Tag: trade

Kickstarting intra-African trade & industrialisation through regional value chains

I am a pan-Africanist, firmly of the belief that Africa is stronger together. That when acting in concert we can accelerate socio-economic development, and make our voice heard and matter on the international stage in an increasingly fragmented world.

However, first we must get better at working together, particularly when it comes to economic and trade policy. The selfishness with which we guard parochial economic interests, is at odds with the regional and pan African institutions we have established to foster the continents stated ambitions on trade and development.

Thus, as we try to reach the extraordinary ambition of the ACFTA that envisions a pan-African trade bloc, it is worth taking a leaf from beginnings of the European Union. Starting small and building towards a massive ambition. The EU did not start with a  big bang, it started as a steel and coal trading community, between Germany, France, Italy, the Netherlands, Belgium and Luxembourg. Creating a win-win situation that convinced the politicians, bureaucrats, and people to go all in.

The ACFTA can play this role, fostering strategic cooperation using specifically identified regional value chains. Identifying goods that currently do or have the potential to use inputs from across a region and investing in that potential to create positive incomes and linkages for the various countries involved. In doing so, it can lay the foundation and support for pan-African trade and collaborative policy making.

Fostering Strategic Cooperation

I am Kenyan, a member state of the East African Community (EAC), regularly referred to as Africa’s most integrated Regional Economic Community. With a common trade area, coupled with unprecedented cooperation in a multitude of policy areas, with a stated ambition of becoming a political federation. Unfortunately, the reality is far from the ambition. The common trade area is subject to the self-interest of the nation sates, and their own political economic lobbies. Thus in recent years we have been treated to Tanzania burning Kenyan chicks at the border, Kenya banning Ugandan milk, Uganda and Rwanda closing their mutual borders. Undermining the laws and institutions of the EAC.

If the ambitions of the EAC cannot be achieved in East Africa where there is decades of history of cross border collaboration, what makes us think that it can happen across the continent. Far from being a pessimist, I think the ambition is still valid. That we can foster cooperation needed, by investing in and building value chains.

Why value chains

The value chain of a product is everything that goes into making it and getting it to market. For example, if you look at the value chain of a bottle of beer it starts with the inputs, in this case the farmers who grow the barley, hops, and sugar, the chemists who grow the yeast, the glass maker who makes the bottle, the company that makes the bottle caps. It all comes together in manufacturing process at the brewery where the beer is made, put in a bottle and capped. Its then sold to a distributor, put on a truck, and delivered, the distributor then sells it to an establishment who sells it to a customer. A beer is a comparatively simple product when compared to a car, or solar panels or a smartphone, but whatever the product, the inputs come from a variety of places to be put together in a complex manufacturing process and distributed along a complex logistics chain.

Products with the right value chains require a range of inputs, which can be sourced from different countries and industries within a region. In that value chain, can be built a coalition of the willing among the businesses that supply inputs, those that manufacture the goods and those that distribute and sell those products. That coalition of the willing, the participants in the value chain can create the political-economic support within the individual countries necessary to sustain broader political support for open trade.

As value chains gain success there will be proof and willingness to expand the concept, for people to stop seeing buy Kenya build Kenya, or made in SA, but rather buy Africa, build Africa and proudly African. One value chain at a time, from beer, to motorbikes, to fertiliser to solar panels, we can build economic, logistical, and political relationships that can provide a foundation for Africa to think and dream strategically. To realise the dream of using the raw materials that all to often leave the continent should stay in Africa and make the critical technologies of today and tomorrow in Africa.

Building complexity

Beyond the politics, value chains will allow Africa to build the large complex corporations that are at the centre of economic development. Since independence African economies have largely been dependent on small enterprises and smallholder farming. They have proven to be extraordinarily resilient, adaptable, and creative, thriving in booms, surviving in recessions and making do in everything in between.

However, while small may be resilient it is not transformative. As David Pilling points out in a recent article “Large complex companies, drive productivity by organising workers, building on their specialisation, and pulling in vast resources to create economies of scale.” The successes we see in China, South-East Asia and Latin America have all built large complex industrial networks, as the foundation for industrialisation and sustained economic growth.

Deliberately focusing policy efforts on building regional value chains will encourage the set-up and growth of the large complex businesses needed to coordinate, fund, and use these value chains. Which in turn will need attendant goods and services like finance, marketing, ICT among others, creating economic ecosystems. Eventually with time, like we have seen in Asia these African businesses can provide a foundation for growth and become players on the global stage.

Conclusion

Intra-African or pan-African trade and industrialisation is a big dream that could spur the industrialisation of the continent. Which is critical to create the millions of jobs we need and sophisticated companies and services that will keep wealth on the continent.

But it won’t happen overnight, nor will it happen automatically. African governments, industries and multilateral institutions must be deliberate. Using carefully identified products to build value chains of goods, money, trust, political and commercial interests, will give us the basis for pan African industrial networks. If Africa is ever to realise the dreams of the ACFTA, or Vision 2063, if we are to realise the dreams of African built phones, cars, power plants creating these value chains is critical.

After the crisis: driving Africa’s post-Coronavirus recovery

Right now, and understandably so, African governments are focused on dealing with the immediate health crisis presented by Covid-19. Preventing the spread of the disease among African populations and treating those who are already sick, are the priority of government right now. However, eventually, this crisis will pass, public health authorities will eventually manage to control the spread of the disease and effective treatment measures (or vaccines) will be developed. When the crisis is over its negative economic impact will become clear, and African governments will need effective strategies that to foster economic recovery in the short term and a medium to long term strategy to fix the fragilities in African economies exposed by the crisis.

The economic impact of the crisis

For Africa, this crisis will have many effects on the economy.

