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by Ndubuisi Ekekwe for Havard Business Review

 

China designed and executed a policy that shrank the industrialization process in a mere 25 years — something that many economies took at least a century to do. That redesign has brought immense dislocation in global commerce and industry, enabling China to become one of the world’s leading economies.

China’s success has led many African capitals to pursue the country’s same industrialization trajectory. Over the last few years, African leaders have been pursuing policies designed to mimic the path China took. Some of these policies include creating special economic zones after China’s Shenzhen and positioning the manufacturing sector as a fulcrum to attract investments and create new jobs. Despite these efforts, Africa has yet to advance in its industrialization at the same speed China did.

Put simply, the things that worked for China will not work for Africa.

China had already won sizable global manufacturing, accounting for more than 32% of the world’s industrial production as of May 2019. It became the world’s manufacturing capital through a combination of factors, including optimal infrastructure and price-competitive local manufacturing talent. In doing so, China created a well-differentiated comparative advantage that made companies from the U.S. and Europe — and later, other parts of the world — outsource manufacturing activities to China.

For more than three dozen years, a virtuous circle was created: The availability of demand from the U.S. and Europe provided China the opportunity to invest to meet its needs. And over time, China moved from basic manufacturing into advanced manufacturing domains, where state-of-the-art technologies are used to improve processes and many lower-skill processes are automated. Consequently, China has improved its capabilities in robotics and broad emerging technologies like virtual reality, augmented reality, and artificial intelligence. Today China is recognized as a leading AI player.

It is in these technological advancements that China can continue to dominate while Africa may struggle. AI is expected to distort the equilibrium of the global labor market, eliminating many factory jobs. Most Western companies will use AI to do most of the manufacturing jobs that they are currently outsourcing to China. Indeed, AI will create a massive shift in how products and services of the 21st century are developed, manufactured, and distributed.

If the manufacturing jobs by global entities like Dell, HP, and Siemens do not need to be outsourced, the expected opportunity Africa is banking on may not materialize. African leaders have expected that as China rises further, its wage levels will create disincentives for global manufacturers to continue sending work there. As that happens, they hope countries like Ethiopia, Rwanda, and Kenya can be seen as reliable alternatives that provide affordable labor with enough infrastructures for basic manufacturing. But with AI advancements decreasing outsourcing, the availability of cheap wage becomes irrelevant. China understands that, and is investing heavily to win the race of advanced manufacturing, tapping into the capabilities it acquired by making things for the world. If any outsourced manufacturing will remain, it is the advanced manufacturing. Based on available reports, Africa is not preparing for that level yet, as it continues to struggle with basic enablers like electricity, challenges that many countries solved many decades ago.

Africa can find the paths to industrialization, but in ways that do not mimic China’s. Here are some of the paths for the continent; some are already in progress and need to be deepened:

Encourage internal consumption and intra-trade. Africa should build processes to improve internal consumption, rather than focusing on using cheap labor as a comparative advantage for global manufacturing. If Africa expands internal consumption by trading more among member states, decoupling from old colonial trade routes, it can industrialize, as it has sizable markets to support the growth of companies. Today, the share of intra-African exports as a percentage of total African exports is about 17%, well below the 69% recorded for Europe and 59% for Asia. Improving intra-African commerce will advance the continent.

Push forward the Free Trade Agreement. The African Continental Free Trade Agreement, which entered its operational phase on July 7, will remove some inherent barriers for intra-continental trade that have caused most African countries to favor trade with European countries and other global counterparts, rather than with African nations. The agreement has been designed to make goods produced in Africa move within the continent at negligible tariffs. The expectation is that manufacturers will be incentivized to invest in Africa in order to have access to the integrated market. If it works as planned, the trade agreement will be a catalyst to African industrialization.

Create a single African currency. The planned currency got a boost when a regional economy, the Economic Community of West African States, announced plans to launch the ECO as a regional currency in 2020. The expectation is that once regional economies have monetary union convergence, a continental-level monetary union will be formed. A single currency will reduce barriers in trade by eliminating multiple exchanges, wherein currencies have to be converted to one of the leading global currencies, like the U.S. dollar, euro, or British pound sterling, before trading in Africa. This drastic reduction on trade frictions will boost industrialization.

