African Firms Manufacturing and Economic development: Is Africa Effectively Competing in Manufacturing in the World Market?

Abstract

Abstract: This paper examines the status of industrial development in Africa with a focus on the identification of stylized facts associated with African manufacturing. It also provides an analysis of past attempts at promoting industrial development in the region and the lessons learned from these experiences. Panel data (combination of Cross sectional and Time series analysis) is applied on the data obtained by UNIDO from developing countries spanning from 1980-2010. After gaining political independence, which occurred mainly in the 1960s, most African countries started to promote industrialization. The emphasis on industrialization was based on the political conviction by African leaders that it was necessary to ensure self-reliance and reduce dependence on advanced countries. Furthermore, there was the expectation that industrialization would hasten the transformation of African countries from agricultural to modern economies, create employment opportunities, raise incomes as well as living standards, and reduce vulnerability to terms of trade shocks resulting from dependence on primary commodity exports. But during the 1970s, with successive oil shocks and an emerging debt problem, it started to become clear that import substitution industrialization was not sustainable. With the introduction of structural adjustment programmes in the 1980s, African countries curtailed specific policy efforts to promote industrialization and focused on removing anti-export biases and furthering specialization according to comparative advantage. It was expected that competitive pressures would revitalize economic activity by leading to the survival of the fittest. But whilst these policies were certainly intended to have structural effects, the conventional view is that they did not boost industrialization in the region. Efforts to promote industrial development in Africa should be centered on (a) promoting scientific and technological innovation, (b) creating linkages in the domestic economy, (c) fostering entrepreneurship, (d) improving government capabilities, (e)adopting appropriate monetary and fiscal policies.