  • For oil and commodity-exporting countries, the fall in prices will drastically cut their tax revenue as well as related incomes within the economy.
  • Disruptions to trade will hit manufacturers and projects on the continent as they cannot get enough of the components or raw materials they need. Similarly, retailers who import goods to sell may run out of stock. Combined this will drive inflation and possibly force manufacturers or projects to shut down.
  • Disruptions to trade will also hurt those economies such as Kenya, Ethiopia, SA, and Ghana who export agricultural goods and produce, where the majority of the population is involved in agriculture, falling prices and exports will hurt incomes of both businesses and households.
  • The tourist industry, which is a top income earner in several African economies will be severely hurt by the travel restrictions and quarantines on the primary tourist markets in the USA and Europe. Across the continent’s tourist destinations, hotels, conferencing destinations, resorts, parks etc, will be bleeding money and jobs. While the continent’s airlines will be suffering massive losses as passenger numbers plummet.
  • A global economic downturn will shift investor sentiment, international investors will be warier of investing in Africa and we are already seeing the impact as stock markets across the continent register large falls as international investors withdraw their funding.
  • In China (which is now Africa’s largest trading partner and investor) the government will be more focused on economic recovery at home. Meaning that some of the expected Chinese investment on the continent will likely be delayed.

Short term response – kickstarting the economy

For all African economies, the combination of a global economic slowdown and the economic impacts described earlier will decrease both private sector activity and public sector revenues and spending. In an environment where most African governments were already struggling with large debts and deficits, what can we do kickstart the economy once the crisis is over.

Forget spending focus on tax

The first impulse of much African government will be to spend, to use the government’s ability to spend large amounts of money to create demand within the economy. Frankly, this won’t work in Africa at least over the short term. This is because African governments are incredibly inefficient (and often corrupt) so it not only takes a while for governments to spend money it also means that the not all the money intended for a specific purpose necessarily reaches it. Secondly, the money has to be found, which for many governments on the continent is a problem.

A short-term policy response intended to kickstart the economy must be something that is quick and has an immediate impact on the bottom lines of businesses and people’s pockets and the best tool for that at the moment is taxes and credit. For businesses, the key is helping them preserve cash flow so they can make it through the worst and drive a recovery.

  • There are a lot of taxes and fees that are levied on the short term (monthly, weekly, or daily) income of businesses (especially SME’s) such as turnover taxes, or licenses. Governments should consider waiving these for short term (3 to 6 months), that will enable businesses to preserve cash flow.
  • Statutory payments to public social safety net schemes e.g. health insurance, social security etc. which are usually paid by businesses on behalf of employees could be waived for the short term which would make it cheaper for businesses to retain people in employment.
  • Work with banks and the wider financial sector to come up with solutions (e.g. invoice discounting backed by government bonds) that would ensure that all pending government bills are paid quickly. This would put money in the pockets of companies that business with the government quickly, which will help ensure there is cash flowing through the system.

For individuals and households, the highest impact thing government can do to put money in pockets and help demand recover is again taxes, specifically VAT, which is often levied on (almost) everything. If VAT can be waived, for the short term, on critical items that people commonly buy (food items, data and mobile phone credit, soap, water, electricity) it will give people some extra money which they can spend on other things, and help drive the recovery of aggregate demand within the economy.

Long term response – long term growth and resilience

The crisis has exposed some key fragilities in African economies. But, as the Americans like to say, never let a good crisis go to waste, in other words in crisis there is an opportunity. Africa can use the opportunity of this crisis to build in greater resilience and the foundations of long term growth into its economy.

Trade

Africa can take advantage of the fragility that has been exposed in global supply chains. Companies both in Africa and globally will be looking to diversify their supply chains so that in future they are not as widely disrupted by a crisis in a particular part of the world (namely China).

With its significant labour pool, government focus on industrialization and improving infrastructure Africa offers a potentially attractive location for diversified supply chains.

For African companies specifically, governments would do well to focus on those goods and products whose production and distribution has been disrupted and encourage their production in Africa. Taking advantage of the soon to be active Africa Continental Free Trade Area, African based supply chains could prove to be more resilient for African producers and consumers than those based abroad. Investing these would not only foster resilience but create jobs and income as well.

FDI

As happened after the global financial crisis Central Banks in the developed world have responded by cutting interest rates, as a result, yields on government bonds are close to zero or in negative yield territory. This will likely be the case for some time after the crisis has passed as Central Bank’s try to fuel a quick recovery. As a result, investors from these markets will be looking for higher yields from their capital, which they cannot get at home. This will give them a greater appetite for risk with the payoff being higher returns, Africa will present multiple opportunities for these investors to try and take advantage of with their greater risk appetites. If we identified the right project’s and opportunities (such as privatisations or stock market flotations) that would benefit from these flows, and package them right we can direct this money to places where it will have a long term positive impact.

Domestic investment

International capital markets will be distorted for some time after this crisis, by central bank and government stimulus policies. It will thus be important to put in place policies that encourage domestic investors (e.g. pension funds, mutual funds, etc) to engage with and invest in African businesses and commodities.

Structural reform

Crises offer governments the opportunity to address issues that would otherwise be politically impossible to address. For instance, a public health crisis emphasises the need for Universal Health Care, an expensive proposition which government are not usually brave enough to attempt. However, a health crisis offers the opportunity for a fundamental reshaping of the health sector. The same goes for government finances, its hard to take away MP’s perks, the cars of senior civil servants, cancel the vanity project of politicians. However, a public health and economic crisis can serve as a valid reason to cut the fat that will not elicit too many questions or a fightback.

Conclusion

Just as we cannot afford to be lax in how they respond to the crisis, African governments cannot be lax in how they deal with its economic consequences. Otherwise, an economic crisis will follow swiftly on the heels of the public health on. If we do not have a strategy to deal with it we may end up with an economic crisis that disrupts more lives than the Coronavirus.

As I have suggested in this article there are tools that the government can use over the short term to put more money in the hands of businesses and individuals. This can help spark a recovery. Over the medium, to long term, there are a number of policies that government can pursue to equip Africa economies with the tools they need to weather future crises as well as lay the foundations for a more robust African economy.

Crises suck, we have to ensure they don’t last longer than is necessary.

