Reliance on commodities has to stop, says report<\/i><\/p>\n
Carlos Lopes, the executive secretary of the United Nations Economic Commission for Africa (ECA), often talks about Toblerone, the famous chocolate bar manufactured in Switzerland by Kraft Foods, an $18 billion company. Cocoa for Toblerone bars is imported, probably from Africa, where 70% of the world\u2019s cocoa is harvested. Mr. Lopes once pointed this out to C\u00f4te d\u2019Ivoire\u2019s president, Alassane Ouattara, and lamented the fact that only about 10% of the money from chocolates goes to cocoa producers, while the rest remains in the rich chocolate-producing countries.\u00a0 Photo: World Bank<\/i><\/p>\n
C\u00f4te d\u2019Ivoire and Ghana produce 53% of the world\u2019s cocoa. But oddly, chocolates on supermarket shelves in the leading cocoa-producing countries come from countries that don\u2019t produce cocoa.<\/p>\n
It\u2019s the same story with coffee, cotton, groundnuts, crude oil and so on. \u201cUp to 90% of income from coffee goes to rich consuming countries,\u201d states the\u00a02013 Economic Report on Africa<\/i>\u00a0published by the ECA and the African Union Commission (AUC). Ethiopian coffee farmers may toil day and night, but they reap comparatively very little. With 12% of the world\u2019s oil reserves, 40% of its gold, about 90% of its chromium and platinum, 60% of its arable land and more, Africa should do better at tackling poverty, says the report. Instead, it concentrates on exporting raw materials and importing consumer goods, hindering the ripple effect that value addition to commodities should have in the economy.<\/p>\n
This has to stop, Mr. Lopes argued with combative fervour at a conference of Africa\u2019s ministers of finance, economic planning and development in Abidjan, C\u00f4te d\u2019Ivoire, last March. He would like to see chocolate-manufacturing and coffee-producing industries in villages in C\u00f4te d\u2019Ivoire and Ethiopia. Nigeria, the world\u2019s sixth-largest producer of crude oil, should refine enough for local consumption rather than spending $8 billion a year subsidizing fuel imports.<\/p>\n
Advocates of commodity-driven industrialization have a compelling case. It will rev local manufacturing engines and create millions of jobs in Africa. More jobs will reduce poverty and expand the middle class, which will in turn demand more goods and services.<\/p>\n
According to the report, adding value to agricultural produce will unleash new opportunities for farmers, who, assured that excess produce will fetch income, could then actively participate in the marketplace. Companies will sprout with new technology, while local industry players, armed with modern skills, could insert themselves into the global trade and exert influence. Value addition could also boost intra-African trade, which is currently low at 12%.<\/p>\n
The industrialization drumbeat is sounding louder each passing day. \u201cIndustrialization cannot be considered a luxury but a necessity for the continent\u2019s development,\u201d says Nkosazana Dlamini-Zuma, head of the AUC. More urbanization, a rising middle class, an improved macroeconomic environment, a rising gross domestic product\u2014all are low-hanging fruits that can nourish industrialization.<\/p>\n
Indeed, the stars are aligned in Africa\u2019s favour. But some fear that impressive economic growth may mask the reality of poverty and breed complacency. Although Africa\u2019s economic growth is currently at 4.8% and could be nearly 6% by 2014, according to the ECA, economists also talk about a \u201cjobless growth.\u201d Such growth does not stimulate labour-intensive manufacturing to dent unemployment. Africa\u2019s global share of manufacturing is just 11%, compared to 31% for east Asia, for instance. Its production of manufactured goods should increase from the current level of 11% to at least 20% of GDP to make any meaningful impact, Mr. Lopes told\u00a0Africa Renewal<\/i>\u00a0in an interview.<\/p>\n
\u201cToday on average manufacturing in Africa\u2019s low-income countries is smaller as a percentage of GDP than it was in 1985,\u201d reinforces John Page, in a paper for the Brookings Institution, a Washington think tank. Mr. Page adds that the continent\u2019s economic growth and resilience during the 2008\u20132009 global financial crisis were largely due to \u201cnew mineral discoveries, rising commodity prices and the recovery of domestic demand.\u201d This growth trajectory is not sustainable because commodities are mostly exhaustible, and Africa has little control over disruptions in world demand and prices.<\/p>\n
Mr. Page notes that sustainable growth will depend on structural changes\u2014as in Chile, which has expanded its agro-industry, and India, which has expanded its exports of services. Mr. Lopes agrees and calls for \u201cstructural transformation,\u201d which is \u201ca shift from agriculture into industrial and service sectors.\u201d Commodity-based industrialization, he says, is the bridge from economic growth to jobs creation and social development.<\/p>\n