There are risks to these structural redesigns, however, which must be managed. A union arising out of the single currency will require a supranational bank to coordinate monetary policies, depriving member countries of individual flexibility on areas of monetary policies. The implication is that some bigger economies will have undue influence on the performance of the union. Without careful management, the smaller economies affected could experience welfare losses, making them worse off than before the integration.

 

Improve infrastructure. In its 2019 African Economic Outlook, the African Development Bank wrote that “trade costs due to poorly functioning logistics markets may be a greater barrier to trade than tariffs and nontariff barriers.” Africa needs more deep seaports, railway lines, airports, and other critical enablers of modern commerce in order to advance. It remains more expensive for an operating factory in Accra, Ghana, to import coffee from Rwanda than from a Paris-based company, for instance. And most exports outside Africa are unprocessed raw materials that, because of supply chains and the disparate natures of the markets, have not stimulated local processing. Investment in infrastructures will close the gaps.

Invest in education. Africa also needs to invest in education to compete and advance its citizens so that it can boost internal consumption. The continent must make primary and secondary education compulsory — and free — while boosting quality by committing more resources to education. Unless Africa can educate its citizens to compete with the best in the world, it will struggle to rise.

As robotics and AI advance, most countries will keep their production processes at home, eliminating the need for cheaper labor abroad. In this redesign, Africa’s competitor is not China; robots and AI are the real competitors. Africa can no longer depend on global manufacturing to become industrialized, nor can it simply mimic China’s policies. But if Africa educates its citizens, integrates effectively on trade and currency, and improves intra-African trade, its industries can compete at least to serve its local markets. Where that happens, Africa can attain industrialization faster by scaling indigenous innovations and utilizing AI as enablers.

Sanusi Lamido, a former governor of the central bank of Nigeria, once railed against his country for spending “huge resources importing consumer goods from China that should be produced locally.”

Nigeria, Africa’s biggest economy and most populous country, is also the continent’s largest crude oil producer, but imports most of its refined oil. Exporting raw commodities and then spending vast sums of money on manufactured imports is hardly unique to the Nigeria-China trade relationship. Most African countries are in similar situations with China, the European Union, the United States or other overseas trade partners.

Although China has set up mining operations across Africa and is heavily involved in building infrastructure, much of its activities on the continent involve imported equipment and labour and no skill transfers, Mr. Lamido observed. “So China takes our primary goods and sells us manufactured ones,” the former banker wrote in an op-ed for the Financial Times, a UK-based financial daily.

Mr. Lamido’s views are shared by many African experts. Indeed, the case for industrialization in Africa has long been recognized among those specialists who argue that the continent’s economic transformation is unlikely to happen without greater industrialization. The United Nations even dedicated the two decades from 1980 to 2000 to promoting industrialization in Africa. In 1989 the UN General Assembly proclaimed 20 November as Africa Industrialization Day to mobilize “the commitment of the international community to the industrialization of Africa.”

“The lack of competitiveness of African manufacturing and the extent to which the scope for domestic value addition is left untapped are epitomized by the region’s trade in cotton,” says the UN Economic Commission for Africa in its annual Economic Report on Africa publication. For example, while Africa accounted for about 16% of global cotton exports in 2012, only 1% of these exports, or about $400 million, was cotton that had been processed into fabrics. During the same period, the continent imported $0.4 billion worth of cotton and $4 billion of cotton fabrics.

“In other words,” says the report, “The region was trading raw cotton for cotton fabrics, missing a huge opportunity to add value domestically and industrialize.” Some of the main cotton exporters include Benin, Burkina Faso and Mali. Such skewed trade patterns could result in a situation in which whatever revenue Africa generates from exporting raw materials is offset by imports of manufactured goods.

Nigeria offers a classic example of what has been happening to many sub-Saharan African countries that have concentrated on exporting raw commodities while paying scant attention to processing some of the commodities into finished goods as part of a deliberate policy on industrialization. For example, in 2012 Nigeria exported $89 billion of crude oil, according to the ECA report, but imported $5.5 billion of refined oil because its refineries have all but collapsed due to neglect. Deliberate trade policies and practices consistent with African countries’ development goals could lead to industrialization, which in turn could help transform and strengthen their economies.

