Industrialisation: True or moment for dreaming big?

We have recently heard a lot of talk about the need for industrialisation as a tool for our socio-economic development.

Let us briefly consider the whole question of industrialisation. Why does industrial development continue to be sluggish in our country? -- we have a long tradition of trading and entrepreneurship – somehow also fuelled by our fellow citizens of Asian origin; we have a large population ready to engage in agricultural activities if there is a ready and stable market for their produce; we have a wide network of global and regional commercial links; we have a working democracy and political stability environment; we have a risk-taking culture in some of our tribes (at least); we have relatively-developed banking system, although largely tilting towards commercial banking; we have a stock market (dating back 16 years ago); we have a liberalized economy ready to attract FDIs, private equities, VC funds, etc.

Following independence, our country, as many others in Africa have had several extensive plans and elaborative policies that formed the critical framework for our industrial development, which was so vibrant during the 1970s to early 1990s. Then came the reality; almost the whole world moved towards the free market economy, economic liberalisation, globalisation, privatisation of state-owned entities, etc.

As opposed to our case, the wave of adopting free market economy, democratization of politics, trade, investment and information flow, many countries with similar levels of development as ours at the time of independence, especially those in Asia and Latin America marched far ahead in terms of industrial development – what about us?

It is in this contextual framework that we should question ourselves even further, what happened to us, why did we have to kill our young industries in the name of privatization? What can we do to restore the industrial development glory? Which forms not only the fundamental bases for inclusive economic growth, but also a significant support as an uptake to the local agricultural sector, leading to non-seasonal job creation in our economy, and hence facilitating job creation for our youth.

Industrial development can significantly be used also as a tool for balance of trade and foreign exchange stability. After all, most economists seem to agree that it is difficult to achieve significant and sustainable levels of economic growth and development without a developed industrial sector. Now, the question is – can we afford to do otherwise?

Can we grow?

I admit that, it is not that we do not have industries in our midst or that there hasn’t been development in this space, the question here is where do we stand today relative to 25 years ago? Have we made enough progress in terms of industrialisation? Why not? How can we make a difference? Who should play that role? What do we envisage to be the pace and depth of the industrial sector?

A recent report of the UN Industrial Development (Unido) says “Global manufacturing has been shifting from developed to developing economies even faster, with economies such as China, India and Taiwan building strong manufacturing sectors.” What about us?: can’t we grow if we opt to? What about policy constraints or the lack of it, will we change this paradigm as we craft our development agenda as far as industrialisation is concerned? And what would be the path of implementation? Furthermore, we are somehow poor in noticing global trends; for example, in the process of paradigm shift as it relates to globalization we have failed to derive benefits from the so-called ‘Trade in Tasks’. One of the outcomes of globalisation is that of disaggregating production of individual components and spreading various tasks of the global manufacturing process to different countries in accordance with climate, costs and competitiveness. Asian and Latin American countries have managed to leverage on this ‘Trade in Tasks’ paradigm, how are we fairing up? Take an example of India, which has registered remarkable gains in sectors such as information technology, telecom and pharmaceuticals; this is the same for countries such as China, Taiwan, South Korea, Malaysia, Turkey, Mexico, Brazil, etc.

Statistics are not on our side either -- manufacturing value-added, not only in Tanzania but in Africa is still one of the lowest in the globe i.e. averaging less than 2 per cent per annum in the past twenty years, compared to India, for a example, the rate of manufacturing value-added rose from a yearly rate of 7 per cent during 1992-2002 to 8 per cent during 2002-2012 and probably more than that from 2013 onward. per capita manufacturing value added in India also rose from $116 in 2006 to $158 in 2011 and per capita manufactured exports from $90 to $202.

Can FDIs be left as the only key solution?

Given our policy of a free market, the globalisation and democratisation of trade, investment, information flow, etc -- we have on our own right been focusing on attracting FDIs as a key tenet towards our industrial development -- in my view, a programme of industrial development is not just about attracting FDIs. History records that it may also not be right to assume that merely opening up the domestic economy will attract huge FDIs interested in local economies industrial development.

True, FDI leads to higher exports and job creation apart from enhancing expertise and efficiency. However, evidence shows that the real benefits from it could more effectively be harnessed on the basis of local enterprises and entrepreneurs working hand in hand with foreigners within the framework of policy pragmatism, prevalence of productive firms, effective forward and backward linkages, fair competition and tax laws, investor protection and an infrastructure and legal framework that will work at the required speed.

Factors such as: (a) top-down decision-making in regard to industrial policy, (b) unwillingness to relax direct control of strategic industries, (c) interference in investment decisions, (d) neglect of developing local entrepreneurship and competition, and (e) lack of proper coordination between different development agencies within the same government affects the pace of growth notwithstanding the FDI flows. As we recently observed following the 2014-15 Global Competitiveness Index (CGI) Report, we so much need to watch these factors and amend them appropriately. We also need to clearly articulate and implement an industrial policy framework that looks into different factors that may determine our industrial sector development. Do we have such industrial policies in our grand economic plans or are we just making good political talking points.

Unido, in its latest report, sums up the key features that make an industrial policy successful. “Industrial policy — the main objective of which is to anticipate structural change, facilitating it by removing obstacles and correcting for market failures” should seek to promote such change at each stage of development, in four main ways: (a) as a regulator establishing tariffs, fiscal incentives or subsidies; (b) as a financier influencing the credit market and allocating public and private financial resources to industrial projects; (c) as a producer participating directly in economic activity through, for example, state enterprises; and (d) as a consumer guaranteeing a market for strategic industries through public procurement programmes.

Africa has one way or the other of architecture in the form of a developed democratic system, a wide range of policymaking institutions, regulatory authorities, financial markets, risk assuming and risk transfer instruments and some enterprising people -- that in itself makes it much easier to stir and stimulate growth with sound policy interventions. The question is: where are these policies?

Governments must lead

Finally, our government should play a major role in creating a pathway for industrial development. A joint study of ILO and Unctad, ‘Transforming Economies: Making Industrial Policy Work for Growth, Jobs and Development (2014)’ brings out this aspect forcefully.

“History shows that in all cases of successful catching up, the State has played a proactive role, be it in building markets, in nurturing enterprises, in encouraging technological upgrading, in supporting learning processes and the accumulation of capabilities, in removing infrastructural bottlenecks to growth, in reforming agriculture and/or in providing finance. However, this is not to say that such successes all follow a uniform model; on the contrary, they encompass a variety of different institutional arrangements and policies” says the Report. Thus our next government should have to play a proactive and pragmatic role in stepping the scope, quality and reach of interventions if we are to make substantial industrial development.