Extractive industries offer no long-term solution for countries that continue to rely on their natural resources as levers for an economic boost; when a commodity boom ends, the countries will slide back into debt and economic doldrums. There is need for diversification.
As the Covid-19 pandemic has demonstrated, a lack of economic diversification exacerbates economic vulnerabilities.
The euphoria that is generated by commodity-boom-led growth is often short-lived, given the unsustainability of such growth.
However, the African Continental Free Trade Agreement (AfCFTA) – which has been in the making for 20 years and still has a long way to go – promises to not only usher in a new era of regional integration but also lay the basis for a developmental trade regime that allows for the free flow of goods and people, and also encourages the intraregional export of manufactured goods.
But the free-trade regime should not be a race to the bottom, with each country seeking to undercut the economic prospects of other countries.
The attainment of higher levels of industrialism in Africa will also depend on greater access to cheap electricity, improvements in road infrastructure and the availability of technologies that can enhance access to knowledge that will improve the productivity of production processes. For this to happen, it is crucial that African countries have access to fifth- generation (5G) technology, which has been the source of intense geopolitical rivalries, with China’s 5G technology virtually being squeezed out of Western advanced and liberal economies through bans and other forms of restrictions.
Industrial activity should not be seen in its narrowest sense – cheap labour for low-skilled manufacturing – but as a way to better integrate African labour into the global economy. Most importantly, Africa should not substitute trade in natural-resource commodities, only to import more and more of its basic needs, including food, medicines, energy technologies and other frontier technologies, as well as goods and services, when it has the human potential to produce these on the continent.
The dearth of industrial capability on the continent – bar in a few countries – will require a new class of industrialists whose capability needs to be built through, for example, drawing on the African diaspora or national governments incentivising industrialists from other parts of the world to settle on African shores and begin the long process of ensuring that industrial capability is embedded in Africa.
Africans should be sent to the four corners of the world to study industrialism – China did exactly that under Deng Xiaoping. Today, China has over 370 000 students in the US, despite the geopolitical hostilities that exist between the two countries. The students’ remit is to capture learnings from the best in the world and to develop the Asian country’s own knowledge systems, including knowledge about the leading technologies that will be vitally important for the next wave of industrialism. Both Europe and the US treat these developments with great trepidation but live in that grey zone of cooperation and competition with China’s economy, given its sheer size and consumption potential, which are too alluring to ignore.
Industrial capability cannot be built overnight; patience and true grit are required from the State and private entrepreneurs alike for industrialism to succeed – more so as global value chains become more dispersed and are subjected to increasingly fierce competition, owing to countries seeking to capture as much of these value chains as they can.
Industrialism is a story of success and failure; this brutal reality has to be confronted with stoic resolve because industrialists in one country are competing with others everywhere in the world.
This is even more pronounced in highly developed economic sectors, where competition is becoming rife, including between a pool of surplus, unskilled human labour and machines.
Industrialists, however, do not take into account only labour when considering production costs; they also factor in proximity to resources, availability of cheap energy sources, access to markets and political stability. This list is by no means exhaustive.
This is one of the reasons why the AfCFTA is crucial, as local industrial entrepreneurs can benefit immensely, owing to the availability of markets on the continent and the growing size of the African region as an economic unit.
What should be done is that the founding base of industrial capacity should be carefully calibrated. Some of it may come organically as a result of natural endowment, skills and other attributes. The only thing here is the engine that will drive the demand. Africa has sufficient latent demand for a variety of goods and services that needs to be met and can be met with intraregional production and exports. Agricultural and food production is one of the areas where, with increased electrification, significant potential exists for expansion at both the downstream and upstream components of the value chain. There is also significant scope for agritech.
Moving up the ladder, as Ha Joon Chang would suggest, involves understanding gaps in global value chains. Part of that is capturing key elements of the global value chain, where late starters may have the opportunity to slice production costs and leapfrog technology adoption.
Every addition of an industrial production base advances not only the frontier of capability and knowledge but also clusters of industrial activity inevitably to encourage the development of other innovations and diversification of product lines. As Corinna Unger notes, developing countries also have the opportunity to exploit the frontier of the knowledge economy as the world becomes increasingly digitalised and interconnected.
Africa has an open slate as far as this goes and can shape a new frontier in digitalisation and industrialism.