As Mr. Lopes and others made the industrialization case at the Abidjan conference, the audience, which included many African policy-makers, nodded enthusiastically. However, as to how that goal is to be achieved, the devil appears to be in the details. Even the ECA report acknowledges that not all countries have commodities to export, while others are landlocked and face high transport costs. And most African markets are small and fragmented, which cancels out any competitive advantage smaller countries may have.<\/p>\n
To create bigger markets, African countries should integrate their economies. Just imagine the following, said Mr. Lopes: \u201cTogo [six million people] wants to survive on its toothpaste produced in Togo, and Benin [nine million people] also wants to produce its own.\u201d The right recipe for regional integration is that countries concentrate on commodities in which they have a competitive advantage. For example, Benin and Egypt could concentrate on cotton, Togo on cocoa, Zambia on sugar\u2014each country operating in bigger regional markets.<\/p>\n
Problems with regional integration, such as weak political commitment and a lack of policy harmonization, are familiar. Yet the 2013 ECA\/AU report is optimistic about the outcome of commodity-based industrialization, which it insists \u201cmust be grounded in the reality of each country.\u201d<\/p>\n
Poor and obsolete infrastructure hinders industrialization efforts. On last year\u2019s Africa Industrialization Day, 20 November, UN Secretary-General Ban Ki-moon noted that \u201cto facilitate trade in goods and services, it is essential to reduce distribution costs,\u201d which is only possible through investments in roads, railways and energy infrastructure.<\/p>\n
With nearly 600 million people without electricity, Africa is the world\u2019s most energy-poor region, said Kandeh Yumkella, the former director-general of the UN Industrial Development Organization, at a lecture at the London Business School last November. The continent loses \u201c2% to 3% of its GDP because of the lack of reliable energy.\u201d<\/p>\n
He noted that Nigeria needs 10,000 megawatts of electricity but generates only 4,500. Yet the country has been flaring gas for 40 years. \u201cWe estimate that the gas flared in Africa can supply half of the continent\u2019s electricity needs, but we burn it with no value addition.\u201d<\/p>\n
In general, concurs the ECA, entrepreneurs in Africa \u201cface high transaction costs, protracted and cumbersome administrative procedures and bureaucratic bottlenecks, and poor physical and financial infrastructure.\u201d<\/p>\n
Many African governments are investing heavily in infrastructure\u2014railways in South Africa, energy in Ethiopia and Nigeria, road construction in Rwanda and so on. But workers are ringing the alarm bells, worried that industrialization\u2019s promise also has its perils. Imani Countess, the African regional programme director at the Solidarity Center, an international labour rights organization, said that industrialization in South Africa\u2014Africa\u2019s most industrialized nation\u2014is lowering wages and causing poorer working conditions. Manufacturing companies put pressure on the government to allow individual companies to determine their own labour standards, rather than having to adhere to the national standards.<\/p>\n
There was frequent labour unrest in Liberia\u2019s Firestone rubber plantation until the company accepted some of the workers\u2019 demands for salary increases and a ban on child labour. Workers who constantly agitate against a company\u2019s practices can disrupt its operations. Anthony Caroll, a researcher at the Center for Strategic and International Studies, a Washington think tank, wants companies in Africa to be able to hire and fire staff if necessary. On the other hand, Michael Clark, adviser with the UN Conference on Trade and Development (UNCTAD), said at a conference in New York last year that liberalization policies of the past that softened governments\u2019 grip on national economies have hurt Africa as massive profits were repatriated by foreign investors. What Africa needs now is \u201cstrategic policies targeted at specific sectors.\u201d Mr. Lopes calls that \u201csophisticated protectionism,\u201d which allows the government to strategically intervene in the market in a way that benefits national economies.<\/p>\n
Any attempt to reset the liberalization button through policies that appear to go against the free market principle is bound to be controversial. Mr. Lopes argues that \u201csophisticated protectionism\u201d policies do not conflict with the World Trade Organization regulations, as some economists claim. \u201cEverybody agrees now that there is a role for the state and there is a role for the market,\u201d he says. However,\u00a0The Economist<\/i>, a London-based magazine, ascribed China\u2019s recent huge economic leap to its allowing private enterprise to thrive with little interference, and suggested that India\u2019s current economic slowdown and Africa\u2019s high poverty rate may be the results of \u201cmonopolies and restrictive practices.\u201d<\/p>\n
While the debate continues on the best ways to achieve industrialization, Mr. Yumkella foresees disaster should Africa continue to rely only on commodity exports. The good news is that Africa can aggressively pursue industrialization; he adds quickly, \u201cWe can do it.\u201d<\/p>\n