Economic Report on Africa 2013: Making the Most of Africa's

260 Pages·2013·4.47 MB·English

Making the Most of Africa’s Commodities:
Industrializing for Growth, Jobs and Economic Transformation
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MINERALS
ECONOMIC REPORT ON AFRICA
2013
2013
Economic Commission for Africa African Union
Economic Commission for Africa African Union

Making the Most of Africa’s Commodities:
Industrializing for Growth, Jobs and Economic Transformation
ECONOMIC REPORT ON AFRICA
2013
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Economic Transformation by the Economic Commission for Africa, please contact:
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© United Nations Economic Commission for Africa, 2013
Addis Ababa, Ethiopia
All rights reserved
First printing March 2013
Sales No.: E.13.II.K.1
ISBN-13: 978-92-1-125119-7
eISBN: 978-92-1-056076-4
Material in this publication may be freely quoted or reprinted. Acknowledgement is requested,
together with a copy of the publication.
Table of Contents
Foreword 4
6
Executive Summary
1. Economic and Social Developments in Africa and Medium-term Prospects 16
2. Trade, Financing and Employment imperatives for Africa’s Transformation 42
3. State of Value Addition and Industrial Policy in Africa 70
4. Making the Most of Linkages in Soft (Food) Commodities 128
5. Making the Most of Linkages in Industrial Commodities 178
6. Making the Most of Policy Linkages in Commodities 230
A Statistical Note 252
Acronyms 253
Acknowledgements 256
Economic Report on Africa 2013
Foreword
Africa is at a critical juncture in its development African countries have a real
trajectory. The global economic and geopolitical opportunity, individually and
changes of the last two decades have shifted the collectively, to promote economic
global traditional power structures and witnessed transformation and to address poverty,
the emergence of new powers from the South. This inequality and youth unemployment.
shift, driven largely by a revolution in information They can capitalize on their resource
and communications technology, has led to endowments and high international
substantial increases in cross-border capital flows commodity prices as well as changes
and trade in intermediate goods, thus reflecting in how global production processes
the rising importance of value chains. Changes in are organized.
demography, rapid urbanization and a prolonged
commodity-price boom have also made huge It is precisely because of these challenges that
global changes, all of which present unprecedented the theme of this year’s Economic Report on
opportunities for Africa to overcome its legacies Africa 2013 is on “Making the most of Africa’s
and embark on a bold agenda that will see the commodities: industrializing for growth, jobs and
continent emerge as a global economic power. economic transformation”. This theme is important
because commodity-based industrialization can
Given its remarkable growth since 2000, the provide an engine of growth for the continent,
continent has been hailed as the next frontier for reducing its marginalization in the global economy
opportunity and a potential global growth pole. and enhancing its resilience to shocks. African
Political conflicts have declined, economic growth countries have a real opportunity, individually and
is robust and economic management, governance collectively, to promote economic transformation
and political stability have improved. All have and to address poverty, inequality and youth
contributed to a marked shift in global perception unemployment. They can capitalize on their
of the continent, from pessimism to enormous resource endowments and high international
potential, with both traditional and new economic commodity prices as well as changes in how global
powers clamouring to offer their partnership. production processes are organized.
Yet recent economic performance has not This report argues that the deindustrialization
generated enough economic diversification, job of many African economies over the last
growth or social development to create wealth three decades, resulting in their increasing
and lift millions of Africans out of poverty. A key marginalization in the global economy, was mainly
challenge, therefore, is how Africa can pursue the result of inadequate policies and offers a
more effective policies to accelerate and sustain policy framework for these countries to trigger
high growth and make that growth more inclusive resource-based industrialization. Key among the
and equitable. African countries must use this components of this framework is the need to
global interest as springboard to achieving broad design and implement effective development plans
structural transformation based on the needs and and industrial strategies to address constraints
priorities of Africans. and tap opportunities for African countries to
4
Making the Most of Africa’s Commodities: Industrializing for Growth, Jobs and Economic Transformation
engage in value addition and commodity-based This report is based on nine studies of African
industrialization. For industrial policy to be countries, which have helped to generate
effective there is a need for policy space. Many evidence-based policy recommendations. The
African countries saw notable improvements in studies show that African countries are adding
policy space especially before the recent global value to their commodities and developing
financial crises thanks to prudent macroeconomic local backward and forward linkages to the
management. Successful industrial policy would soft, hard and energy commodity sectors. But
assist African countries strengthen and sustain the depth of linkages varies among countries
their policy space through higher and sustainable and value addition remains generally limited,
growth rates and tax revenue. mainly because of country- or industry-specific
constraints that require strategic and systematic
This report also underscores the need for African industrial policies.
