Africa’s Failure to Industrialize: Bad Luck or Bad Policy?

Brookings has released a series of papers on industrial experiences in Africa.

John Page summarises the findings:

On Thursday, November 20 the United Nations celebrated the 25th Africa Industrialization Day. But perhaps “celebrate” is not exactly the right word. Africa’s experience with industrialization over the past quarter century has actually been disappointing. In 2010 sub-Saharan Africa’s average share of manufacturing value added in GDP was 10 percent, unchanged from the 1970s. At the same time, manufacturing output per person was about a third of the average for all developing countries, and manufactured exports per person about 10 percent. Thus, I pose the question: Is Africa’s failure to industrialize in the 25 years since the first African Industrialization Day due to bad policy or bad luck?

About four years ago the African Development Bank, the Brookings Institution and the United Nations University-World Institute for Development Economics Research (UNU-WIDER) came together to try to answer a seemingly simple but puzzling question: Why is there so little industry in Africa?

We called our program of research Learning to Compete, because this was the greatest challenge faced by African industry. Among the projects that we sponsored were 11 detailed country case studies—eight from sub-Saharan Africa, one from North Africa and two from newly industrializing East Asia—done by researchers from the countries involved. The case studies are now available here. They make discouraging reading for anyone interested in African industrialization.

The eight sub-Saharan countries—Ethiopia, Ghana, Kenya, Mozambique, Nigeria, Senegal, Tanzania and Uganda—were all among the region’s early industrializers and are also all among the stars of the region’s growth turnaround. Tunisia—along with Mauritius, which we did not study in detail—is one of the brighter lights in the African continent’s industrialization story. The Asian countries—Cambodia and Vietnam—were chosen because they are emerging Asia’s newest industrializers.

The country studies describe the range of public policies used to promote industrial development and the evolution of industry in each country. Most seek to identify the factors that have constrained industrialization and the nature of public actions designed to relieve those constraints. What is striking about the eight sub-Saharan African countries is that, despite considerable diversity in geographical location, resource endowments and history, they share remarkable similarity in their experience with industrialization. The Asian and the Tunisian stories begin in very much the same place as these sub-Saharan countries with an early drive for state-led import substituting industrialization but diverge substantially in terms of industrial policies and performance in later periods.

So Bad luck or Bad policy? Bit of both:

Bad Luck: Africa’s failure to industrialize is partly due to bad luck. The terms of trade shocks and economic crises of the 1970s and 1980s brought with them a 20-year period of macroeconomic stabilization, trade liberalization and privatization. Import competition forces inefficient firms, both public and private, out of business. Uncertainty with the outcome of the adjustment process and low or negative economic growth meant that there was little private investment overall and practically none in industry. Political instability and conflict also caused investors to hold back. When Africa emerged from its long economic hibernation around the turn of the 21st century, African industry was no longer competing with the high-wage industrial “North,” as it had in the 1960s and 1970s. It was competing with Asia. From the point of view of industrial development the timing of the region’s economic recovery was unlucky to say the least.

Bad Policy: But the failure to industrialize was also due to bad policy. The eight sub-Saharan countries enacted remarkably similar policies for industrial development: state-led import substitution, Structural Adjustment and investment climate reform. Import substitution sowed the seeds of its own destruction. High protection and heavy import dependency meant that African industry was poorly prepared for international competition. The tendency of many African governments to assign a leading role to the state in creating and operating manufacturing firms simply made the problem worse. Investments were often made with little regard to efficiency, and the managerial capacity of the state was badly overstretched. While the reforms of the Structural Adjustment period paid off in terms of better macroeconomic management and faster overall growth, the rapid liberalization of trade and some ill-advised conditions—such as freeing up the import of second-hand clothing for resale—probably caused a more severe contraction of industry than was desirable.

Industrialization is a tough not to crack. There are reasons why experts are not so sure of Make in India plan as well. Lots of things need to mesh well for industrialise to work. It is also a very long and painful process with a lot of path dependence (history) in the path. We have seen slogans take Africa only that far..

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