Insufficient growth

Over the past two decades Africa’s economic expansion has been remarkable, with a few countries registering double-digit rises. Because much of the growth is fuelled by high demands for mineral and agricultural resources, the World Bank projects a slowdown in 2015 to about 4.4% due to weaker prices for oil and other commodities. However, growth is expected to pick up again in 2016 and 2017.

Yet as in the past, this growth will likely not be enough to lead to significant changes needed to reduce poverty by creating jobs and providing social services. Overall, “the current merchandise export structure, dominated by raw and unprocessed commodities, is not conducive to the envisaged level of development,” says Carlos Lopes, the ECA head, in his foreword to the ECA’s report, the focus of which is “Industrializing through Trade.” By favouring the export of raw materials over processing goods, sub-Saharan Africa denies itself the opportunity to add value through manufacturing, which would provide more jobs and generate additional revenue.

In 2013 the ECA argued that African countries could transform their economies through commodity-based industrialization. A year later, its report “Dynamic Industrial Policy in Africa” concluded that the continent needed to set up stronger institutions and adopt effective measures to enhance structural transformation. This year the commission is saying that deliberate and smart trade policies and practices could lead to the much-delayed industrialization of Africa.

This year’s report is making the case that African countries can use trade to achieve industrial development and structural transformation, but advises against the traditional pattern of trading, which so far has meant exchanging raw commodities for manufactured goods.

“A successful trade-induced industrialization should be interactive and coherent with a country’s national development strategy; it should be evolving and highly selective,” Hopestone Chavula, one of the authors of the report, told Africa Renewal.

Smart protectionism

  • August - November 2019

    Current Issue: August - November 2019

    Theme: Climate Change

    The effects of climate change are being felt in Africa; countries, organisations and individuals, including young people, are taking actions to tackle these effects. In this edition, we highlight some outstanding climate action initiatives by young Africans.

     

Still, Mr. Lopes from the ECA is convinced “smart protectionism” works, telling Africa Renewal last year that “all countries that have industrialized started with some degree of protectionism.” But he quickly concedes that Africa cannot practice crude protectionism anymore. “If we have to make the rules work for Africa, that basically means smart protectionism.”

In pursuing industrialization through trade, sub-Saharan Africa would not be treading untested paths. Experience from Japan, the East Asian tigers and China all show the effect of deliberate trade policies, including the role of central governments in making the right choices to advance national development goals.

While the role of governments may be important, the report says, policymakers must understand global trade dynamics and use regional and international trade negotiations to pursue their industrialization agenda.

Trade policies alone will not jump-start African industrialization, the report finds, but they will provide “a robust framework for African countries to reassess their trade policy.” This will give those countries the opportunity to identify the best routes to structural transformation and tailor trade policy to achieve the desired goals. 

This week, business leaders, project developers, development finance professionals, institutional investors representing pension and sovereign wealth funds, as well as policymakers meet in Johannesburg for the second Africa Investment Forum convened by the African Development Bank.

The Forum is an innovative marketplace - dedicated to moving development ideas and projects to bankability, mobilizing capital, and accelerating the financial closure of deals that can improve the lives of millions of people. Among other things, the Africa Investment Forum has the potential to accelerate Africa’s agricultural transformation.

In much of Africa, 60% or more of the working population is employed in agriculture. And yet agriculture only contributes about one-quarter of Africa’s GDP, with the continent mainly producing and exporting raw products and importing significant amounts of processed food. The sector punches below its weight. And yet there is huge potential for income and job creation if Africa can increase productivity and move up the value chain to produce more, higher value-added, processed food.

The bottom line is that African agriculture must move from being a “way of life” to a resilient, sustainable business sector that creates prosperity, jobs, as well as improves incomes and livelihoods of rural people. The Africa Investment Forum convenes players in the agriculture and agribusiness sector who come together to roll up their sleeves and explore business and investment opportunities. The Forum’s concrete “boardroom discussions” connect investment projects with investors. It brings together entrepreneurs, project developers, and investors interested in agriculture to make deals.

