RESERVAS NATURALES

As we have already seen, most countries in Africa have a negligible manufacturing base to date. But this does not mean that industrial policy has never been attempted in Africa. However, the degree of state intervention for the purpose of industrialisation has varied. Generally, the industrial policy experience in post-independence Africa can be divided into three phases; the 1960s and 1970s, with industrial policy at the fore; the 1980s and early 1990s, during which neoliberal policies dominated; and the mid-1990s to present, which has seen a more prominent role for the state, although not so much in relation to industrial policy.

2.6.1 1960s and 1970s: industrial policy at the fore

In the 1960s, many African countries embarked on state-led strategies to industrialise.

Industrialisation was regarded as synonymous with development at the time, especially if it was built on a socialist agenda resonating with the programmes and achievements of the USSR, and later China and India (Lawrence, 2005). The policies in Africa most notably involved ISI strategies (see Wangwe and Semboja, 2003), focusing on protecting domestic production of consumer goods that were previously imported. UNIDO and UNCTAD (2011, p.11) provide the following list of instruments that were generally applied in Africa during the ISI period:

(a) restriction of imports to intermediate inputs and capital goods required by domestic industries; (b) extensive use of tariff and non-tariff barriers to trade; (c) currency overvaluation to facilitate the import of capital and intermediate goods needed by domestic industries; (d) subsidized interest rates to make domestic investment attractive; (e) direct government ownership or participation in industry; and (f) provision of direct loans to firms as well as access to foreign exchange for imported inputs.

The efforts yielded positive results for the manufacturing sector. MVA in Africa as a percentage of GDP rose from 9.2 to 14.7 per cent from 1960 to 1975. The employment share in manufacturing also increased significantly in the same time period, from 4.7 to 7.8 per cent (De Vries et. al., 2013) The increase in manufacturing production resulted in decent economic growth as well: GDP per capita grew at an average annual rate between 2 and 3 per cent in the same time period. Countries in Southern Africa—South Africa, Zimbabwe and Swaziland—

were the ones industrialising most rapidly. Their activities were based around low-tech, labour-intensive industries, such as food processing, apparel and shoes.

But for many reasons, the ISI strategy was unsustainable. First, few domestic firms became competitive in the world market. Governments offered protection to domestic firms with little discrimination, no requirements for improving international competitiveness and no time limit. Actually, not a single African country generated internationally competitive industries during the ISI period (UNECA, 2011).

Second, the strategy did not lay enough emphasis on generating foreign exchange (Meier and Steel, 1987; Stein, 1992). Agriculture was neglected and too heavily taxed, thereby reducing export earnings and creating balance of payment problems for the economies that grew fast.

Third, the strategy was too intent on setting up physical production facilities, like factories, without paying enough attention to fostering entrepreneurial capabilities that would spur industrial dynamism (UNIDO and UNCTAD, 2011).

Fourth, FDI was badly managed. Foreign firms were given too favourable conditions, such as exclusive exploration rights (in the extractive industries) and sole supplier contracts to the government. Moreover, these investments were almost entirely directed to the extractive industries, limiting the creation of linkages to the domestic economy (Stein, 1992; UNECA, 2011).

Admittedly, a few countries were successful with the anti-export strategy that characterised African economies in this phase, such as Mauritius and Zimbabwe. They managed to accumulate resources from the protected industries to generate enough investments for the development of capabilities needed for exporting.

2.6.2 1980s and 1990s: debt crises and neoliberal reforms by the Bretton Woods institutions

In the early 1980s, African countries started to experience severe balance of payments problems due the effects of the global oil crisis in 1973,²⁹ the global decline in other commodity prices and insufficient foreign exchange generation to meet growing import demand of domestic industries. To alleviate these problems, many African countries sought help from the World Bank and the International Monetary Fund (IMF).

These organisations did not share the view that African industry should be promoted through government intervention. As outlined in The Berg Report published in 1981, they firmly believed that African countries’ economic performance was poor as a result of overemphasis on industry at the expense of agriculture, overvalued exchange rates, interest rate controls and trade protectionism. Furthermore, the report held the view that the comparative advantage of African countries was in agriculture, not industry, and that governments should consequently withdraw support to industry (World Bank, 1981).

The subsequent conditionalities of loans and aid to African governments—the structural adjustment programmes (SAPs)—focused heavily on reducing government intervention through trade liberalisation, privatisation of SOEs and the withdrawal of government subsidies (UNIDO and UNCTAD, 2011). The appropriate role for the state, according to The Berg Report, was to provide an enabling environment for the private sector to flourish by giving market forces more room in the allocation of resources. These policy prescriptions were in line with what the World Bank and the IMF recommended in more or less all developing countries at the time: limiting government intervention to macroeconomic stabilisation policy, general education and infrastructure investments, whilst relying on the

‘market mechanism’ to eliminate inefficiencies and direct resources to productive uses.

Neoliberal sentiments swept the world around this time, but the state had acquired a particularly bad reputation in Africa. According to Mkandawire (2001, p.293), by the 1990s,

“The African state had become the most demonised social institution in Africa, vilified for its weaknesses, its over-extension, its interference with the smooth functioning of markets, its repressive character, its dependence on foreign powers, its ubiquity, its absence, etc.”

29 The global price of crude oil spiked, leaving most African countries that were net importers of oil at the time at a disadvantage.