Policy lessons for the Africa Continental Free Trade Area

On May 30th, 2019, thirty days after the 22nd African state had deposited the instruments of ratification, the African Continental Free Trade Agreement (AfCFTA) came into force. For many, the AfCFTA is a cause for significant optimism. As the wider world (mainly the west) is increasingly questioning globalisation and integration, Africa is moving closer together. The AfCFTA is at the centre of that, a pan-continental free trade area that the African Development Bank thinks ‘will stimulate intra-African trade by up to $35 billion per year, creating a 52% increase in trade by 2022; and a vital $10 billion decrease in imports from outside Africa’.

The ambition is incredible, “a single continental market for goods and services, with free movement of businesspersons and investments”, but, as they say, the proof is in the pudding. Africa has tried this before (although on a smaller scale). There are a number of Regional Economic Communities (REC’s), around the continent. However, when it comes to trade, they have never quite hit their potential.

Figure 1: African Regional Economic Communities approved by the AU

 

For the AfCFTA to work we need to learn from the lessons that have held our own REC’s back as well as lessons from economic and trade areas such as the EU. Most important is that we must be the understanding that for the AfCFTA to meet its potential it must be designed with people at its centre and the social, economic and political realities of the diverse continent in mind.

1 – The Brexit lesson: a people-centred union

When it comes to trade unions, the elephant in the room is Brexit. One of the main drivers behind the Brexit vote was that it was seen as a project of the elite, benefiting certain people and groups while leaving another behind. If it is to work the AfCFTA cannot be seen as an elite project, it must be centred around the people that it is intended to serve this can be done in three critical ways.

First and foremost, African’s must be involved in the technical design of the AfCFTA. This means the team putting together the rules, regulations and policies that will govern the free trade area, must consult African people, civil society and business both big and small. Their input will be critical to ensuring that it is designed around the needs and aspirations of African’s.

Second, freedom of movement must not just apply to goods and money. If people cannot travel, meet, learn and engage with each other, the continent will not be able to pull together at a grassroots level. Thus, the AfCFTA must not just be about trade but about African’s coming together as well.

Third, it’s not just enough to sign a trade agreement, you must engage and educate people about them. In a previous post, I wrote about how good communication is a critical part of any policy this applies to the AfCFTA. People and business across the continent must be educated on what it is and how they can take advantage of it.

2- Learn from the EU: equality, flexibility and tempered ambition

After two devastating wars that had engulfed the world, integration was seen as the antidote to the rivalries and interstate competition that had been so destructive. As the world’s most successful trade union (despite its recent troubles) there is much that Africa can learn from the EU as it embarks on its own integration.

The first takeaway is matching ambition to reality. The first organised form of economic integration that emerged in Europe after the war was the European Coal and Steel Community. Which established a common market for coal and steel between 6 countries (France, Italy, Belgium, The Netherlands, Luxemburg and West-Germany). Though the Community was limited it went on to form the core of what we now know today as the EU, an ambition that the architects of the community held but knew they had to work towards. And therein lies the lesson for Africa. We are an incredibly diverse continent, with various countries pursuing development in their own way. Institution an all-encompassing trade union on July 1st, 2020 may be too much of political and economic shock for many to take. However, if – like Europe – we start a little smaller, with a group of goods and services that everyone can agree should be traded freely. We can, together, build the trust, institutions and relationships that will allow a wider system to succeed. This does not mean shelving the dream of a pan-African trade area, rather it means working towards it, building and expanding our common experience of it until it matches the vision.

Second, is that the political and economic power of the big countries must be balanced. As can be seen below the AfCFTA has the greatest levels of income disparity of any continental free trade agreement, and more than double the levels witnessed in blocs such as ASEAN and CARICOM.

This means that smaller countries must have genuine power in the institutional and decision-making design of the AfCFTA. The EU has historically faced a similar problem, Germany, France and the UK (though not for long) as the big political and economic powers in the union could dominate it. However, the political institutions of the EU are structured in such a way as to require consensus from all countries and that ensures that all countries have a say. It can be cumbersome and time-consuming but has been largely successful. Furthermore, the EU has been willing to be flexible, allowing some countries extra time to comply with certain rules, or like the UK to stay outside the Schengen and Euro. What this does is give some allowance for the political and economic realities of various states, thus making itself more acceptable to a wider section of the populace.

Africa’s diversity will require flexibility. We will not be able to move at the same pace, and the very real concerns that people have of being dominated by the two economic giants of the continent must be taken into account. Furthermore the aspirations and ambitions will differ from country to country, Kenya may want a trade deal with the USA but that shouldn’t mean it cannot trade with the rest of Africa within the framework AfCFTA. Flexibility allows for diversity, through which different countries and economies can develop different strenghts and specialisations. Combined, this diversity will boost trade within the contient, and beyond as Africa will be able to compete in a number of industries and products.

3- learn from ourselves: empower SME’s

Most businesses on the continent are Small or Medium Enterprises. If the AfCFTA is to be a success, it must learn from the existing regional economic communities, specifically what they fail to do – foster trade, by and between SME’s. The AfCFTA must put African SME’s front and centre. Doing this will require some imagination and bold policy moves as i have written about previously. This also ensures that the trade area won’t be the preserve of elite big businesses, and hopefully some of those SME’s will take advantage of the opportunity to grow.

Policy to make a dream a reality

I am not a sceptic. In fact, I am incredibly excited by the possibility that the AfCFTA can bring, I am in awe of the ambition and vision behind it and as an African, I am immensely proud that not only have we managed to get this far, but we are on the cusp of implementation.

However, the realist in me is afraid that if we do not get the design of the AfCFTA right it will be another in a pantheon of acronyms that litter the continent, shadows of the intent and ambition they were supposed to fulfil.

This need not be the case, if we learn the lessons from the failures of Brexit and the successes of the EU, and endeavour to keep the aspirations and endeavours of Africa’s people at its centre the AfCFTA can be the game-changer that we all hope it will be.

 

 

Warehousing African development

Amazon has built a trillion dollar business around them, farmers around the world rely on them, modern healthcare would be crippled without them, the manufacturing industry needs them to smooth out production and demand cycles and global trade needs them to work. They aren’t glamorous like railways and airports, nor are they as fulfilling for donors who prefer to build schools or fund feeding programs, but warehousing is critical to modern societies and economies and they will be crucial for the development of African economies.