Last year’s Africa Investment Forum saw nearly 2,000 participants from 87 nations gather to discuss more than $46 billion-worth of boardroom deals. One of the highlights was a transaction involving Ghana Cocoa Board, designed to help Ghana’s cocoa sector – which employs some 800,000 farm families, producing crops worth about $2 billion in foreign exchange annually. The presence of Ghana’s Head of State, H.E. Nana Akufo-Addo, in the boardroom session galvanized investor interest in a sector so important for Ghana, one of the world’s top cocoa exporters.

This year, Ghana’s Cocoa Board returns to the Forum to sign a Facility Agreement for a $600 million syndicated receivables-backed term loan aimed at enhancing Ghana’s cocoa productivity. The investment deal – also involving Credit Suisse as well as Industrial and Commercial Bank of China Limited - was born out of the Africa Investment Forum.

This year’s Forum will also see a focus on Special Agro-Industrial Processing Zones or SAPZs. There is often little investment interest in Africa’s rural areas, due to a lack of transport, energy and other critical infrastructure. SAPZs are a solution to connect rural areas to regional and global supply chains so that they can produce higher value-added processed goods in areas of higher agricultural productivity. SAPZs gather most or all the elements of an agricultural value chain in one area: from farm to fork. Aside from attracting investment, SAPZs is also important from a development perspective because they help to raise rural incomes and create job opportunities for Africa’s surging youth population.

The 25th Ordinary Session of the Assembly of Heads of State and Government of the Organization of African Unity (OAU) 1989, declared November 20 to be Africa Industrialization Day. It was first observed on November 20, 1990.

The Africa Industrialization Day (AID), represents a unique platform to enhance international cooperation and dialogue on the pan-African industrialization agenda, and to raise awareness of the opportunities and challenges associated with this innovation drive. Every year it gathers African leaders, policy makers, and representatives of the private sector, academia, international financial institutions (IFIs) and development partners to showcase the continued relevance of industry, including manufacturing production, as a powerful engine to build the Africa we want as underlined in Agenda 2063.

This year the African Union in collaboration and partners have planned a week long activities to mark Africa Industrialization Day (AID). Africa Industrialization Week 2019 is themed, “Positioning African Industry to supply the Africa Continental Free Trade Area (AFCTA) Market"

AIW 2019 Key Objectives are:

  • Mobilizing both African and leaders from the rest of the world, including international development organizations to advocate for the accelerated and sustainable as well as inclusive industrialization of Africa.
  • Promotion of startups, small and medium sized enterprises/industries (SMEIs), as well as established middle and high-cap enterprises to strengthen the continent’s capacity to integrate into the global production and trading system.
  • Providing a platform for public-private engagement between industrial policy makers, the private sector, civil society, and development cooperating partners as they endeavor to share ideas on how to shape the continent’s industrialization agenda. This will also provide an opportunity for African manufacturers to learn from their counterparts from the rest of the world.
  • Promote the implementation of AU continental frameworks such as; the Accelerated Industrial Development of Africa (AIDA); the Africa Mining Vision (AMV), the SME Strategy; the Boosting Intra-African Trade strategy (BIAT); the African Continental Free Trade Area (AfCFTA); and the UN General Assembly's Third Industrial Development Decade for Africa (IDDA III) in the context of Agenda 2063.
  • Development a continental strategy on the automotive value chain to catalyze industrialization.

Six key outcomes are envisaged to emerge from the AIW2019.

  • Enhanced awareness on the process of Africa industrialization,
  • Policy coherence on industrialization,
  • Effective engagement with key stakeholders on industrialization and trade especially in the context of the AfCFTA. 
  • Enhanced synergies between the private and public sectors as they interface with global capital and technology,
  • Agreement on new model of developing Africa’s productive capacities in order to boost intra-African trade and enhance Africa’s share of global trade.
  • Enhanced collaboration among various stakeholders for industrialization on the continent and beyond

A number of side events will be organized around the Africa industrialization day, below you can find the list and description of all the official sides the African Union will organize with its partners. See below

Please note that each side event has its own registration. Find the agenda for the AFRICA INDUSTRIALISATION WEEK HERE

PROSPERITY AFRICA CONFERENCE - 3rd & 4th DECEMBER 2019 at Palais du Peuple

The Agenda will cover:

Focus on Agri-foods

Focus on Trade Facilitation

Focus on Technology and Innovation

Round Table: Trade for all - trade opportunities for women

In attendance will be Chamber's of commerce Presidents, Representatives from select businesses across Africa, Regional Economic Zones (REC), Public Sector, Trade Facilitation Organizations.

