industrial development in Africa

Accelerating Industrial Development In Africa

Li Yong LATEST

Africa is highly diverse in its economic, social and political structures. But the continent’s countries share common characteristics and face similar challenges, such as low levels of socio-economic development, high vulnerability to risks and persistent gender inequality. Africa also remains on the margins of industrialization, as reflected by low and declining shares of manufacturing value added (MVA) in GDP since 1970. Africa’s MVA accounted for only 1.6% of the global total in 2014 and its growth has lagged behind that of all other regions since 1990 (UNIDO, 2016). Moreover, there is only shallow participation of African economies in global value chains, with Africa adding value to only 14% of its exports, compared with 27% for emerging Asian economies and 31% for developed economies.

Scope for structural transformation

Africa has ample scope to undergo structural transformation. It can create prosperity by shifting financial, natural and human resources from low-productive agrarian or resource-based sectors to more productive industrial or service-based sectors. This transformation could allow the continent to reap its “demographic dividend”, with reference to the growth of its gross domestic product that could materialize due to the expected doubling of the continent’s workforce to almost two billion by 2050 (ibid.). Africa might also be able to harness an “urbanization dividend”, due to the increased migration of the population from the countryside to cities (AfDB-OECD-UNDP, 2016).

The time is ripe for Africa to industrialize. In fact, industrialization is key if we are to achieve the Sustainable Development Goals by 2030, in particular SDG9 – Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation. The need for Africa to industrialize was reflected in a resolution by the UN General Assembly, which highlighted that the continent has “to advance sustainable industrialization as a key element of furthering economic diversification and value addition, creating jobs and thus reducing poverty and contributing to the implementation of the 2030 Agenda for Sustainable Development” (UN General Assembly, 2016).

Against this background, the UN General Assembly proclaimed the period 2016-2025 as the Third Industrial Development Decade for Africa (IDDA III). UNIDO was called to develop, operationalize and lead the implementation of the programme for IDDA III. UNIDO will thus scale up its technical assistance to African countries, mobilize resources and foster partnerships with other entities in the UN development system as well with other development actors for the implementation of IDDA III.

How can Africa industrialize?

So how can Africa industrialize in a sustainable and inclusive way? Industrialization does not happen automatically. Africa needs to build on its existing economic structures (including its focus on agricultural activities), engage in trade and regional integration, and access newly available technologies. At the same time, it needs to apply and develop green technologies and ensure the social and economic inclusion of women and the young.

Agribusiness offers a unique opportunity to stimulate inclusive development in Africa. This is because agriculture remains the primary employer for 60% of adult workers in sub-Saharan Africa (UNIDO, 2016). Stronger linkages between farmers and agro-industry can improve supply-chain efficiencies, improve access to local and global markets, and increase the real incomes of farmers. Agribusiness can also be linked with high value-added tourism to generate innovation, diversification and jobs. In this context, it is important to strengthen countries’ capacity for compliance and enforcement of norms and standards (ibid.). UNIDO will support the implementation of the African Agribusiness and Agro-industry Development Initiative (3ADI) , with the aim of creating an agriculture sector which consists of highly productive and profitable agricultural value chains.

Industrialization can also be brought forward through increased trade and deeper regional integration. The benefits of industrial agglomeration can be harnessed by developing transport, logistics and industrial corridors, with hub development around transport nodes and urban centres. Mechanisms need to be found that will make trade preferences commercially meaningful to African economies. The organization of production in global and regional value chains also offers new opportunities. In this context, UNIDO will promote industrial clusters, and design and operationalize a selected number of special economic zones and regional industrial zones.

The New Industrial Revolution (NIR) – characterised by modern technologies related to big data, cloud computing, artificial intelligence, etc. – also provides a promising avenue to Africa. If Africa can leapfrog more developed countries, the NIR has the potential to improve productivity, and reduce energy and resource consumption at a much faster speed (ibid.). To do so, the capacity of science and technology personnel needs to be built, innovation systems need to be strengthened and innovative entrepreneurship needs to be nurtured.

In order for industrialization to take place in a sustainable manner, the above endeavours have to be accompanied by investments in resource efficiency and energy, as well as in green technologies and industries. These investments can lower the cost of bringing power to rural areas, while contributing to global efforts to mitigate climate change. For the benefits of green industrialization to be harnessed, the capacity of institutions and enterprises needs to be strengthened (ibid.). To this end, UNIDO will support the scaling up of the development of renewable energy, in particular hydropower.

