On 22nd February, ODI hosted a seminar on the topic of trade and industrial policy in Africa. Industrialisation is important for Africa because it is a key part of economic transformation – manufacturing tends to have a higher rate of productivity than agriculture, and if labour intensive can generate a lot of employment. The research notes that Africa’s share of manufacturing value added has been falling in Africa since 1990, and the share of this sector in exports has also declined.
The focus on the debate is how to use trade as a tool of industrialisation. Whilst manufacturing is now less than 10% of Africa’s GDP, manufactured output accounts for over 40% of intra-African exports, and nearly 15% of exports outside the continent. If barriers to intra African trade can be unlocked, such trade could be a driver of increased manufacturing in the continent. There is a renewed focus on the links between trade policy and industrialisation in Africa in the context of debates around initiatives such as the Continental Free Trade Area, and work within Regional Economic Communities.
The paper suggests that with a proper focus on manufacturing policy objectives, trade agreements could be more conducive to industrialisation objectives. Tariff policy is important – for example tariffs should not disadvantage manufacturing sectors through high tariffs on intermediate and capital goods. The study finds that effective rates of protection to the sector are negative or low in a significant number of examples.
The research rightly recognises that it takes more than trade policy to promote industrialisation in Africa. It requires complementary initiatives to address “supply side” issues such as lack of skilled personnel, access to credit, and supportive infrastructure.
The gradual decline in manufacturing in Africa has taken place in the context of a boom in exports of primary products including oil and metal minerals. In that sense it may perhaps be a more positive picture for African manufacturers than is evident in figure 1.
Nevertheless, it is helpful to focus on trade and complementary measures to promote manufacturing in Africa. Many of the issues flagged in the research have been examined in particular country contexts by BERF. See for example Kenya – BE Diagnostic and Export Strategy