Warehouses won’t make living conditions or livelihoods better by themselves, but they are a crucial enabler for things that will. What’s needed from African governments isn’t money or infrastructure, but rather the right set of policies that will enable businesses and individuals to build, and use warehouse facilities as they see fit, to the benefit of their businesses, communities, and the wider economy.

More than storage

Most people do not spend much time thinking about warehouses let alone their transformative power. To most of us, warehouses are just storage, inert spaces where goods and commodities are kept either in transit or until they are needed. I thought the same until I learned the role that certified warehouses (warehouses certified by the government or other trusted actor) and storage play in making the world that we live in. Which got me thinking about the role that certified warehouses could play in Africa’s development on several fronts.

Agriculture

The Food and Agriculture Organisation of the UN estimates that sub-Saharan Africa loses about 20 % of its cereals, 40%-50% of its tubers, fruits and vegetables, 27% of its oilseeds, meat, and milk, and 33% of its fish, to post-harvest losses. This is millions of dollars of lost income for African farmers and it is enough food to feed at least 48 million people, equivalent to the population of Angola, Zimbabwe, Swaziland, Namibia, and Malawi all together.[1] A significant contributor to this phenomenon is the lack of adequate and suitable storage for agricultural goods. This forces African farmers to sell whatever produce they can at whatever rates they can get (the much hated farmgate price) or simply to let their produce go to waste if they can’t find a buyer.

Available (within reasonable distance), affordable (reasonably priced) and suitable (the facilities can store perishables goods appropriately), could cut post-harvest losses dramatically, simply by giving farmers somewhere to store their produce. Thus at the most basic level, proper storage ensures adequate food supply and food security. In addition, it could significantly improve farmer incomes as they will be able to store produce and search for the best prices rather than be forced to take whatever is given to them.

However, certified storage can do a lot more than simply bolster food supplies, farm incomes and cut losses. Certified storage can open the door to farmers gaining access to credit, having produce in a certified warehouse is an asset that farmers can use collateral for credit. Smallholder farmers produce almost 70% of food consumed on the continent, an improvement in their productivity would impact on poverty and living standards throughout Africa (something I cover in more detail here).  Providing smallholder farmers with access to credit is essential to unlocking long-term, sustainable gains in African agriculture. Without credit, farmers cannot afford inputs such as quality seed and fertilizer, they cannot purchase or rent tools that increase efficiency and reduce labour costs, they cannot afford training and support services. Certified storage can be the key to unlocking agricultural credit, as financial institutions will have collateral which they can sell if the farmer defaults, and farmers will not be rendered destitute as their primary asset, their land, will not be taken away as collateral. Furthermore, it could allow farmers access to financial instruments that farmers in the west have long had access to such as hedging (locking in a price for the next harvest) and providing themselves with some security.

The third thing certified warehouses can do for African agriculture is enable commodity exchanges, depositing agricultural produce in certified warehouses will allow that produce to be listed on commodity exchanges and traded, enabling farmers to sell their produce to buyers anywhere in their country, region, or even continent, and allowing consumers (through large purchases like millers and supermarkets) a larger selection of producers to buy from and thus a better chance of getting better prices.

Trade

Trade (both domestic and international) relies on finance, specifically trade finance. Formally its where banks and financial institutions provide credit, hedges, guarantees, and increasingly complex structured products to companies and people buying and selling goods across borders. On the informal scale, it’s the trader who borrows a bit of money (usually on a mobile lending platform) which he uses to buy produce or some other goods, which they then take to market and sell at a profit, paying back the loan with interest and keeping their profit margin. Fundamentally, both formal and informal, trade finance relies on trust. A key issue that hampers trade finance and thus trade across the continent is the lack of trust within the African trade ecosystem.

For instance, financial institutions (both big banks and mobile lenders) do not trust warehousing facilities and are thus unwilling to lend with those goods as security. Thus, financial institutions add a significant risk premium (high interest) to their financing which traders are unable to pay, or the few facilities that are trusted can charge exorbitant rates thus raising the cost of trade. Certified warehouses which issue verified receipts of the goods deposited in their warehouse could fill this gap and get rid of this hurdle to trade on the African continent because in the rest of the world this is precisely what certified warehouses do. Like in agriculture, having a place where you can store your goods verified by a trusted actor will kickstart trade by enabling their crucial lubricant, credit.

Healthcare

Markets and economics aren’t the only benefactors of proper warehouses. Pharmaceuticals are volatile things, they are carefully engineered chemical substances which need to be kept at stable temperatures and conditions. They need what’s called a cold chain, which is a series of refrigerated production, storage, and distribution facilities and capabilities. Refrigerated storage is a key link in that chain, as it would allow government and health systems to store medicines, smoothing out distribution chains, making public health campaigns (like vaccination drives) easier and allow health authorities to plan for contingencies, for instance, stocking vital medicines for a possible Ebola breakout. Storage isn’t just about commerce it’s a key enabler for health systems as well.

Warehousing policy

If storage is a key enabler in a number of developmentally key areas the question becomes what’s needed. The first thing that comes to my mind is to stay away from the solution that so many governments on the continent have tried, government-owned and operated storage facilities. Particularly in Africa they have become magnets for corruption and are often neglected to the point that it’s not worth storing anything in them.

The bare minimum that is needed from government is a legally enforceable framework that does two key things. First, it must put in place a trusted regulator who is able to certify warehouses. To be trusted it cannot simply be another government entity it must incorporate stakeholders from the private sector like the stock exchange, trusted multilateral institutions like the AfDB or TDB, independent bodies like central banks and industry associations to ensure that when it does issue a certificate everyone from farmers to banks will trust them. This regulator must have legally enforceable repercussions for those who violate standards and regulations set by the regulatory authority. Trust is not just about having someone in charge whom you have confidence in, it’s the certainty that when the rules are violated, for instance, someone’s goods are stored improperly, that those responsible are in fact held responsible, in this instance all affected parties are compensated.

