Getting Emerging African Economies Ready

Federal Republic of Nigeria Minister of Finance, Dr. Ngozi Okonjo-Iweala, has addressed the Nigerian press saying that the level of domestic debt needs to be curbed. She is a former official of the World Bank., a photo by Pan-African News Wire File Photos on Flickr.

Getting Emerging African Economy Ready

SUNDAY, 17 MARCH 2013 00:00 BY KAMAL TAYO OROPO SUNDAY MAGAZINE - KALEIDOSCOPE

STARTING on March 21, policy decision makers across the continent will be spending days meeting in the Ivorian capital, Abidjan, with one agenda on their minds –– adopting a strategy of industrialisation in support of Africa’s development agenda a continent.

Meeting under auspices of Meeting of the Committee of Experts of the Sixth Joint Annual Meetings of the United Nations Economic Commission for Africa (UNECA) Conference of African Ministers of Finance, Planning and Economic Development and the Africa Union (AU) Conference of Ministers of Economy and Finance, the ministers are expected to come up with concrete ideas expected to prove to cynics that the indices of growth are sustainable.

However, their task does not stop there, bearing in mind that many people still dismissed as a fluke Africa’s average 5 per cent annual economic growth, they are set to confront the unflattering role of a trade post and dumping ground, which the continent appears to have been doomed. This may have informed the choice of the meeting’s theme: ‘Industrialisation for an emerging Africa’.

Since the early 1990s, Africa has been experiencing robust growth rates. However, this solid growth performance was interrupted by the global recession of 2008-2009. Despite the severity of the global recession, which was fuelled by the financial and economic crisis of 2007/2008, the continent did not go deep into a recession but rather saw its economies significantly slowed down. The negative influences of the global crisis brought the average growth of Africa’s economy to around 2 per cent, significantly down from about 5-7 per cent previously. Although there are currently turbulent head winds coming out of the Eurozone, the 2007/2008 financial crisis has thawed and Africa’s economy is roaring back, forecasted to grow between 5-7 per cent in the period 2012-2015.

Also, growth has not translated into more employment and has been accompanied by rising inequality in some countries. In addition, Africa’s significant natural resources are being extracted and exported in their raw form and not as finished products. Hence, no value is added to Africa’s extractive commodities exports.

In order to significantly transform the economies of African countries from the current low- income to middle-income levels,
it is paramount that value is significantly added to Africa’s large reservoir of natural and agricultural resources. This will tremendously boost economic performance as well as uplift many Africans out of poverty through employment and wealth creation.

The increased demand for Africa’s natural resources, together with increased urbanization and consumer demand for processed goods within the continent provide an opportunity for resource-based industrialization. Indeed, Africa has the potential for increasing its production of higher value-added products.

Accelerating industrialisation can potentially contribute to the expansion of trade within Africa and between Africa and the rest of the world through the diversification of exports.

Moreover, creating food-processing industries in rural Africa would contribute to lifting a significant number of Africans from poverty. Evidence shows that a number of African resource- rich countries have remained poor, while other resource-poor countries have become richer through the implementation of polices that promote value addition, demonstrating that prosperity and poverty alleviation are consequences of smart policy choices. Hence, African countries should take advantage of the growing opportunities to promote industrialisation.

Despite the progress made in a number of countries, industrialisation in Africa remains a challenge. First, agriculture has not been sufficiently modernised and the manufacturing base is very low around the continent. Manufacturing is dominated by artisanal activities in mostly in the informal sector and is therefore insignificant in most African economies. Africa therefore lags behind other developing regions in its industrial performance. Second, the degree of export diversification is very low as most African countries continue to export unsophisticated commodities. At the moment, only a small group of countries dominate African manufacturing (South Africa, Tunisia, Morocco and Egypt) and they have managed to diversify to some extent. Third, a number of African countries are landlocked and face high transport costs, low economic density and geographic isolation from high-growth clusters. Markets are small and fragmented in most parts of Africa.

Industrial agglomerations and diversification are also not very common in Africa. The Economic Report for Africa 2007 indicated that most African countries were still at a very early stage of industrial development. The Report recommended that African countries should strive for diversification into higher-valued products, capitalising on its mineral and agricultural riches.

It has to be recognised that entrepreneurs in Africa continue to face greater regulatory and administrative obstacles. Compared to other regions of the world, the protection of property and investor rights is weak.

Although there are improvements in some countries, doing business in Africa is not easy as entrepreneurs face high transaction costs, due to small and fragmented markets, protracted and cumbersome administrative procedures and bureaucratic bottlenecks, and poor physical and financial infrastructure.

AFRICA’S economic growth is currently largely driven by commodity exports, especially oil and metals. This is in sharp contrast to the growth pattern of other developing regions, especially Asia, where growth has been driven by a solid industrialisation agenda, which places greater focus on manufacturing. The downside to Africa’s reliance on a commodity-driven growth path includes risks to resource extraction, vulnerability to unfavourable terms-of-trade deterioration, risks of currency overvaluation as a result of Dutch disease, weak backward and forward linkages to the domestic economy, limited use of advanced technologies and, above all, weak creation of employment.

The current state of Africa’s economies can be reversed with the pursuit of strong industrialisation strategies, with greater emphasis on value addition to the extractive sectors and modernization of agriculture. The over whelming majority of the poor in Africa live in rural areas and depend on agriculture for their livelihood. A modernized agriculture sector, which is labour- intensive, creates jobs and generates value added in agro-processing activities, would uplift many Africans from poverty. A modernized agriculture sector also entails significant forward and backward linkages to the domestic economy. Such linkages do not exist to the same extent in the extractive industries.

Indeed, an agribusiness-led development strategy involving higher value added and stronger productivity growth throughout the entire value chain system of the economy offers strong potential and promise for rapid and broad-based economic growth and wealth creation, and for poverty alleviation for Africa’s rural dwellers. It should be noted that Africa’s transformation agenda will not succeed without efficient industrial capacity in place, as well as affordable infrastructure including energy, technology-based innovations, improved external and intra-African trade, sound financial mechanisms and enhanced agricultural supply chains.

The conference is set to address the question of how African countries can design and implement effective industrial strategies and policies that will support the promotion of value addition and economic transformation, and reduce dependence on the production and export of unprocessed materials. Such strategies should not only focus on promoting high and sustainable long-term growth but must also ensure that the benefits of such growth are widely shared in order to reduce poverty and improve the standard of living for all Africans.