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Can AfCFTA help stimulate Africa’s industrialisation?

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Can AfCFTA help stimulate Africa’s industrialisation?

1st November 2019

By: Saliem Fakir

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The Africa Continental Free Trade Agreement (AfCFTA) was signed last year by the majority of the countries in Africa to create a common market and remove barriers that hinder growth and opportunity across such a vast continent.

One of the areas that could be boosted significantly is industrial development, because of the potential to grow intraregional exports and take advantage of a number of Africa’s endowments, such as its mineral wealth, youthful demographics and its relatively low-cost labour pool.

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The pursuit of industrialisation is often seen as the becoming of age for many countries trapped as they were in resource-intense and low-value sectors such as agriculture and mining. Some green shoots for low- and high-value industrialisation are emerging in several of the major economies in Africa like Morocco, Nigeria, Ethiopia, Kenya, South Africa, Mauritius, among others.

By and large, industrialisation is not as significant and concentrated as in Asia, which is always looked upon as the model for industrial development for developing countries. Trends in Africa are not moving in the classical development pathway that other countries have taken. Instead, Africa is moving from resource-intense sectors directly into services with significant gaps in manufacturing and industrial development across the continent.

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Nevertheless, the AfCFTA’s vision is to bring back home to Africa growth in industrial development. The bar for industrialisation is rising and to play catch-up will require good strategic focus and coordination. If countries are struggling to do this within countries, it is likely to be harder across the continent.

We must have a more holistic vision for industrial development: manufacturing without a whole ecosystem of other things does not make for industrialisation. Industrialisation and manufacturing are not one and the same thing. In turn, offshore manufacturing makes for a hollow subset of proper industrialisation especially if we do not add other things to it – by this I mean building mechanisms to organise knowledge, experience and skills over the long run.

The crucial strategic challenge is building a stock of knowledge and experience over time on the back of whatever form of industrial input is made in an economy. An important part of this is the establishment of flagship firms, whether private or State owned, that become flag bearers of specific industrialisation pathways. Africa does not have many of these.

The benefit of trade is that it allows specialisation to engage in a global context of competition for skills, capital, technology and knowledge. All of which tell us what the global bar is for countries to be able to sustain healthy growth and dynamism for their economies. Such strategic placement of economies requires coordination and levels of external relations and diplomacy that is mature and full of long-term foresight.

Industrialisation is far more substantial – it is this ability of a country to renew and revitalise its competency over the long run because it retains a stock of knowledge in critical fields and sectors that continuously add value to the making of goods, the provision of services and its exports. When a country reaches a critical mass of stock of knowledge, the division of knowledge does not only foster depth but has the generalised effect of driving innovation and creativity across sectors because that is how human curiosity and spillovers work.

We can make the educated assumption that industrialisation in Africa will not go the classical model of development transitions: first agriculture, followed by industrialisation and then services. Low skilled labour is moving increasingly into the services sector and the informal economy. In between is this big manufacturing and industrialisation gap. Digitalisation and automation are going to have an important influence of how industrial development evolves in Africa and where we, as a continent, are able to participate in this new digital and artificial intelligence global shift.

There is a growing intersection between services and manufactured goods for exports. Services in manufacturing themselves are exportable. The value- add of services or ‘servification’ in manufacturing needs greater attention on the African continent and the main reason we neglect potential opportunity in this is that we are still stuck in the mindset of industrialisation that these are things we make in a factory and put in a container box to be shipped off is the only thing we ought to be doing. A lot of things get added before we send goods off in container boxes. Countries that move fast into 4G and 5G networks in Africa will be able to better position themselves to participate in the global market for manufactured goods and increase their servification value-add.

It is an open question as to how much of manufacturing will continue to be still dominated by dispersed global value chains (GVCs) that have come to be a result of the expansion of offshoring made possible by the freeing up of capital flows and the information communications technology revolution. A more tactical and targeted approach to manufacturing may open niche participation in GVCs but this requires careful study and positioning.

The AfCFTA offers the opportunity for us to think of manufacturing and industrialisation in a transnational manner as it is one ‘domestic’ market. Many South Africa firms have effectively done this in retail, health, banking and insurance following the post-1994 period. It is the only thing that will deepen industrialisation in Africa with the effect of boosting exportable services within the continent and outside, as well as expanding the stock of industrial knowledge and experience on the African continent.

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