Second, is that governments must get out of the way and encourage innovation, particularly in agriculture. Where to this day, far too many African governments maintain outdated systems of produce boards whom farmers are compelled to sell to, and control prices and maintain substandard storage facilities.

Third, is to ensure that small farmers are accounted for in any warehousing policy, e.g having a requirement that warehouses devote a certain percentage of their storage space to small farmers, or cater for small farmers at a discounted price (e.g tax-free storage for small farmers)

In an ideal world, African government would go beyond putting in place a trusted regulator and getting out of the way of farmers, they would actively encourage the building the storage facilities. This could take a number of forms that again do not require significant taxpayer investment such as:

  • Making land available to warehouse developers in agricultural areas to ensure that farmers have access to storage facilities.
  • Allow goods in transit held in certified warehouses to be held tax free, to help the free movement of goods, development of commodities markets and encourage trade.
  • Set standards for databases and goods tracking so that all stakeholders will be able to track goods through the certified storage system, thus bringing more trust into the system.
  • Make available guarantees or funding to groups of smallholder farmers enabling them to build their own suitable storage facilities and engage in the market without fear of being taken advantage of.
  • Give tax incentives to developers willing to invest in cold-chain suitable storage facilities that could benefit the health system.
  • Take a holistic view of warehousing aligning it with other development efforts, such as ensuring that rural roads lead to warehouse sites, that electricity, mobile networks, and data cables reach warehouse sites

Conclusion

It may seem odd to focus on something as mundane as warehouses and storage. Unlike other development policies like universal healthcare, infrastructure or police it is not grand and flashy. However, not all of development policy is grand and flashy, often times to make the big things like agricultural reform, universal healthcare or intra-African trade possible, it requires investment in the mundane things, like a policy and regulatory framework for certified warehouses. Proper and certified storage is an enabler for a number of key developmental goals, my hope is that policymakers are aware of this, that if they want the new railways and roads, they are rushing to build across the continent to work and spur a new era of growth and trade they will require humble storage facilities, certifiably trusted and available to all.

[1] http://www.fao.org/africa/news/detail-news/en/c/445333/

Kickstarting Intra-African trade for SME’s and Entrepreneurs

This is the moment for the African continent. A free trade area for Africa is going to be like a flood. A flood that is going to lift all the boats. It is not about South Africa. It is more about all of us. All countries of Africa participating – big and small. Cyril Ramaphosa, President of South Africa

On March 21st, 2018, 44 African heads of state gathered in Kigali signed an agreement called the African Continental Free Trade Area (CFTA). The CFTA is big and ambitious. It seeks to create a single continental market for goods and services, as well as free movement of capital and people. Its primary goal is to boost intra-African trade and spur industrialisation by fostering a more competitive industrial sector, increased economic activity between African states and giving African companies a large market in which they can scale and become globally competitive (see figure 1 below).

Figure 1: Source UNCTAD http://unctad.org/en/PublicationsLibrary/presspb2018d4_en.pdf

In global trade Africa is a commodities exporter, selling raw materials and agricultural goods, while importing finished manufactured goods. Making the continent susceptible to swings in global commodity prices and perennially large trade deficits. Meanwhile intra-African trade is frustratingly small in comparison to Africa’s international trade (see Figure 2). The CFTA is potentially a first step towards rectifying that.

Figure 2: Source https://www.brookings.edu/blog/africa-in-focus/2018/03/29/figures-of-the-week-africas-intra-and-extra-regional-trade/

My goal in this post is not to talk about the big policy actions needed to make the CFTA a reality. Such as comprehensive ratification, regulatory alignment and the need for connecting infrastructure. That is well covered by the AU itself and numerous other commentators, institutions and policy documents. Instead I want to talk about policies actions that governments can to take to enable African SME’s and entrepreneurs to take advantage of a pan-African free trade area. SME’s are the lifeblood of the African economy, they are one of the continents biggest employers and sources of wealth. And entrepreneurs and investors willing to take risks are critically important to the continents future growth. If SME’s and entrepreneurs can succeed then Africa will succeed, and if the CFTA is to be a success it must serve not only big business but SME’s and entrepreneurs as well.

1-   Creating awareness and links

Trade does not happen in a vacuum. People and businesses must be aware of the opportunities and how to take advantage of them. The first policy initiative that the AU and African governments should take is an awareness and education campaign targeting SME’s and entrepreneurs across the continent. Explaining what the CFTA is, which countries are a part of it and the key steps they need to take to be able to take advantage of it.

Secondly it is not enough to know there are opportunities in other markets. You must be in a position to take advantage of them, you need to have knowledge of and develop relationships in those markets. African governments are in a unique position to facilitate this. With embassies around the continent they can be clearing houses for information and networking hubs. Doing research on local regulations, market conditions building a database of local businesses which can be made available to businesses and entrepreneurs in their home countries. They can organise networking opportunities allowing businesses and entrepreneurs to connect both in the real world and virtually online for those unable to travel. Crucially this can work both ways not just to the benefit of the home country of the embassy but for those who are looking for opportunities in the other direction. European countries such as Germany and Holland provide similar services globally to businesses, African governments can start by doing so on the continent.

Creating awareness and links within and between African business communities is crucial to improving intra-African trade. The CFTA is of little good if people are not aware of it and if they have no entry points, networking opportunities and access to information in other African markets. African governments can fill this gap.

2-   Allow tech to move the money

Anyone who has travelled across Africa or done any cross-border business on the continent knows how much of a pain it can be to move money between countries. The laws vary, some countries have foreign exchange controls, others have currencies that can be difficult to convert, and the relative value of these currencies is always changing. All of these are significant barriers to intra-African trade especially for SME’s who unlike their larger corporate counterparts do not have legal and finance departments to navigate through the mess.

What’s needed is a simple way for business to acquire foreign currencies as and when needed. Thankfully the Fintech (financial technology) sector is already growing across the continent and can fill this gap. African governments should allow Fintech services to enter the currency market and allow SME’s and traders to buy and sell other African currencies and transfer payments to their suppliers and customers in whatever country they may be in. Many African countries now have mobile payments, mobile banking and mobile lending, there is no reason why these services should not be allowed to operate across countries.