countries to develop appropriate local content
policies, boost infrastructure, human skills and The need for Africa to industrialize to accelerate
technological capabilities, and foster regional and sustain growth, create jobs for millions of
integration and intra-African trade. In this regard, the its youth and achieve economic transformation
implementation of the Continental Free Trade Area makes this report timely. It is our belief that this
(CFTA) and the regional and continental priorities of report generates the kind of knowledge needed
the Accelerated Industrial Development of Africa’s for the discourse on policy choices for Africa’s
(AIDA) Action Plan, for example, will be crucial. transformative development.
Carlos Lopes Nkosazana Clarice Dlamini-Zuma
United Nations Under-Secretary-General Chairperson
and Executive Secretary of UNECA Africa Union Commission
5
Economic Report on Africa 2013
Executive Summary
AFRICA’S IMPERATIVE TO INDUSTRIALIZE investment ties with emerging economies (linked
IN TODAY’S GLOBAL CONTEXT to their investment in Africa’s natural resource and
extractive industries) and post-conflict economic
The global economy has, since the turn of the recovery in several countries. Africa’s medium-
century, seen vast shifts in production and term growth prospects remain strong, too, at for
trade patterns alongside the emergence of example 4.8 per cent in 2013 and 5.1 per cent in
new growth poles in the South. The rapid rise of 2014.
economic powers such as China, India and Brazil,
the continuing financial and economic problems Yet this impressive growth story has not translated
of industrialized countries, and ways of doing into economic diversification, commensurate
business revolutionized by advances in technology jobs or faster social development: most African
have taken the world into a new phase of economies still depend heavily on commodity
globalization. This evolving order presents Africa production and exports, with too little value addition
with challenges as well as opportunities which, if and few forward and backward linkages to other
met by effective policies, could lead to substantial sectors of the economy. Indeed, the pattern of
socio-economic and political transformation, social development in Africa has been mixed
propelling the continent as a new pole of global over recent years: changes for the better are still
growth. recorded in most areas (especially education, child
and maternal mortality rates, and gender equality),
Following two decades of near stagnation, Africa’s but the pace is too slow for African countries to
growth performance has improved hugely since achieve their social development goals, especially
the start of the 21st century. Since 2000 the some of the Millennium Development Goals by the
continent has seen a prolonged commodity end date of 2015.
boom and sustained growth trend. And although
growth slowed from an average of 5.6 per cent in The limited impact of commodity-driven growth
2002–2008 to 2.2 per cent in 2009—hit by the on employment and social development has been
global financial crisis and steep food and fuel price aggravated by liberalizing reforms and globalization
rises—Africa quickly recovered with growth of 4.6 that, in the absence of serious government policies
per cent in 2010. The continent’s growth slipped to promote economies’ productive capacities and
again in 2011 owing to political transition in North ability to compete in international markets, have left
Africa, but rebounded strongly once more to 5.0 a legacy of inappropriate incentives and institutions
per cent in 2012, despite the global slowdown and that threaten economic and political stability as
uncertainty. well as social cohesion. Major deficits in state
and institutional capacities, in physical and policy
This remarkable performance—although largely infrastructure, as well as an inability to mitigate
commodity driven—is underpinned by a variety of impacts of external shocks have contributed to
factors, such as strengthening domestic demand the continent’s “transformation challenge”. African
associated with rising incomes and urbanization, countries must therefore address the reasons why
increasing public spending (especially on stronger growth and trade have not stimulated
infrastructure), bumper harvests in some regions economic diversification, job creation and socio-
(due to favourable weather), tightening trade and economic development.
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Making the Most of Africa’s Commodities: Industrializing for Growth, Jobs and Economic Transformation
The key challenge for African countries today Africa has also lagged behind East Asia on
is how to design and implement effective policies other measures. That region has seen not only
to promote industrialization and economic surging per capita income but also a soaring
transformation. Despite some gains in manufacturing share of global exports and income over the last
over the last decade, the continent is yet to reverse four decades (table 1). Industrial policies were
the de-industrialization that has defined its structural particularly successful in East Asia because of
change in recent decades: in 1980–2010, its share committed and visionary political leadership and
of manufacturing in aggregate output declined from institutions that designed and enforced strict
more than12 per cent to around 11 per cent, but performance criteria for industries that received
remained at more than 31 per cent in East Asia, subsidies and trade protection, supported by
where labour-intensive industries induced high and a capable bureaucracy largely insulated from
sustained growth and helped lift hundreds of millions political capture.
of citizens out of poverty.