Moreover, inclusive industrialization means ensuring that no one is left behind, including women and young people. Women typically bear the brunt of unpaid care work and receive lowerwages than men. It is estimated that 74% of working women in Africa are in low productive agriculture and informal employment, compared with 61% of men (ILO, 2013). Some 86% of female workers in Africa’s least developed countries are in vulnerable occupations – far above the developing country average for female workers of 35% (UNIDO, 2016). Due to higher wages in manufacturing, increasing female labour participation in this sector is important for reducing the wage gap between men and women (ibid.). Women’s education, entrepreneurial and technical skills, and their access to modern technologies, business support services, advocacy, and self-help networks also need to be strengthened. In addition, the entrepreneurial spirit of the continent’s young population needs to be nurtured. More than 50% of the continent’s population are under the age of 18.5, and 19% are between 15 and 24 years of age (UN DESA, 2015). UNIDO will promote investment and rewards for innovation that will help to include women and young people in Africa’s industrialization.

Global collective action and the role of UNIDO

Africa has already consolidated a common regional vision for development. The New Partnership for Africa’s Development (NEPAD) , the African Mining Vision , Agenda 2063 and the First 10-Year Implementation Plan of Agenda 2063 are promising mechanisms for mobilizing multi-stakeholder partnerships to promote industrialization. The African Union Commission, assisted by UNIDO, has also formulated an Action Plan for the Accelerated Industrial Development of Africa (AIDA). This aims to mobilize financial and non-financial resources and increase Africa’s economic competitiveness. These initiatives all underscore the importance of manufacturing and industry for higher standards of living, inclusive economic growth and environmental sustainability.

Global collective action can support the continent on its path towards inclusive and sustainable industrialization. The international community can provide knowledge-sharing platforms for peer-to-peer learning, support the exchange of best practices, engage in multi-stakeholder discussion and launch in-depth reviews for country strategies. Donor countries can provide financial resources.

UNIDO stands ready to support Africa. The organization will further leverage its convening function to increase the momentum for Africa’s industrialization at high-level events. Together with the United Nations Economic Commission for Africa, UNIDO will support the development and management of industrial policy mechanisms by African countries. Jointly with the African Union Commission, UNIDO will strengthen the capacity of institutions to collect, analyse and manage industrial data. Other areas of focus include the scaling up of regional quality infrastructure projects with regional economic communities (e.g., ECOWAS, EAC and SADC), the operationalization of the Pharmaceutical Manufacturing Plan for Africa, support for investment and technology promotion, and resource-efficient and cleaner production, as well as support for national compliance with multilateral environmental agreements.

UNIDO’s Programme for Country Partnership (PCP) is another promising mechanism to promote industrialization. With PCPs, UNIDO complements its technical assistance with its convening function and policy advisory role to support the design and implementation of industrialization strategies. The first two PCPs have been underway in Ethiopia and Senegal since 2014. The PCP for Ethiopia focuses on three light manufacturing sectors: agro-food processing; textiles and apparel; and leather and leather products. These sectors were chosen due to their prospects for job creation, strong linkages to the agricultural sector, high export potential and capacity to attract private sector investment. They will act as a springboard for transforming Ethiopia’s economy from one based on agriculture to one driven primarily by light industries. The PCP for Senegal focuses on three areas too: industrial policy development; the establishment of agro-poles for agricultural value chains; and the operationalization of existing industrial parks, as well as the development of new ones. One of the flagship projects in Senegal is the Diamniadio industrial park, a major industrial public-private partnership project that is currently under development. All activities are in line with the government’s objective to transform Senegal into a regional industrial hub. Mainstreaming the PCP approach to other African countries could contribute to the implementation of the 3ADI.

Conclusion

To conclude, Africa is by no means destined to lag behind the rest of the world economy. On the contrary, Africa has the potential to become a global economic power horse.

UNIDO will continue to draw on its extensive experience to help Africa achieve inclusive and sustainable industrial development. I would like to call all stakeholders to join forces in leading Africa to industrialization and spreading its wealth among its people.

Written by

Li Yong, Director General, United Nations Industrial Development Organization (UNIDO), has had an extensive career as a senior economic and financial policymaker. As Vice Minister of Finance of the People’s Republic of China and member of the Monetary Policy Committee of the Central Bank for a decade, Mr. LI was involved in setting and harmonizing fiscal, monetary and industrial policies, and in supporting sound economic growth in China. He pushed forward financial sector reform, and prompted major financial institutions to establish corporate governance, deal with toxic assets and strengthen risk management.