The second area where Fintech can make a difference is in trade finance. Much of global trade is done on credit. Companies will borrow or access lines of credit, usually from banks, to buy goods and transport them to another market and repay the loan when the goods are delivered and paid for. Few SME’s or traders will have access to lines of credit with banks, but many do use mobile banking and lending for exactly this purpose. To fund the purchase of goods and pay it back when they are sold. If fintech firms were allowed to play this role on a continental level it could give SME’s and traders, the ability to fund cross-border business where traditional banks would regard the amounts of money being lent as too small and SME’s and traders too risky.

Fintech could play valuable role in intra-African trade. Providing SME’s and traders the means to fund their activities and the ability to conduct business in foreign currencies with reliable platforms with which to pay people. Trade needs money and a reliable means of payment. Fintech could play that role for the businesses and traders who are not on the radar of banks. What is needed is for African governments to come up with the right regulatory framework giving Fintech services the ability to operate across borders and mobile networks and the protect their customers from unscrupulous lenders.

Trade for all

Intra-African trade has the potential to be a game changer on the continent. Giving African investors, entrepreneurs, businesses and the wider economy access to new markets and new growth. More importantly it could change lives, not just through new jobs and opportunities, but through simple trade. In 2017 Nigeria experienced a tomato shortage, Kenya experienced a maize shortage both countries resorted to importing these foodstuffs from markets like Mexico and Europe. However, around the continent there were tomatoes and maize in plentiful supply in other countries. With a continental free trade area, these all to frequent shortages and price spikes need not happen. Retailers in Kenya or Nigeria noticing that their local suppliers are unable to meet demand and prices are going up could buy from other suppliers around the continent with little difference in price and consumers wouldn’t have to deal with the shock to their wallets.

There has been a lot hype and hope around the CFTA. However, it still has some way to go, only 3 countries having fully ratified the treaty, 22 are needed for it to come into effect. In the meantime, African governments need to ensure that it is not just a treaty for big business but is one that SME’s and entrepreneurs can also take advantage of. If that is done, it will help provide a shot in the arm to intra-African trade and make it so that all African’s can have a stake in and benefit from a new pan-African economy.

 

African Foreign Policy: looking East with a strategy.

Africa should not just wait to be exploited or influenced. No. We should be part of the conversation. We should raise ourselves to a level where there are certain terms we dictate in the conversation because we have a lot to offer – Paul Kagame, President of Rwanda

Over the past couple of decades, the world has been changing. The extraordinary economic development of nations in Asia has seen the emergence of new powers, most notably China, who are now challenging the global hegemony of the West. Crucially, for Africa this has meant the emergence of new partners in trade, and development aid, which the African countries has been keen to take advantage of. However, the headlong rush for loans projects and deals is putting the continent in the awkward position of ever-deepening debt and obligations, without significant regard for the implications of this for the future of the continent or the motivations of the Asian powers. Making Africa’s relationships with China and India more advantageous for itself will require African countries to adopt a much more strategic and thoughtful approach towards its relationship with these powers building a partnership that can not only further the continent’s development but also help carve out a greater role for Africa on the world stage.

Understanding the East

To construct a coherent and beneficial foreign policy, you first have to understand the motivations and history of the nations that you will be dealing with, and there are two key things that can help African policy makers understand the intentions and motivations of the rising Eastern powers to Africa.

The first is their history. Asia has its own history of colonialism (such as the British Raj in India) and western domination (e.g. the century of humiliation in China), this gives them a far better understanding of Africa’s own history as well as a much healthier respect for sovereignty and an aversion to neo-colonial interference in the domestic affairs of others. This has led to much more cooperative relationship with Africa so far. Unlike Western states China does not impose programs or projects in the name of development, rather African states go to them with requests and they consider them. This gives African states agency, a voice in development partnerships and this is vitally important as it gives Africa the ability to determine its fate.

The second key issue is their needs. China, India, and the other rising economies of the east need resources to fuel their economies, markets to sell their products to, transport routes to move their products along and diplomatic partners who will help them shift the global balance of power. Thus, they need Africa. And Africa needs the development funding, markets and the diplomatic support of the rising powers. Mutual needs that could form the basis of a mutually beneficial partnership.

Because understanding East is at the core of developing a coherent foreign policy, Africa will need policy makers, specifically foreign policy experts who understand the East. To that end African governments need to make the effort to educate and train a new cohort of Asia specialists. People who will learn the languages, history, politics, culture and customs of the rising powers in the East and provide the continents leaders and decision makers with the expertise to craft policy and negotiators who will understand their counterparts.

What should African countries be looking for?

The second aspect of constructing an effective foreign policy is defining your own strategic interests, which begs the question what are Africa’s strategic interests? I would put them in two broad categories. Development and gaining a greater voice for Africa on the global stage.

In terms of development, Africa’s needs are pretty clear-cut. The first is funding for expensive items such as infrastructure, which luckily China and others have proven willing to fund. In this regard, the onus is on African states to use the funding prudently, picking the right projects that will have a beneficial developmental return rather than vanity projects such as presidential palaces or Parliament buildings. In other words, African states must strategically choose the projects that will have the biggest bang for the borrowed buck.

The second need under Africa’s development interest is investment in its economies, where African states must think beyond resource extraction and seek to attract investment in areas of the economy that will further industrialisation and development such as industrial, and generic drug manufacturing. In short investment in areas that will create jobs and provide a base for future economic growth.

The third developmental need that Africa must fulfill is market access. Asian markets offer an unparalleled opportunity for African products, which we already export such as agricultural produce. Opening agricultural markets in Asia, would provide a significant boost for the agricultural sector which employs the most people on the continent.