The results of the SAPs, both for economic growth and for manufacturing industry, were disastrous.³⁰ GDP per capita in Africa declined at an annual average rate of 1.6 per cent between 1981 and 1994.³¹ Unsurprisingly, MVA as a share of GDP also dropped, from a high of 17.6 per cent in 1976 to 14.2 per cent in 1994 (WDI, 2017). Some sort of response was appropriate to the mounting debt of African economies, but the SAPs did not address the shortages of technical skill and industrial entrepreneurship. It undermined economic diversification and technological accumulation, and drove firms out of business. Without state support, African industry had no chance of catching up with the global technological frontier.

As Lall (1995) argues, if any potential for technological accumulation lay with existing firms in Africa, this was destroyed through the SAPs. Through reliance on comparative advantage, the SAPs were supposed to attract foreign capital to gradually ensure growth of the industrial sector, but, similarly to what happened in the ISI phase, foreign capital was attracted almost exclusively to the extractive industries. Even in the agricultural sector, in which African countries were supposed to have comparative advantage, unfettered international competition created problems—Nziramasanga (1995) provides the example of the Kenyan sugar industry in the 1990s, in which both output and employment fell due to competition from imports.

Interestingly, the economic decline has been observed in all sub-regions on the continent. Mauritius, South Africa, Zambia and Zimbabwe were however exceptions. These countries actually managed to maintain or even raise their share of manufacturing in GDP. One obvious reason is that three of these four countries did not have SAPs enforced.

2.6.3 Mid-1990s – present: state intervention more prominent, but what about industrial policy?

By the mid - to late 1990s, the SAPs had contributed to such a devastation of African economies that the international business media even referred to the continent as ‘hopeless’, as mentioned in the introduction of this chapter. The loans heaped onto African countries in the 1980s and early 1990s had not resulted in productive investments, and thus, by the mid 1990s, several African countries had become heavily indebted.

30 Especially the deindustrialisation impact of the SAPs has been rigorously documented (e.g. Mkandawire (2005), Mkandawire and Soludu (2003), Riddel (1990), Stein (1992)).

31 1981 has been chosen as a starting point for the period of low/negative growth in Africa, as this is arguably when economic growth significantly started to show a break for the worse in the aftermath of the international oil crisis and subsequently the SAPs.

In 1996, international donors launched the Heavily Indebted Poor Countries (HIPC) initiative to provide relief to severely indebted countries, almost all of which were in Africa.

This was modified in 1999 (as it was criticized for not being flexible enough), making greater relief available to more countries, and by making relief available sooner. As a precondition to partake in the enhanced HIPC initiative, beneficiary countries were required to prepare poverty reduction strategy papers (PRSPs), in which recipient governments themselves had to detail how debt relief would be used to reduce poverty (UNIDO and UNCTAD, 2011). Compared to the SAP phase, more autonomy was given to beneficiary countries, partly because anti neo-colonialist and neo-imperialist attitudes were becoming more prevalent worldwide.

Beneficiary countries were especially encouraged to invest resources in social sectors, such as education (primary and secondary) and health. Not surprisingly, the focus on social sectors of the PRSPs resonated with that of the Millennium Development Goals (MDGs)—a set of eight international development goals to be achieved by 2015, established at the United Nations Millennium Summit in 2000 (UN, 2005).³²

As seen in the previous chapter, the turn of the century saw economic growth in Africa pick up, together with a range of other positive developments, like reductions in public debt, a decrease in violent conflicts and progress in public health outcomes. However, manufacturing as share of GDP in Africa remains the lowest of all developing regions in the world. Although the government has featured a more prominent role during the PRSP/MDG phase, industrial policy has taken a firm backseat because of the focus on social sector development policies.

In recent years, however, there has been talk of a rejuvenation of industrial policy in the international development community (e.g. Noman and Stiglitz, 2015; Stiglitz and Lin, 2013; Wade, 2015). As opposed to the MDGs, industrialisation is an explicit goal in one of the 17 Sustainable Development Goals (SDGs); Goal 9: build resilient infrastructure, promote sustainable industrialisation and foster innovation (UN, 2015). Structural transformation has become a buzzword in the international development community, partly thanks to the chief economist at the World Bank from 2008 to 2012, Justin Lin, who pushed for an agenda at the Bank that stressed the importance of economic diversification and transformation of production activities (see Lin, 2010), much more so than former chief economists. Other prominent economists like Ha-Joon Chang, Joseph Stiglitz, Dani Rodrik and Mariana Mazzucatto have all published recent bestselling books that explicitly support industrial policy. International organisations (other than the United Nations Conference on Trade and Development

32 Five of the eight goals centred on improvements related to poverty, health or education.

(UNCTAD), which has long been a bastion of industrial policy) like the Organisation for Economic Cooperation and Development (OECD) and the International Labour Organisation (ILO) are publishing reports that explicitly devote attention to the importance of industrial policy (e.g. OECD, 2013a; Salasar-Xirinachs, et. al., 2014). In Africa, the fastest growing economy on the continent, Ethiopia, puts industrial policy at the forefront of its development plans (see Oqubay, 2015).

But in the midst of talk of industrial policy ‘renaissance’, there is also vigorous debate on how the industrial policy environment has changed. The debate centres in particular on the increased fragmentation and globalisation of production processes, and consequently if ‘old’

style industrial polices, like those formulated by the Asian tigers, are at all applicable to developing countries today. Transnational corporations (TNCs), predominantly based in the West, are increasingly outsourcing manufacturing activities to developing countries, and therefore, from a developing country perspective, industrial policy revolving around attracting FDI is becoming a more important part the entire industrial policy discussion. Should developing countries ‘link up’ to the TNCs that invest in their home countries, carrying out exactly the type of activities the TNCs want them to carry out, or should they challenge them?

How can developing countries formulate policies to transfer technology from TNCs, and incentivise them to create linkages with the domestic economy? This is the issue at hand in the next chapter.