Achieving an African Industrial Revolution
Written by: Justin Yifu Lin and Andrea Goldstein
Monday, February 20th, 2017, 19:36
In the mid-2000s, after decades in the slow lane, African economies hit the accelerator. But what lies ahead for the continent is not an open highway. If Africa is to achieve its potential as the next emerging-market engine of global economic growth, it will have to industrialize.
Economists agree that, since the first Industrial Revolution, the rise of labor-intensive light manufacturing (textiles, garments, shoes, and associated tools and machinery) has played a major role in pushing up national incomes. But Africa has not managed to take part fully in industrialization, a failure that has caused it to lag behind the rest of the developing world since the 1970s. In 2015, all of Sub-Saharan Africa exported only as much apparel as tiny El Salvador.
Africa desperately needs an industrial revolution if it is to create jobs for its fast-growing youth population and reduce migration pressure. Some of the building blocks are well known: effective and reliable governance institutions, modern infrastructure, and education. What is less clear is who should play what role in supplying them.
Start with government. For the last few decades, the prevailing view guiding economic policy was that market forces should be left to operate undisturbed. Any state intervention, it was assumed, would be either ineffective or dangerous.
That view has lately been changing. “Industrial policy 2.0” assumes that the state does have a legitimate role in spurring industrialization, as long as it focuses on reinforcing comparative advantages. This approach is increasingly becoming a core component of national economic strategies.
And the scope of industrial policy extends even further. In a world of sprawling value chains, services and logistics are as important as milling steel and assembling circuit boards. Industrial policy must cover not only manufacturing, but also the economic activities that support it. Even the agricultural sector is now under pressure to increase its added value (a trend dubbed the “industrialization of freshness”).
This implies a vital role for external actors. In an interconnected global economy, effective development demands effective partnerships – a reality that China, whose economic miracle had a lot to do with global value chains, understands better than most countries. Small wonder, then, that China has been the first G20 country to recognize the importance of supporting African industrialization.
China has been involved in Africa in both an official capacity and as a major source of private investment. China’s government knows that Africa can help it to address the challenges it faces – from population aging at home to a rise in protectionist sentiment abroad – which will, among other things, put pressure on labor-intensive activities. And Chinese multinationals see a lot of potential in large developing markets like those in Africa.
Already, China is preparing to relocate 85 million light manufacturing jobs from higher-income East Asian economies, including its own, to Africa. This represents an important opportunity for Africa to create more and better employment opportunities for its citizens, thereby reducing poverty and supporting dynamic growth.
The process has already started, and early results are encouraging. In Ethiopia, in particular, Chinese investment is helping to realize the ambitious development goals laid out in the country’s Growth and Transformation Plan, and has contributed to Ethiopia’s emergence as one of Africa’s fastest-growing economies over the last decade.
But no single country – not even one as powerful as China – can offer enough support to ensure the success of an African industrial revolution. But there is at least one more country in a strong position to step up: Italy.
As Europe’s second-largest manufacturing powerhouse, Italy is home to numerous companies that lead global value chains, particularly in light manufacturing and agrifood. These firms have the power to boost international consumer confidence in products made in Africa and, eventually, in African brands.
Italy is a rarity in boasting hundreds of small and medium-size enterprises (SMEs) that are global leaders in their respective market niches. Many of these “pocket multinationals” have invested in China. And Chinese companies are increasingly investing in Italian SMEs to accumulate skills, acquire brands, and access new markets.
These linkages provide an ideal foundation for joint penetration of African markets and joint exploration of the continent’s potential as a global manufacturing hub. Together, Chinese and Italian firms can overcome the challenges posed by an unstable political environment and limited financial and human resources.
Such an approach would complement government-level cooperation aimed at removing economy-wide constraints to sustainable economic growth. And, in fact, their experience cooperating around the world means that China and Italy have strong government ties, underpinned by mutual trust and respect. In Lebanon, for example, 418 Chinese troops operated under Italian leadership as recently as last July, as part of the United Nations Interim Force.
It seems only fitting that China and Italy should work together to seize the opportunity presented by African industrialization, integrate the continent’s workers into global value chains, and ensure the fair distribution of the resulting gains. As Chinese President Xi Jinping and his Italian counterpart Sergio Mattarella prepare for a bilateral summit later this month, they would do well to add Africa’s industrialization to their agenda.
Justin Yifu Lin, former Chief Economist of the World Bank, is Director of the Center for New Structural Economics, Dean of the Institute of South South Cooperation and Development, and Honorary Dean at the National School of Development, Peking University. Andrea Goldstein, formerly with the OECD, UNESCAP, and the World Bank Group, is Managing Director of Nomisma in Bologna.
Copyright: Project Syndicate, 2017.