REGISTER

The conference is a follow up to the Africa Prosperity Conference 2017 held in Accra, Ghana whose recommendations were;

Engaging the Private Sector

  1. PACCI should take the lead to draft the proposal to create the African Trade and Investment Panel (ATIP) that represents the various private sector interests, such as the Chambers of Commerce and Industry, business councils, industry associations, and other similar business support organizations established for aggregating and articulating the views of the private sector, identify priority areas and advice to promote economic cooperation and integration in continental policy formulation. The ATIP will be composed of members of the business community, designated by national chambers of commerce in consultation with other equivalent business associations and government agencies.

  2. Each national Chamber of Commerce, in consultation with equivalent business organizations and the appropriate government agencies should designate up to three business leaders who will be called to consult or provide inputs to the CFTA negotiations.

  3. The PACCI shall serve as Secretariat of ATIP to support the objectives and activities of the Panel. References to the African Trade and Investment Panel should be included in the CFTA.

  4. Efforts should be made by PACCI to convene the First African Council on Business before the end of 2018.

Building capacity of continental and regional chambers of commerce

  1. Because trade negotiations are currently a highly complex matter that require not only tariff reductions but also technically complex issues, such as intellectual property rights, environmental protection, and labour rights, often leading towards re-regulation as well as de-regulation of the economy. Meaningful participation in trade negotiation therefore demands a high level of technical expertise. Governments and international partners should support PACCI and regional chambers and associations to strengthen ties with governments and to assume the role of coordinator for the entire private sector.

  2. Governments and businesses should establish a national focal point in each country for monitoring, evaluating and reporting on the CFTA. The private sector should systematically monitor and report the progress of implementing the Continental Free Trade Area to its constituents.

  3. National governments are strongly encouraged to use their national public-private dialogue (PPD) on trade policies, including their national trade facilitation committees, to formalize government-business collaboration and follow the CFTA negotiations.

  4. CFTA negotiators should make sure the processes of developing the CFTA take gender into consideration in the whole trade agreements processes.

  5. Governments should make sure that gender balance in the CFTA negotiation team is ensured.

  6. PACCI in collaboration with partners should organize African Women in Trade Conference – to help businesswomen discover the value of doing business with the CFTA.

  7. School environments should rapidly introduce youth to the concept of entrepreneurship and self-employment as a career option. Entrepreneurship education, therefore, should be sufficiently adopted. Tools, resources and information material to support youth entrepreneurship should be readily available and businesses should support such programs by providing resources, internships and coaching opportunities.

Trade Facilitation

  1. The free movement of natural persons that supply services should be addressed with priority, including through trusted traveler programs, streamlining visa requirements and procedures.

  2. The CFTA Rules of Origin and accompanying procedures should be VERY simple and trade-facilitating.

  3. PACCI should undertake a study to assess the value of preferential arrangements to the recipient countries, including case studies of selected countries and commodities to determine assistance, including legal support, aimed at helping African exporters to cope with technical standards affecting trade, and to penetrate markets of growing interest such as organic products.

  4. In the area of trade facilitation, the CFTA should have commitments relating to opening times for ports, the establishment and maintenance of One Stop Border Stops (OSBPs) and Single Windows, the establishment of authorized operator programs with a view to facilitating regional trade, promoting the use of electronic or on-line processing/procedures, interoperability and sharing of information from customs and other border agencies between African countries.

  5. Government should prioritize areas for sanitary and phytosanitary cooperation.

  6. PACCI should undertake the mapping of existing national and regional Alternative Dispute Resolution institutions.

  7. Negotiators of the CFTA should make sure arbitration is accessible by strengthening institutional support. Facilitation (mediation) should be available as the mechanism that resolves most trade disputes. The Chambers of Commerce should be supported to provide footprints for developing such institutions.