The fianl area of strategic interest for Africa is gaining a greater role on the world stage. A globalised world faces global challenges, such as climate change, economic crises, insecurity and trade issues. All these affect Africa, sometimes disproportionately so, yet the continent has little diplomatic clout with which to help shape global responses to these issues. In a previous post I outlined how, by working together African states could take advantage of the West’s current state to change the status quo to become a more consequential player on the global stage. The rising powers of the East are also challenging Western hegemony, and they need international partners to do so. African states acting as a collective could be those partners, providing vital votes in the UN and other international fora and enacting policies that help further this agenda. In return for their support African states would require that key areas of interest to them such as changing the international trade and tax regime and mitigating against the consequences of climate change be placed on the global agenda with the backing of the Eastern powers.

Strategic partners and benefits from the east

The emergence of new powers from the East is changing the global landscape. Unlike much of the current commentary I do not see a new set of powers involved in a new scramble for Africa, I see opportunity. The opportunity to partner with them to the benefit of the continent. However, this will require strategic thinking from African policymakers rather than the opportunism we have seen when African presidents troop to Beijing or New Delhi to get funding for their pet projects.

Strategic thinking requires that African leaders and policy makers understand the interests of the emerging powers as well as their own, and use those to craft a foreign policy that would help create a mutually beneficial relationship between Africa and the rising East. A relationship that would help fund and drive development on the continent and finally give it a meaningful voice on the world stage, while providing the eastern powers with the resources, markets and diplomatic allies they need. With strategic thinking behind a smart foreign policy Africa need not be pawns of the West or the East.

African foreign policy: looking west together

It is clear that we must find an African solution to our problems, and that this can only be found in African unity. Divided we are weak; united, Africa could become one of the greatest forces for good in the world. – Kwame Nkrumah

Africa’s history with the West (when I refer to the west I am referring to Europe and the USA) is a tortured one. Slavery, colonialism, neo-colonialism, Cold War proxy conflicts all colour a set of relationships where the West still holds the upper hand. Whether it is trade, security, or healthcare policy, through aid, loans, the IMF, the World Bank, the WTO Africa still gets raw deal on the international stage.

The West however, is in a peculiar moment, both Europe and America are turning more insular. In America this is embodied by Trumps ‘America First’ policies which are alienating allies and narrowing American interests and engagement around the world. Sec. Tillerson’s recent trip to Africa was centred on security and criticism of China, but unlike previous administrations there was no Power Africa or PEPFAR (The President’s Emergency Plan For AIDS Relief) nor much talk about democracy or development, clearly the US agenda on the continent has narrowed. Europe is grappling with Brexit, populist right-wing politics, holding the EU together, a retreating America and a resurgent Russia. Their major engagement on the continent also centres around security with the addition of stemming the flow of migrants. Some in foreign policy circles see this shift inwards from the west as a problem for the continent. That without western money and support the war on terror will lag, aid and development funding will shrink and advocacy for democracy and human rights will be blunted. However, I see this as an opportunity, the perfect time for Africa to start playing a greater role on the world stage and pursuing its key interests. Africa can only do this if it works together, no one African country has the clout to be a player on the world stage but acting in concert as a continent Africa can make real changes to the terms on which the rest of the world deals with it and benefit people around the continent.

Too small to matter

Sub-Saharan Africa has a combined GDP of $US 1.5 trillion[1], which may seem large but is less than half of the US$ 3.9 trillion[2] spent by the US government last year. The largest economy in Africa is that of Nigeria with a GDP of US$ 404 billion[3], the most valuable company in the world is Apple with a stock valuation of over US$ 900 billion[4]. I cite these figures to illustrate a point, individually on the world stage African countries are economic rounding errors, Africa is largely talked in terms of natural resources or as a market with potential. The fundamental issue with this is that African economies operate in a world where the rules of the game are still dominated by Western nations and institutions. Trade rules are governed by the WTO, banking rules by western regulators, investment treaties are lopsided against developing nations, and development spending and their associated policies conform to priorities and ideals of the states that fund institutions like the World Bank. That African nations operate at a disadvantage on the world stage is not news, the key issue is what policies can African nations adopt to rectify this.

A united front: trade, tax and investment

While Africa is currently a bit more than just a drop in the ocean in terms of economic size, the continents GDP is projected to grow to approx. US$ 30 trillion[5] over the next 40 years and Africa will matter. However, the continent cannot afford to wait that long, the lopsided terms investment with which Africa deals with the west will continue to siphon off much-needed income and asset ownership off the continent, and trade rules continue to limit policy options (such as protecting infant industries) for African governments. Individually African nations have no hope of changing the status quo, as a continent with a smart policy approach at a time where western engagement in the world is limited by their own domestic focus, things can start to change.

Getting African countries to act together is a well-known headache. Africa has for over fifty years heard big talk from leaders on broad pan-African cooperation, numerous regional and trade blocs and the OAU and AU with ambitious agendas, though they never seem to get too far. In my view this is because African leaders have bitten off more than they are willing to chew with ambitious programs which have neither the political support, funding or organisational capacity to succeed. Rather than overambitious agendas, it may be more productive if African countries coalesce around a defined set of issues which are cross cutting and beneficial to all, making it easier to form and maintain a joint agenda. When it comes to a prospective joint African foreign policy to the west there are 3 issues which cut across all countries and which they could stand to benefit from; trade, taxes and investment treaties.

Trade, taxes and investment treaties.

Trade – unfair terms of trade faced by African countries, taxes – the inability to tax profits made in Africa and investment treaties which unfairly disadvantage African states in international arbitration and de-emphasize the link between FDI and development. These may seem narrowly economic and non-people or development focused agenda, however these issues have real impacts on people’s lives and livelihoods. Unfair terms of trade put African farmers and businesses at a disadvantage and restrict the policies that government can employ to support private sector growth. The ability of global corporations to avoid and transfer taxes off the continent means Africa loses out on more than US$ 50 billion[6] a year in tax revenue. If that were an African economy, it would be the 10th largest on the continent. Bilateral investment treaties which are an agreement establishing the terms and conditions for private investment by nationals and companies of one state in another state, protect the investments of foreign companies from what they see as unpredictable local courts and politics, forcing disputes to be settled in international arbitration centres which usually rule in favour of the investor over other concerns such as development, the environment or labour rights.

