By Toyin Abiodun, Industry and Trade Advisor, Rwanda, Maudo Jallow, Industry and Trade Analyst, Ghana and Jonathan Said, Head of Inclusive Economic Growth, Africa, Tony Blair Institute
This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.
Africa imports a net of $232 billion worth of manufactured goods every year, while it exports a net of $174 billion worth of raw commodities. Although Africa’s economy grew on average by 5.5% per year over the past fifteen years, manufacturing has remained a fixed share – still accounting for only 10 per cent of GDP.
The impact COVID-19 is having on global supply chains and on global trade, and the immense economic pressure this is placing on Africa – not least in the availability of medical equipment, but also food and other goods – signals the importance of industrialising the continent. While COVID-19 is creating a major economic and health crisis, it also presents an opportunity to grab this agenda by the horns and accelerate Africa’s industrialisation.
Evidence from across the continent suggests this is possible. Many products that are imported to the continent – ranging from machinery to textiles to pharmaceuticals to processed food and medical equipment – are already produced competitively in Africa. For example, Kenya and Uganda have a thriving pharmaceutical industry, Ethiopia and Senegal have expanded their textiles industry in recent years, while Morocco and South Africa are major car producers.
In each of these cases, and others such as in Tamil Nadu in India, the key factor of success has been government leadership. When the development of manufacturing – or other job creating and value adding sectors – is prioritised at the highest levels of government and they dialogue with serious investors to set (and adjust and adapt) the right enabling environment, sectors take off. For example, in early 2019, Ghana developed an industrial policy to kickstart the local automotive assembly and manufacturing industry, prioritising outreach to potential investors at the highest levels of government. By the first quarter of 2020, the Ghana Automotive Policy Technical Committee of the government had catalysed the establishment of the sector, with the likes of Toyota, Volkswagen, Nissan, Renault and others committing to set up plants.
Spurred by the need to produce medical equipment on the continent for both COVID-19 and broader health system strengthening, this pandemic creates an excellent opportunity for African countries to address supply chain inefficiencies and develop key industrial sectors. However, the bandwidth of governments is severely constrained during crises such as COVID-19 and hence they need to be ruthlessly targeted and focused.
What can African governments do during COVID-19 to drive industrialisation?
First, it is essential to preserve gains made in recent years from the triple shock of trade disruption, suppression measures and declining commodity prices. This requires dialoguing with existing manufacturers and supply chain actors to identify and address bottlenecks along the supply chain, while exploring the need to provide stimulus for key industries so they can weather the shock now and in the coming months.
Second, governments can follow five steps to roll out a rapid, targeted industrialisation strategy during COVID-19:
- Conduct a rapid market assessment to identify new opportunities arising from government procurement, increased demand for certain goods or disrupted imports of manufactured goods. Regular dialogue with existing manufacturers, importers and potential new investors to explore the business case for subsectors with potential is essential for this, and a Task Force may be considered.
- Prioritise only 1 or 2 subsectors for the first 6 or so months to focus government efforts given limited bandwidth. Moving fast is essential. Countries that succeed prioritise sectors that are export oriented, or that can compete (without protection or violations of the Africa Continental Free Trade Agreement) with imports. Subsectors to explore include agro-processing, automotive and machinery, chemicals, electronics, home consumables, medical equipment and pharmaceuticals, metal fabrication and building materials, plastics and packaging and garments and textiles. Subsectors with scope for backward integration have an advantage, although it is essential to be anchored to what can compete in the globalised market and work back from there, rather than starting by looking at natural resources.
- Identify bottlenecks faced by anchor investors in priority subsectors to develop a short, manageable list of tasks for the government to fix. These may include: deal facilitation, providing land access or specific infrastructure services, ensuring access to inputs or access to skills and labour (domestic or foreign), regulatory adjustments, social distancing adaptation, tax allowances, licensing provisions, fixing problems at customs, trade policy adjustments, facilitating access to finance and facilitating linkages to Small and Medium Enterprises, technology, research and markets.
- Champion coordination of relevant government agencies to task each to focus on one or two manageable interventions. Task a lead senior minister or agency head with strong links to the President to chair a taskforce with relevant government agencies and development partners, backed by a strong secretariat and delivery team to ensure follow up/through.
- Problem solve iteratively to build political and economic momentum for reforms that improve the manufacturing enabling environment. Use learnings to inform sector development plans going forward, for example through the use of industrial parks or special economic zones, tailored regulations, infrastructure and policies for prioritized subsectors.
As the Africa Continental Free Trade Area comes into play in coming years and decades, thus creating a singular market spanning 2.5 billion people by 2050, now is the time to raise Africa’s industrialisation and production transformation to the top of the agenda. Such a focus will be key to accelerating efforts in a select number of key policy areas – such as energy and road infrastructure, trade facilitation, financial sector development, education development, agriculture transformation and technological transformation.
Without a concerted effort to develop the capability to produce goods at scale on the continent, Africa may struggle to diversify its economies away from raw commodities, to create jobs at a continental scale and sufficient growth opportunities for micro, small and medium sized enterprises, to widen its tax base, and to fund the expansion of the health care system. This will be essential to manage future pandemics and lingering diseases such as malnutrition-inflicted diseases, malaria and tuberculosis.
First published in OECD Development Matters