  8. Private investors should support the growth of coastal shipping to stimulate regional trade.

Building productive capacity

  1. Governments should make AGOA work by improving its impact notably by reducing to zero all tariffs on agriculture exports from AGOA-eligible countries.

  2. EU-Africa Business Forum should change its current format and focus more on business to business contacts facilitating trading between European and African business entities.

Trade finance for intra-African trade

  1. African governments should speed up the macroeconomic convergence necessary for a single currency across the entire sub-regions and the continent;

  2. Financial institutions should do more to take into account the needs of SMEs when introducing financial system regulations, including making financing rules and procedures related to exports more simple;

  3. Financial institutions should do more to rationalize and streamline loan procedures to support SMEs.

 

TICAD 7 IS CALLING! DEADLINE AUGUST 6

PACCI cordially welcomes you to register for the event happening August 28 - 30 in Yokohama, Japan.

 

This offer has expired!

 

Please ONLY register if you can make it to the event.

Learn more at https://ticad7.city.yokohama.lg.jp/english/

Flyer on the event: https://ticad7.city.yokohama.lg.jp/…/…/leaflet_ticad7_en.pdf

PACCI - TICAD 7 registration form : https://forms.gle/qgBLUVrzw7kRE9727

 

We will notify all who registered in a week and those accepted will receive a follow up for flights details and delegate guide.

Don't miss the opportunity to represent your company, country, and Continent!

Contact us for any inquiry.

#PACCI #TICAD7

 

   

 

This offer has expired!

The World Investment Report supports policymakers by monitoring global and regional foreign direct investment trends and documenting national and international investment policy developments.

The policy chapter of this year’s report takes stock of efforts being made towards the reform of international investment agreements and surveys new measures.

Inclusive sustainable development depends on a global policy environment that is conducive to cross-border investment.

Last year, global flows of foreign direct investment fell by 13 per cent, to $1.3 trillion. This represents the lowest level since the global financial crisis and underlines the lack of growth in international investment this decade.

The significant acceleration required to meet the investment needs associated with the Sustainable Development Goals is not yet apparent. We need to raise ambition on climate action, address debt vulnerabilities and reduce trade tensions to foster environments that are conducive to scaling up long-term and sustainable investments.

Among the most important instruments for attracting investment are Special Economic Zones. The number of zones around the world has grown rapidly this decade to more than 5,000, with many more planned.

This World Investment Report provides an overview of the global SEZ landscape and offers advice on how to respond to fundamental challenges for zones posed by the sustainable development imperative, the new industrial revolution and changing patterns of international production.

Commended this year’s World Investment Report for both industrial and investment policymakers, and as an important tool for the international development community.

Source: https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2460

 

The African Continental Free Trade Area Agreement entered into force on 30 May 2019 for those countries that had deposited their instruments of ratification before this date.

According to Article 23 of the Agreement, entry into force occurs 30 days after the 22nd instrument of ratification is deposited with the Chairperson of the African Union Commission (AUC) – the designated depositary for this purpose – an essential step for the AfCFTA to enter into force.

On 29 April 2019, Sierra Leone and the Saharawi Republic deposited their instruments of ratification with the depositary, paving the way for the AfCFTA’s entry into force. Since then, five countries have deposited their instruments of ratification: Zimbabwe, Burkina Faso and São Tomé and Príncipe, with Gabon and Equatorial depositing their ratification instruments during the 12th Extraordinary Session of the Assembly of the African Union on the AfCFTA in Niamey, Niger on 7 July 2019, marking the launch of the operational phase of the AfCFTA Agreement.

The 27 countries that have deposited their instruments of AfCFTA ratification with the AUC Chairperson are Ghana, Kenya, Rwanda, Niger, Chad, Congo Republic, Djibouti, Guinea, eSwatini (former Swaziland), Mali, Mauritania, Namibia, South Africa, Uganda, Ivory Coast (Côte d’Ivoire), Senegal, Togo, Egypt, Ethiopia, The Gambia, Sierra Leone, Saharawi Republic, Zimbabwe, Burkina Faso, São Tomé and Príncipe, Gabon and Equatorial Guniea. 

 

source: www.tralac.org

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The Pan African Chamber of Commerce and Industry was established in 2009 by 35 founding national business chambers to influence government policy and create a better operating environment for business.

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