TABLE 1: AS AFRICA DE-INDUSTRIALIZED, EAST ASIA WAS FIRING ON ALL CYLINDERS
1970 1980 1990 2000 2010
Africa
Real per capita GDP (US$) 246 900 780 740 1,701
Share in world output (%) 2.75 3.65 2.22 1.85 2.73
Share in global exports (%) 4.99 5.99 3.02 2.31 3.33
East Asia
Real per capita GDP (US$) 335 1,329 3,018 4,731 8,483
Share in world output (%) 9.83 12.94 18.14 21.53 20.69
Share in global exports (%) 2.25 3.74 8.06 12.02 17.8
Source: World Bank, World Development Indicators, 2012.
Africa’s industrialization strategies have not, to benefit non-Africans. For instance, the roads
however, transformed its economies. The seeds and railways built in colonial times were primarily
of its woes were sown during the colonial period designed to transport minerals and other raw
but the problem worsened after independence materials from the African interior to the continent’s
with the failure of often externally generated ports for shipping to Europe. They were not
industrial policies. designed to join one part of the continent to
another, and created a legacy that is still felt in the
The colonial legacy is the result of the extractive twenty-first century, with production and export
nature of African colonialism, which left behind of commodities geared towards the needs of the
structures, institutions, and infrastructure designed former colonial powers—not value addition.
7
Economic Report on Africa 2013
Then comes the seesaw of policy failure and externalities that constrained investment,
after independence: first, import substitution growth and economic diversification.
policies under which African countries decided
to industrialize, then structural adjustment Thus, Africa’s growth plummeted during the
programmes, which forced African countries to “lost decades” of the 1980s and 1990s while
de-industrialize. unemployment soared, and production and
export bases became more concentrated. And
The continent’s early state-led industrialization without industrial policies to address policy
strategies that focused on import substitution and market failures (especially of information
were characterized by massive public investment and coordination), African countries have been
and ownership of enterprises and financial unable, until now, to diversify and parlay recent
institutions—and a range of policy measures high growth and increased trade into social and
including tariff and non-tariff barriers, credit economic development.
controls and foreign exchange restrictions to
protect infant industries. But most governments More recently, the structure of the global system
did not have the financial and managerial has made it practically impossible for Africa to
capacity to operate public enterprises and benefit from globalization or move up the value
financial institutions, and the policies intended chain, which requires Africa to influence the
to direct investment towards industry distorted global agenda in its favour.
factor prices and rates of return. Thus, while
import-substitution strategies succeeded
elsewhere—especially in East Asia—they failed
TRIGGERING COMMODITY-BASED
to ignite sustained industrialization in Africa,
INDUSTRIALIZATION AS AN ENGINE
leading to mounting and unsustainable deficits,
OF GROWTH AND ECONOMIC
stagflation and debt crises in many countries by
TRANSFORMATION
the end of the 1970s.
Africa boasts significant human and natural
To help African countries deal with unfolding
resources that can be used to promote
economic crises, the International Monetary
industrialization and structural economic
Fund and the World Bank imposed structural
transformation through value-addition strategies
adjustment programmes in the 1980s
in all sectors (agriculture, industry and services),
and 1990s. Their theoretical premise was
though not all African countries are rich in natural
that markets are efficient but government
commodities—some are resource poor.As well as
interventions are inefficient because they distort
a growing, predominantly young and urbanizing
market signals. Hence, long-term development
population, the continent is endowed with many
planning was abandoned and industrial
natural resources, including plentiful land and
policies neglected in most African countries.
fertile soils, oil and minerals. Africa has about 12
The market-led development model removed
per cent of the world’s oil reserves, 42 per cent
inefficient government interventions but did
of its gold, 80–90 per cent of chromium and
not create the conditions for development
platinum group metals, and 60 per cent of arable
or address the numerous market failures in
land in addition to vast timber resources.
African economies, such as a severe shortage
of technical skills and entrepreneurship and low
With such abundance and rising global demand
rates of investment.
for raw materials, African governments are
forging new partnerships, boosting infrastructure
African governments focused on macroeconomic
investment and sharing skills and technology.
stability and institutional reforms to protect
property rights and ensure contract
But Africa can do better. Primary commodity
enforcement—often on advice from donors and
production and exports entail huge forgone
multilateral development institutions—but without
income through lack of value addition, the
coherent strategies to address market failures
8