10 Things Africa Must Do to Accelerate Industrialization & Economic Diversification

ADDIS ABABA – No country or region in the world has achieved prosperity and a decent socio-economic life for its citizens without the development of a robust industrial sector.

Over the years, African leaders have restated their determination to seize emerging opportunities to foster industrial development as an effective, socially responsible, and sustainable means towards economic transformation.

Many African countries have over the years experienced an unprecedented growth rate, partly linked to a “commodity boom” and partly due to sound economic governance. Nevertheless, there has been a subdued industrial supply response to several years of macroeconomic stability.

This is ascribed largely to a number of supply-side constraints: the lack of the required industrial capacities and capabilities, inadequate entrepreneurship and institutional support, energy and infrastructure bottlenecks and demand constraints due to the low purchasing power of the vast majority of the population, and low aggregate demand from the public sector.

Supply-side constraints have constituted a persistent problem for African industrial development requiring an emphasis on creating a conducive and coherent policy environment. Crucial too was the need to generate skills, stimulate productivity, promote investment, provide infrastructure and transport facilities, upgrade enterprise operations, transfer technology, reduce the costs of doing business and introduce appropriate standards to enable products to compete in international markets.

Supply-side constraints also existed and continue to exist outside the manufacturing sector: a lagging agricultural sector has constrained industrial production and competitiveness in many countries due to an inadequate or irregular supply of raw materials. This, in turn, has constrained the growth of manufacturing based on agro-products or processing. Although serious problems persist, as the document argues, none of them are insurmountable: the ever-diversifying global economy and its industrial value chains, and the growth of industrial dynamism in the South create as many opportunities for participation as they produce new challenges. Most importantly they create an urgency to act decisively by strengthening local capacities, activating dynamic Regional Economic Communities, and acting co-operatively at a continental level.

The African Union is keen to accelerate industrialization. Here is a highlight of some of the areas of discussion at the upcoming Summit on industrialization and economic diversification in Niamey, Niger from the 20th to the 25th of November 2022.

1. Industrializing Africa through Regional Value Chains Development

In looking at avenues to industrialize Africa through Regional Value Chains Development, intra-African value chain integration is key to reduce export dependency on unprocessed goods and natural resources and paving the way towards higher value addition and a more diversified export basket.

At least 61% of intra-African trade occurs in processed and semi-processed goods, and exports to Africa are more diversified and technologically advanced than those to other regions.

Increasing the competitiveness of African value chains will also increase resilience to supply chain shocks, made more evident by the COVID-19 pandemic

There is an urgency to refocus on the success factors of national industrial plans beyond the regional dimension, as well as the conditions that need to be met to accelerate regional value chain development. These conditions include: conditions include rule of law; good ‘hard’ and ‘soft’ infrastructure and energy; a stable macroeconomic environment; an educated, skilled, and healthy workforce; and access to financial services.

2. African Fashion Industry Value Chain and Pan African Fashion Initiative Strategy

The fashion value chain has the potential to contribute to the economic transformation of the continent but several challenges hamper its development including among others, the lack of effective policy and regulatory frameworks, high-capacity technology networks, market linkages, and trade barriers.

The main strategic pillars and intervention areas for promoting African Fashion Value Chains are effective policies, enabling business environments, capacity building, access to finance, market access, and enforcing standards, quality, and certification. Part of the strategy targets the cotton and apparel value chain, the leather and leather products as accessories, the jewellery and cosmetics value chain.

The African Union is developing a continental strategy with the implementation arrangement focused on the need for urgent actions to tap into the opportunities that will emanate from the African fashion industry.

3. Innovation, Intellectual Property and Rights, and Technology Transfer for Enhanced Productivity, Competitiveness, and Accelerated Industrialization

The role of Intellectual Property in promoting value addition in the continent, particularly in the tourism sector, demonstrates the positive impact of Intellectual Property in the value chain. It is important for Africa to fast-track the uptake of Intellectual Property and leverage it to add value to economies.

Intellectual property provides the right tools to add value, not only to the commodities but also to the industry, services, and the economy in general. Entrepreneurs and Governments are finding it increasingly difficult to conduct their activities without considering Intellectual Property and Rights issues and will firm resolutions to these issues hamper the ability to compete with companies that are increasingly using Intellectual Property to add value to their work.

4. The Africa Quality Policy

A key challenge for Africa as a region is to move away from an economic growth path built on consumption and commodity exports, onto a more sustainable developmental path based on the production and trade of high-quality products and the promotion of environmental and social well-being.

Ensuring products and services produced in Africa meet requisite standards is critical. Africa must therefore invest in quality through developing and supporting quality institutions at national, regional, and continental levels. A quality policy ensures that this is done in an organized and coordinated manner.

The Africa Quality Policy lays down policy directions for the operation of a continental-level quality institution. The African Union will use the Africa Quality Policy to support quality initiatives in its flagship programs. The Africa Quality Policy (AQP) is the result of efforts by African quality professionals and stakeholders to produce a policy that will ensure that the standards and quality requirements of flagship programs such as the African Continental Free Trade Area (AfCFTA) and Boosting Inter-Africa Trade (BIAT), Accelerated Industrial Development for Africa (AIDA), Africa Mining Vision (AMV), Comprehensive Africa Agriculture Development Programme (CAADP), Programme for Infrastructure Development in Africa (PIDA) among others.

