New drive to fuel Africa’s industrialisation

By KINGSLEY IGHOBOR

Carlos Lopes, the executive secretary of the United Nations Economic Commission for Africa (ECA), often talks about Toblerone, the famous chocolate bar manufactured in Switzerland by Kraft Foods, an $18 billion company.

The cocoa for Toblerone bars is imported probably from Africa, where 70 per cent of the world’s cocoa is harvested.

Lopes once pointed this out to Côte d’Ivoire’s president, Alassane Ouattara, and lamented the fact that only about 10 per cent of the money from chocolates goes to cocoa producers, while the rest remains in the rich chocolate-producing countries.

Côte d’Ivoire and Ghana produce 53 per cent of the world’s cocoa. But oddly, chocolates on supermarket shelves in the leading cocoa-producing countries come from countries that don’t produce cocoa.

Consuming countries

It’s the same story with coffee, cotton, groundnuts, crude oil and so on.

“Up to 90 per cent of income from coffee goes to rich consuming countries,” states the 2013 Economic Report on Africa published by the ECA and the African Union Commission (AUC).

With 12 per cent of the world’s oil reserves, 40 per cent of its gold, about 90 per cent of its chromium and platinum, 60 per cent of its arable land and more, Africa should do better at tackling poverty, says the report.

Instead, it concentrates on exporting raw materials and importing consumer goods, hindering the ripple effect that value addition to commodities should have in the economy.

This has to stop, Lopes argued with combative fervour at a conference of Africa’s ministers of finance, economic planning and development in Abidjan, Côte d’Ivoire.

Advocates of commodity-driven industrialisation have a compelling case. It will rev local manufacturing engines and create millions of jobs in Africa. More jobs will reduce poverty and expand the middle class, which will in turn demand more goods and services.

According to the report, adding value to agricultural produce will unleash new opportunities for farmers, who, assured that excess produce will fetch income, may then actively participate in the marketplace.

Companies will sprout with new technology, while local industry players, armed with modern skills, could insert themselves into the global trade and exert influence. Value addition could also boost intra-African trade, which is currently at a low 12 per cent.

“Industrialisation cannot be considered a luxury but a necessity for the continent’s development,” says Nkosazana Dlamini-Zuma, head of AUC.

Indeed, the stars are aligned in Africa’s favour. But some fear that impressive economic growth may mask the reality of poverty and breed complacency.

Although Africa’s economic growth is currently at 4.8 per cent and could be nearly 6 per cent by 2014, according to the ECA, economists also talk about a “jobless growth.” Such growth does not stimulate labour-intensive manufacturing to dent unemployment.

Africa’s global share of manufacturing is just 11 per cent, compared to 31 per cent for east Asia, for instance. Its production of manufactured goods should increase from the current level of 11 per cent to at least 20 per cent of GDP to make any meaningful impact, Lopes told Africa Renewal.

Resilience

“Today on average, manufacturing in Africa’s low-income countries is smaller as a percentage of GDP than it was in 1985,” says John Page, in a paper for the Brookings Institution, a Washington thinktank.

Page adds that the continent’s economic growth and resilience during the 2008-2009 global financial crisis were largely due to “new mineral discoveries, rising commodity prices and the recovery of domestic demand.”

This growth trajectory is not sustainable because commodities are mostly exhaustible, and Africa has little control over disruptions in world demand and prices.

Page notes that sustainable growth will depend on structural changes — as in Chile, which has expanded its agro-industry, and India, which has expanded its exports of services.

Lopes agrees and calls for “structural transformation,” which is “a shift from agriculture into industrial and service sectors”. Commodity-based industrialisation, he says, is the bridge from economic growth to jobs creation and social development.

To create bigger markets, African countries should integrate their economies.

Just imagine the following, said Lopes: “Togo [six million people] wants to survive on its toothpaste produced in Togo, and Benin [nine million people] also wants to produce its own.” The right recipe for regional integration is that countries concentrate on commodities in which they have a competitive advantage.

Regional integration

Problems with regional integration, such as weak political commitment and a lack of policy harmonisation, are familiar. Yet the 2013 ECA/AU report is optimistic about the outcome of commodity-based industrialisation, which it insists “must be grounded in the reality of each country.”

Poor and obsolete infrastructure also hinders industrialisation efforts. On November 20 last year, which was Africa Industrialisation Day, UN Secretary-General Ban Ki-moon noted that “to facilitate trade in goods and services, it is essential to reduce distribution costs,” which is only possible through investments in roads, railways and energy infrastructure.

With nearly 600 million people without electricity, Africa is the world’s most energy-poor region, said Kandeh Yumkella, the former director-general of the UN Industrial Development Organisation. The continent loses “2% to 3% of its GDP because of the lack of reliable energy”. Many African governments are investing heavily in infrastructure.

But workers are ringing the alarm bells, worried that industrialisation’s promise also has its perils.

Industrialisation in South Africa — Africa’s most industrialised nation — is lowering wages and causing poorer working conditions.

Manufacturing companies put pressure on governments to allow individual firms to determine their own labour standards, rather than adhere to national standards.

Strategic policies

What Africa needs now is “strategic policies targeted at specific sectors”. Lopes calls that “sophisticated protectionism”, which allows the government to strategically intervene in the market in a way that benefits national economies.

However, The Economist, a London-based magazine, ascribed China’s recent huge economic leap to its allowing private enterprise to thrive with little interference, and suggested that India’s current economic slowdown and Africa’s high poverty rate may be the results of “monopolies and restrictive practices.”

While the debate continues on the best ways to achieve industrialisation, Yumkella foresees disaster should Africa continue to rely only on commodity exports.

— Africa Renewal