Friday, 15 November 2013

AFRICA: Slow Transition

Recent high growth rates and increased foreign investment in Africa have led to the popular idea that Africa is on track to become the next global economic powerhouse. This “Africa Rising” narrative has been presented in cover articles by TIME Magazine and The Economist among many others in recent years.

But while there have indeed been positive economic developments in some African countries, this enthusiasm is misplaced because it neglects the hard fact that Africa is actually quite far from “developing” – at least in the conventional sense.

Beginning with the UK, and followed by Europe, the US, Japan, the 4 Tigers of East Asia and China, the rich countries figured out the best way to significantly increase incomes and reduce poverty was to progressively shift from an economy based on activities with diminishing returns over time (primary agriculture and extractives such as oil, mining, gas, logging and fisheries) towards activities that tended to provide increasing returns over time (manufacturing and higher-end services).

The colonial powers outlawed manufacturing from occurring in the colonies precisely because they understood its benefits, which they intended to keep for themselves: it creates more and higher-paying jobs (which tends to lift all wages across the economy), supports new higher-paying services jobs and the overall diversification of the economy, and contributes substantially to the domestic tax base, which in turn, allows for greater long-term public investment in health, education, agriculture and infrastructure.
Losing Ground
Although it had been widely understood for 400 years, over just the last few decades the very idea of “national” economic development has been downplayed and replaced by the idea of “globalization” – i.e., just plugging into the global economy right now regardless of the level of economic development a country is at.

The idea of national economic development has been further displaced in recent decades by the popular notion of “poverty reduction” and an emphasis on the social sector indicators (as highlighted by the UN’s Millennium Development Goals or “MDGs”) to the near total exclusion of conventional national economic development indicators.

If such conventional factors were still considered, we would be asking if manufacturing as a percent of GDP, or the percent of manufacturing value-added (MVA) in exports, has been going up over time or not. And we would be alarmed by the answers.

A recent UN study on such indicators in Africa finds that despite some improvements in a few countries, the bulk of African countries are either stagnating or moving backwards in terms of industrialization. The share of MVA in Africa’s GDP fell from 12.8 percent in 2000 to 10.5 percent in 2008. Over the same time period, there was also a decline in the importance of manufacturing in Africa’s exports, with the share of manufactures in Africa’s total exports having fallen from 43 to 39 percent.

In terms of manufacturing growth, while most have stagnated, 23 African countries actually had negative MVA per capita growth over the period 1990–2010 and only 5 countries had an MVA per capita growth above 4 percent. The study also finds that Africa is also losing ground in labor-intensive manufacturing, with its share of low technology manufacturing activities in MVA having fallen from 23 percent in 2000 to 20 percent in 2008, and the share of low-technology manufacturing exports in Africa’s total manufacturing exports having dropped from 25 percent in 2000 to 18 percent in 2008. Such statistics are at odds with the “Africa rising” narrative.

In fact, today many African countries remain locked into traditional colonial patterns of trade in which they largely export primary commodities in raw form and import more advanced manufactured goods from richer countries.

In striking contrast to free trade theory taught in most universities over the last few decades, the industrialized countries used a wide array of industrial policies (trade protection, subsidies, subsidized credit, supportive technology policies and publically supported R&D, and supportive macroeconomic policies) often for decades at time when they were first building their manufacturing sectors.

African countries must adopt the same policy approaches for the same reasons if they ever hope to industrialize as well. However, it is a major problem that today key industrial policies are being increasingly outlawed as countries’ policy space is reduced in WTO negotiations and in a range of proposed regional and bilateral free trade agreements (FTAs) and bilateral investment treaties (BITs) that rich countries are pressuring African countries to sign.
“Industrialization is not a luxury for Africa”
Importantly, this was the central issue at the annual meeting of African finance and economic development ministers held in Abidjan, Cote d’Ivoire, in March, where ministers explored how African countries could design and implement more effective industrial strategies and policies that will support the promotion of value addition and economic transformation and reduce dependence on the export of unprocessed material. Nkosazana Clarice Dlamini-Zuma, Chairperson of the African Union Commission (AUC), told participants: “Industrialization is not a luxury for Africa, but a necessity for its long-term survival.”

But in order to industrialize, these African leaders must defy the short-term commercial pressures of richer countries and foreign investors by being willing to renegotiate free trade agreements and investment treaties, or not sign on to new ones that reduce the “policy space” they will need to build up their own manufacturing sectors over time.

South Africa recently announced it would not renew earlier BITs it has signed with various countries while overhauling its investment regime to ensure that any new agreements safeguard the policy space necessary for protecting and supporting domestic investors as well. One hopes other African countries will follow their lead.

By Guylain Gustave Moke
Political Analyst/Writer
Investigative Journalist

Photo-Credit: UN’s Millennium Development Goal (“MDGs”) -Chart showing Africa economic growth-Photo.