5. Made in Africa Standards and Guidelines

The Made in Africa initiative seeks to promote the economic development of the continent by utilizing the existing natural resources of the continent, the talent base, creating additional employment opportunities, and empowering secondary and tertiary sectors.

For Africa to trade with itself, it is important to map out the comparative advantages, the quality and safety of the products, their social and environmental footprints, and the movement of the goods and services aligned to promoting the full potential gains of the AfCFTA.

The goal is to move towards a continent that trades in goods and services which are wholly made in Africa or are substantially transformed within the continent with the attendant conferring of such goods or services as Made in Africa.

6. African Women and Youth in the Industrial Development in Africa initiative

In evaluating the state of Women in Processing in Africa, the existing barriers to the growth and development of their businesses, the huge potential, and their dominant role in the informal sector recur.

However, there is a huge deficit in investment in women of approximately 42 Billion Dollars. Besides the investment shortfall, the women do not have access to critical assets, from production to technical skills that are needed to compete effectively in domestic, regional, and continental to global markets.

The initiative, therefore, proposes the development of radical policies that will see the establishment of Special Economic Zones (SEZs) in all AU Member States. The SEZs are deliberately designed to support and mobilize all the assets needed for the accelerated industrialization of the women-led initiatives and will infuse a new momentum of change which is in line with supporting the realization of the 2020-2030 New Decade for Women Economic Empowerment and Inclusion.

7. Financing Africa’s Industrialization Agenda.

Financing industrialization in Africa calls for pragmatic and feasible ways that interrogate past financing strategies for African industrialization and the challenges that remain. This has led to an evaluation of the traditional financing mechanisms which include domestic resource mobilization (DRM), foreign direct investment (FDI), and development financial institutions (DFI), and mapping of the major African regional and continental financing institutions and their role in financing industrialization in Africa.

Several recommendations will be considered, among them, the Guarantee Fund Schemes established by Central Banks; the creation of linkages between the SMEs and big corporates; Leveraging Pension Funds in financing industrialization; Leveraging Diaspora Remittances to finance industrialization; Foreign Direct Investments; Domestic Resource Mobilization; Harmonization of continental industrialization and infrastructure development programs like Accelerated Industrial Development for Africa and Programme for Infrastructure Development in Africa; and Development of an Industrialization Financing Strategy at a continental level.

8. African Union Special Economic Zones Model Law Template and Guidelines

Special Economic Zones are a key source of industrial transformation and ecosystem development at the Member States and Regional Economic Communities levels, with a focus on attracting investment, promoting job creation, boosting manufacturing and export performance, increasing indirect economic benefit, and regional value chains development. Most Special Economic Zones laws rely on a set of policy instruments, such as investment incentives and administrative facilitation, to achieve their intended policy objectives, and require law and policy design with consideration of the respective country context as well as broader regional and global economic trends.

In this context, an African Union Model Law on Special Economic Zones is proposed to support Member States, especially those at the commencement level of their Special Economic Zones programs.

Such proposals consider structures to establish Special Economic Zones law to avoid common mistakes of Special Economic Zones development; provide a minimum baseline standard by which African states can evaluate their readiness to establish Special Economic Zones to attract investment; provide a standard outline on governance, development, and operation of Special Economic Zones; and align Special Economic Zones policy-making to overarching industrial development policy within a given country, allowing coherence in policy approach and for regional value chain development.

9. African Union Commodity Strategy and its Action Plan

Despite Africa’s natural resources endowments and is a leading producer of several Commodities, the same has not translated into commensurate economic diversification and structural transformation. The implementation of the African Union Commodity Strategy and its Action Plan is therefore expected to address issues of price volatility and spur Commodities based Industrialization.

Relatedly, this is aligned with the African Union Agenda 2063 whose First Ten–Year Implementation Plan comprises 14 Flagship Projects, among them, a Commodity Strategy that leverages the continent’s commodities for an integrated, prosperous, and peaceful Africa.

10/ State of play of the Africa’s Industrial Development and second Review of Accelerated Industrial Development for Africa Strategy.

The Accelerated Industrial Development for Africa (AIDA) Strategy seeks to facilitate industrialization in Africa through seven program clusters comprising 20 programs that encompass 52 projects.

The second review of the AIDA strategy restates its relevance at achieving Africa’s industrial development needs. Since its inception, AIDA has led to the proliferation of industrial plans across African countries as well as the alignment of industrial policies at regional and country levels. AIDA also offers a policy and strategy support framework for the AU Member States.

Overcoming the implementation challenge of AIDA requires a renewed commitment to industrialization at the continental, regional and national levels that call for deep structural reforms to diversify Africa’s productive base and revive growth; consistent efforts toward structural transformation and economic diversification to speed up growth; and improvements in the efficiency of public investments through capacity building, strengthening expenditure governance frameworks, and proper planning and monitoring of investment projects.

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