Toward Africa's Transformation

The success of Asian and Latin American countries in embarking on structural transformation of their economies to significantly uplift living standards of the poor raises several important questions for Africa. First, can Africa draw lessons from these countries? Second, what is the role of industrialization in the process of transformation? Third, how does the global trading system support this transformative agenda? Fourth what roles should agriculture and green economies play in initializing and sustaining transformation?

Why the need for Transformation?

The process of economic development is characterized by a period of rapid per capita growth combined with structural change. Hence economic transformation is defined as the interrelated processes of structural change that accompany economic development. In other words, through the implementation of interventionist-policies, economic transformation can be attributed to the process in which a poor, rural-based country becomes a middle-income country with a rising share of industry and services in gross domestic product (GDP) and employment. The transformation is generally characterised by the following patterns. With the transformation, the country moves away from the production of primary products and into value-added products. Consequently, the economy becomes integrated in the global supply chains and as a result of its trade with the rest of the world, there is continuous learning by doing and up-grading of new technologies and skill sets as well as the expansion of manufacturing capacities.

Industrialization as a Pillar of Economic Transformation

Industrialization plays a dominant role in economic transformation and development of a country. This is because industrial production creates high-skilled job opportunities, facilitates linkages across the services and agricultural sectors, between rural and urban economies and between consumer, intermediate and capital goods industries. Industrialization also contributes to the alleviation of poverty, employment generation, and regional development policies. Industrialization also spurs technological advancement and innovation as well as increases productivity.

Realizing the importance of the manufacturing sector to economic development, most African countries are currently promoting industrialization policies. This renewed interest is in part due to the potential of industrialization driving economic transformation of the continent. African countries are therefore designing industrial policies and strategies that best suit their current needs. Some of these policies combine both active industrial instruments such as selective tariff protection and broader macro-economic policies including improvement of basic infrastructure and the promotion of the private sector.

In their bid to accelerate industrial development on the continent, the African Union Summit in 2008 endorsed a Plan of Action for the Accelerated Industrial Development of Africa.  Under this plan the priorities to unleash the potential of African industrialisation are:

• value addition and processing of Africa's agricultural and mineral resources as the quickest industrialisation path;
• the development of infrastructure to sustain and promote industrialisation, such as energy, communications, transport and water;
•  improving human capital through health, education and training policies;
•  increase competitiveness and productivity through the adaptation of technologies and increased research and development (R&D); and
• private sector development and the promotion of SMEs

It is therefore important that global development assistance must be geared towards supporting African countries to achieve the above priorities.  African countries should also develop industrial policies and strategies that are anchored to their institutional, economic and social needs. There is no one policy template that spurs industrial development. African countries must be given the policy space to embark on policy experimentation and policy innovation.

Trade and Transformation

The position of African countries on debate on the global trading system is not about whether trade is necessary, but about how the multilateral trade regime can operate in ways that support and foster Africa's development. This is because a well-managed trading system improves export performance of African countries and thereby increases employment opportunities and consequently alleviates poverty. It is for this reason that Africa remains steadfast that trade negotiations must be centred on development. Trade must therefore become the prism through which development is pursued, rather than the other way around. Hence the goals of promoting development and maximizing trade are consistent with the agenda of the African Union.

That is why market access alone does not guarantee the emergence of supply capacities, nor the diversification of the beneficiary economies. Proactive institutional and policy frameworks, capable of addressing well-known market failures and coordination issues, are critical for African firms to embark on higher value-added and innovative activities. For this reason, it is important that African countries are granted adequate policy space – both at multilateral level through Special and Differential Treatment provisions, and at bilateral level notably in the context of Economic Partnership Agreements (EPAs) – to adopt a coherent and effective industrial policy framework.

Second, whilst it is primarily a responsibility of African policymakers to address the fragmentation of the regional market and realize the vision of a "prosperous and integrated continent", it is clear that development partners can favour this integration process, or rather hamper it. The current practice of negotiating different EPAs with regional blocks other than the eight recognized by the AUC (when not with individual countries), and to discriminate LDCs from non-LDCs, can hardly be described as a constructive way to support Africa's integration, and seems more reminiscent of the "divide and rule". Extending the Everything But Arms to all African countries would seem a much simpler and constructive solution.

Third, the EPAs needs to be negotiated carefully as the current form of the EPAs does not support African countries' development and regional integration agenda. That is why most African countries are reluctant to sign because of their anti-developmental content. The challenges the EPAs presents to African countries include zero tariffs on 70-80% of all tariff lines; no increase in any tariffs; weak safeguard; prohibition of new export taxes and duties. There is also the pressure from the EU to launch into liberalization of other issues such as services, investment, competition and procurement. The form of the EPAs if signed by African countries may not support the industrialization agenda of Africa and could potentially exacerbate food insecurity and increase unemployment. African governments also stand to lose revenues should sign the current form of the EPA. Given the discriminatory approaches taken by the EU to negotiate the EPAs in blocs also threatens Africa's regional integration architecture.

Infrastructure and Transformation

No country has sustained rapid growth without massive investments in public infrastructure. Infrastructure affects growth in two main ways – directly through physical capital accumulation and indirectly through improvements in productivity. At the microeconomic level, investment in infrastructure enhances private activity by lowering the cost of production and opening new markets, and presenting new production and trade opportunities. At the same time, infrastructure investment in power generation, water sanitation and housing improves the social well-being of citizens.

