crucial

Africa on a globe. Over the past 10 years, Africa’s economy has grown 5 percent on average — a performance that more developed and wealthier regions have yet been able to match. Photo by: residentevil_stars2001 / CC BY

The need to adopt dynamic industrial policies has come to the fore of African priorities, as the continent reflects on the next steps necessary to sustain and improve on growth rates that have made the continent an economic success story over the past decade.

The resilience of Africa’s economy was tested during the 2008 global financial crisis. But despite a slowdown in economic activity, African nations recovered faster than countries in other regions. In addition, the continent has recorded impressive 5 percent growth, on average, over the past 10 years — a performance that more developed and wealthier regions have yet been able to match.

While this growth should be heralded, the consensus among African economists has been that the African continent needs to industrialize and become less dependent on commodities exports. Meaningful jobs and the attendant gains in broad economic and social development are needed to reduce high poverty and inequality rates.

Yet, many would ask, what is new about the argument for structural transformation and industrialization? Past industrialization efforts in the post-independence era, as well as in the 70s and 90s, did not contribute to growth in Africa. Productivity levels remained low, social conflicts slowed progress and understanding the sources of productivity growth remained a challenge for African economists. Throughout these years, the continent remained heavily dependent on primary commodity production and exports, which has undermined transformational efforts.

I have argued elsewhere that commodity-based industrialization can, with the right industrial policies, lay the ground for long-term diversification and competitiveness in new and noncommodity sectors in Africa’s commodity-rich countries. It is also important for African governments to put in place policies that facilitate the development of linkages, taking into account country- or industry-specific constraints that cannot be overcome by market forces and that call for strategic and systematic industrial policies. Doing so would not only help gradually transform their economies through increased value addition in the primary commodity sector, but also contribute to the process of diversification into higher-productivity employment-generating sectors, especially in manufacturing and modern services.

If we accept that industrialization is an essential precondition for inclusive economic growth and structural transformation, then we must emphasize that any attempt to industrialize on the continent will fail if there is no focus on the designing of industrial policy institutions and processes capable of supporting industrial transformation. Countries’ past experiences have demonstrated that adopting dynamic industrial policies with flexible processes and mechanisms help transform economies and bring about inclusive and sustainable economic and social development.

South Africa, for instance, has adopted a model linking industrial policy to national development plans. The adoption in 2007 of the National Industrial Policy Framework — the formulation of which involved the participation of stakeholders from the trade, financing and procurement sectors — has allowed the country to diversify itself beyond the reliance of traditional commodities and nontradable services. It has boosted sectors such as the auto and components industry, making it one of the most important industries, contributing 6 percent of gross domestic product and 12 percent to manufacturing exports.

Mauritius’ industrial policy promotes high-level coordination and public-private dialogue and has helped the country transform itself from a low-income mono-crop economy to a well-diversified middle-income country in which tourism and the services sectors have become major contributors to national growth.

Such successes have not gone unnoticed by other African peers. Nigeria, for instance, has renewed its commitment to industrialization, launching the country’s Industrial Revolution Plan in February 2014.

These examples demonstrate the advantages of adopting an industrial policy agenda and indicate that there is real benefit in embracing an institutional framework. It is thus important for the rest of the continent to realize that transcending the blueprint approach to industrialization — where industrial policy is simply a set of noncontextual, predefined interventions, and shifting toward a set of institutions that generate processes that can address industry ever-changing exigencies — is the way to go.

There is no doubt that Africa has made a strong start in the 21st century. But to deliver sustained success the next stage is critically important. It is time for African countries and development partners to focus their attention and efforts on establishing the industrial policy frameworks needed to deliver sustained and inclusive growth.

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About the author

  • Carlos lopes profile

    Carlos Lopes

    Carlos Lopes is executive secretary of the United Nations Economic Commission for Africa since March 2012. Prior to this appointment, he served as head of the U.N. Institute for Training and Research and director of the U.N. System Staff College, as well as other senior positions within the United Nations system.