African countries should invest in trade-negotiating capacity to defend the policy space they will require to pursue industrialisation programmes that could support the expansion of competitive manufacturing industries, a new United Nations study argues.

Policymakers should also apply their minds to dampening currency overvaluation, which is undermining the competitiveness of an already declining sector by acting as an implicit tax on exporters and a disincentive to investment in the export sector.

Addressing the media on a new report on prospects for industrial development on the continent, United Nations Conference on Trade and Development (Unctad) economist Dr Milasoa Cherel-Robson says Africa’s future industrial development could be seriously undermined by some of the current multilateral and bilateral trade proposals being pursued.

The 123-page report, entitled ‘Economic Development in Africa 2011: Fostering Industrial Development in Africa in the New Global Environment’, is a collaboration between Unctad and the United Nations Industrial Development Organisation (Unido).

It appears directly supportive of South Africa’s Industrial Policy Action Plan, or Ipap, as well as the emerging New Growth Path (NGP), both of which place industrial development at the heart of aspirations to create five-million new jobs by 2020.

As with Ipap and the NGP, the document emphasises the importance of strengthening and expanding industry-supporting infrastructure and sees the avoidance of currency overvaluation as a necessary ingredient to bolstering investment in and output from the industrial sector.

However, it offers no specific currency-weakening solutions, saying only that macroeconomic policies should be aligned with the “objective of promoting industrial development”.

The document urges African governments to adopt measures to expand manufacturing output in a way that supports export diversification and job creation and decreases exposure to external economic shocks.

Cherel-Robson acknowledges that Africa’s many least develop countries are exempt from some of the proposals to further liberalise trade in industrial products. But she tells Engineering News Online that it is important for all African countries to seek to influence current debates at the World Trade Organisation (WTO), and elsewhere, so as to safeguard against “unfair” foreclosure on future industrial policies.

For instance, the current non-agricultural market access (Nama) negotiations at the WTO seek to compel developing countries, including South Africa, to reduce industrial tariffs and to bind tariff rates below predetermined ceiling levels. Some exemptions are possible, by the Nama proposals offer no flexibility for a sector-wide exemption.

“If you look at some of the Nama proposals, it is really quite worrying,” Cherel-Robson says. Had such tariffs and subsidy constraints been imposed on the current crop of developed countries, they would not have been able to industrialise, she contends.

The document warns that such constraints will also be counterproductive to the further expansion of Africa’s manufacturing base, which currently contributes a paltry 1.1% to global manufacturing production. Moreover, manufacturing’s overall contribution to the continent’s expanding gross domestic product (GDP) has declined from its peak of 15.3% in 1990, to around 10.5%, making Africa increasingly vulnerable to fluctuations in mineral and agricultural markets.

Manufacturing across the continent is also small relative to other developing-country regions, particularly developing Asia, where the contribution of manufacturing value added to GDP expanded from 22% in 2000 to 35% in 2008.

Unctad and Unido argue that, given manufacturing’s potential to create more direct and indirect jobs than is the case in the primary and services sector, governments should recommit to intensifying efforts to develop manufacturing enterprises.

They should also work with their private sectors to deliberately design, develop and implement ‘transparent’ industrial policies, where priority sectors are identified, and supported.

However, such support should be premised on creating sustainable, competitive industries and should, thus, be “time bound” and there should be “sunset clauses” for any tariff or subsidy support. Classical import substitution should also be eschewed in favour of policy regimes that are periodically and transparently reviewed in collaboration with private sector actors.

Further, industrial policies should be integrated with other macroeconomic policy measures that are also supportive of improving the overall investment climate. They should also take account of key international themes such as the emergence of green industries and the potential to benefit from, or be disadvantaged by, integrating into global supply chains.

The policies should also take account of the changing global trading rules and the potential created by regional integration for accelerating industrial development, owing to the fact that larger markets will be created.

Linkages should also be created to existing farming and mining activities, and investments made in infrastructure that could support the development of value-adding industries, such as minerals beneficiation.

The report concludes that deliberate government intervention is needed to promote manufacturing, but that the industrial strategies should be based on an inclusive industrial diagnosis. The policies that emerge should, in turn seek to promote scientific and technological innovation, create domestic and regional economic linkages, promote entrepreneurship and improve government capabilities.