Implementation of PIDA and PICI Projects: The Programme for Infrastructure Development in Africa (PIDA) provides a clear vision for Africa's infrastructural development. A Priority Action Plan (PAP) has been developed for PIDA, which should guide the continental infrastructure development agenda - policies and investment priorities - for the period 2011 – 2030. Overall, PIDA provides the much-needed framework for engagement with Africa's development partners willing to support regional and continental infrastructure, including EU. The 16th African Union Assembly also endorsed 7 regional infrastructure projects under the NEPAD Presidential Champion Initiative (PICI). These projects, which are consistent with PIDA, provide an additional platform for Africa to engage with its partners, including EU.

Capacity Building for the Development of Bankable Projects: It is widely believed that lack of capacity to develop bankable projects hampers the implementation of regional infrastructure programmes in Africa. This explains why project preparation facilities such as the NEPAD Infrastructure Project Preparation Facility (IPPF) have been established. Such Facilities are useful in providing grants to African countries, RECs, specialized agencies and related institutions to prepare high quality and viable regional infrastructure projects with a view to requesting financing from public and private sources. Africa's partners should therefore be encouraged to support Funds that finance the preparation of infrastructure projects.

The role of agriculture, agribusiness and value chains in economic transformation 

Agriculture has played an important role in the economic transformation of almost all industrialized economies. As a result of transformation one witnesses a decline in the share of agriculture in both output and gross domestic product (GDP), with the consequent increase in the combined shares of industry and services in the structure.

The pathway out for eradication of poverty for Africa is through structural transformation. This pathway involves higher labour productivity in the overall economy. Successful agricultural transformation means the existence of two simultaneous developments: (i) productivity (output per unit of input, variously defined) increases sustained over two to three decades at least; and (ii) sustained income increases for the majority of farm/rural households.

African governments are responding to the challenges and opportunities of the modernization of agriculture African Union Comprehensive Africa Agriculture Development Program (CAADP) and the 2010 African Agribusiness and Agro-industries Development Initiative (3ADI). According to FAO estimates, Africa needs about US$940 billion to transform it agriculture sector. Of this amount, about 66 per cent is required for agribusiness alone.

Investments in research and development, technology transfer, human resource development, transport infrastructure and contract enforcement are also needed to support the modernization of Africa's infrastructure. Other investments are also needed in public goods and rural infrastructure, and a functional and equitable system of land rights.

Development partners also need to consider removing other agricultural practices that distorts the markets and places African farmers in a disadvantage position. These distortionary practices include support prices and subsidies for farmers in OECD countries.

The Role of Green Economy and Sustainable Development in Transformation

Green Economy is recognized as an important vehicle for achieving sustainable development. At Rio+20 in 2012, Heads of State and high-level government representatives agreed that Green Economy is one of the important tools available for achieving sustainable development and poverty eradication and could provide options for policymaking. In this respect, Rio+20 called upon UN entities and other partners to support developing countries upon request to achieve sustainable development including through, inter alia, green economy policies in the context of sustainable development and poverty eradication.

A green economy is as much about developing an economic system that builds and enhances the earth's natural capital as it is about maximizing economic benefits and minimizing social inequalities. In its simplest expression, a green economy can be thought of as one which is low carbon, resource efficient, socially inclusive, and that protects and enhances biodiversity and ecosystem services. A green economy therefore provides opportunities for sustained economic growth, job creation, social development, environmental sustainability, including climate change adaptation and mitigation, and poverty eradication.

Financing: Transitioning to a green economy entails huge investments that call for new and additional resources. In this regard, the partnership should facilitate the mobilisation of public and private funding for green investments. This should take into account the need for increased capitalisation of the African Green Fund (AfGF) to support the transfer and deployment of low-carbon technologies in Africa.

Technology transfer, innovation and diffusion: Key to promoting a green economy in the context of the Africa's structural transformation agenda is access to, and deployment of high productivity, efficient and clean technologies. Africa's partners can play an important role in supporting innovation, facilitating the development, transfer, diffusion and deployment of such technologies in the region. Apart from increasing productivity in relevant sectors, these technologies can lead to increased resource and energy efficiency in the development of the continent's natural resources. They would therefore be instrumental in fostering an efficient transformation process embodying low-carbon growth.

Enhancing market access: Africa's partners can play an important role in expanding market access for African commodities in general and sustainable/green products in particular. In this regard the partnership could play an important role in addressing the limitations posed to Africa's exports by tariffs and non-tariff barriers. Additionally, support to green infrastructure development in Africa could accelerate integration agenda that will foster intra-regional and international trade.

Support for the African Green Economy Partnership (AGEP): AGEP is one of the Regional flagship programmes developed to support the implementation in Africa of the Rio+20 outcomes on green economy. AGEP is aimed at facilitating synergy and cooperation between national and regional actors and organizations that provide support to African countries on green economy.  The main objective of AGEP is to facilitate the provision of a coordinated and consolidated support to African countries in assessing, designing and implementing inclusive green growth strategies and approaches for building an inclusive Green Economy that is built on resource efficient and low carbon development path and  contributes to sustainable livelihood, poverty alleviation and sustainable development.

This piece was written by Joseph Atta-Mensah, Principal Policy Adviser, Capacity Development Division, United Nations Economic Commission for Africa (UNECA). The views expressed in this blog are those of the author and should not be attributed to the UNECA or the UN at large. Any errors or omissions or commissions must be charged to the author.

 Photo courtesy of Africa Renewal via Flickr