Why these three issues? First, these are three issues upon which the West is still the most influential, if we can force changes in western policy it can change the way others around the world and key institutions engage with Africa. Secondly these are three issues which can be connected to wider and more pressing concerns that the West has around security and migration. With better terms of trade and fairer investment, Africa has a much better chance at creating more and better jobs, governments will have more development policies open to them, and more revenue will allow governments to invest more in job creation, and anti-terrorism initiatives. Third, with tax evasion a priority even in the West making tax evasion in Africa part of the narrative is not an impossibility. Finally, this set of issues is narrow enough and beneficial enough to most African states that a coherent negotiating position can be built out of it.

So, what exactly is it that Africa should be aiming for with this new focused foreign policy. On trade the goal is twofold, first shielding African farmers from the hefty agricultural subsidies that western farmers get and allows them to dump cheap produce on the continent and second is loosening the rules that stop African nations from adopting industrial policies such as infant industry protection and product imitation that both the West and East Asia used. On taxes, the goal is to tax profits where they are made with the goal of ensuring that money made on the continent pays its fair share. On the investment treaties it would be impossible to change them whole sale rather the goal would be to insert clauses that make protection of the environment, labour and development into the body of the treaties rather than just as principles in the preamble.

To achieve these goals African countries would have to present a united front, combining their influence, negotiating teams and knowledge to match those of western nations. Crafting and deploying public narratives in Africa (that together they are fighting to free the continent from restrictions and better the lives of African citizens) and in the West (that doing this wont cost strained public finances anything and has the potential to stop the migrants and contain the security threat).

For too long African foreign policy has either been a tool for the West or the weak entreaties of states wielding no influence. The West is weaker and less united than it has since at least the 1930s, facing challenges externally while dealing with internally divisive politics and social cleavages. This is the perfect time for Africa to start changing the status quo, to start changing the terms on which the West sees and deals with Africa. To do so Africa must look West but do so together, around a common set of focused objectives that everyone can rally around and that would resonate with the wider public at home and abroad. Even if only half the agenda succeeds it would be a victory for the continent and the first step towards an African foreign policy agenda finally free from its western past.

 

 

 

[1] https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=ZG

[2] https://www.cbo.gov/publication/52408

[3] https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=NG

[4] https://uk.reuters.com/article/us-apple-stocks/apple-market-value-we-may-need-a-bigger-chart-idUKKBN1D20BQ

[5] http://blogs.lse.ac.uk/africaatlse/2013/12/05/african-wealth-will-double-every-decade-for-generations-to-come/

[6] https://www.theguardian.com/global-development/2015/feb/02/africa-tax-avoidance-money-laundering-illicit-financial-flows

Rethinking Africa’s industrialisation

Industrialisation, it is economic development goal of countries around the continent, it is the key that will unlock the doors to mass employment, better standards of living and higher income of hundreds of millions of Africans. Yet this goal has proved elusive, through decades of state led developmental policy, to structural adjustment and market led to development, industrialisation has been stubbornly evasive. There are several culprits that one could blame for this such as corruption, or foreign intervention on the continent, and there is no doubt that they are factors. One of the key culprits and the one that I would like to focus on is the failure of policy, specifically a failure of imagination. African leaders have been focused on replicating Western and East Asian industrialisation. I believe in doing so they have created fundamentally flawed policy, policy that is not grounded in the realities of African economies and societies but on the experiences of others. I firmly believe that if we re-imagine industrialisation, ask ourselves what we have that we can build on, how to harness it and what we want our countries to look like afterwards, we can develop a clear idea of what African industrialisation is and the right policies to pursue it.

Industrialization

What is industrialisation? It is a word that gets thrown around a lot, and far too often it is used in jargon filled economic or policy reports that render the word meaningless such as this from the UN Economic Commission for Africa (UNECA);

‘The big opportunity for Africa in 2016, as a late-comer to industrialization, is in adopting alternative economic pathways to industrialization. This requires governments to take on-board the drivers, challenges, and trade-offs in pushing for a greening of industrialization’[1]

If we are to go for simpler definition of the word you could look at the dictionary, the Oxford dictionary defines it as ‘The development of industries in a country or region on a wide scale’[2] which is unsatisfyingly vague. Wikipedia’s definition is more detailed stating ‘Industrialisation is the period of social and economic change that transforms a human group from an agrarian society into an industrial society, involving the extensive re-organisation of an economy for the purpose of manufacturing.’[3]

Thus, I imagine when African leaders are talking about industrialisation, they are talking about transformation from an agrarian society and economy to an industrialised one, where most Africans work in factories producing goods for the world. This industrialisation is seen as the quickest and best way to mass employment and poverty reduction which Africa desperately needs. To do this, African leaders are building transport and energy infrastructure to bring down the costs of production and investing significant money and effort in attracting foreign investors to build manufacturing industries. However, there are serious issues with this way of thinking which makes a traditional industrialisation policy for Africa unlikely to be effective.

Impediments to industrialisation

The first issue is global, competition. Africa sees its key competitive advantages lying in two factors, a young and cheap labour force and growing population providing a growing market. This is true, but it is not unique. Nations such as India, Bangladesh, Vietnam, Indonesia etc. all have young and growing populations and unlike Africa they are much better integrated into global trade networks, and already have attracted significant manufacturing industries such as textiles and vehicle assembly, in short, we are competing against other regions who are farther down the road than us. Second, infrastructure is not enough. The cost of production (into which the costs of power, labour and transport are big factors) is a significant element in the thinking of potential investors but they also need legal security, the knowledge that their intellectual property, and contracts will be protected and enforced. They require physical security for their facilities, goods and workers and they need stable regulatory and tax regimes. These additional factors are unfortunately not always the focus of government industrialisation policy. Third, automation. As automation decreases the need for labour in manufacturing industries, cheap African labour becomes less and less of a draw to potential industrial investors.

Thus, African leaders and policy makers face a conundrum. The strategy they are pursuing is subject to competition from better placed nations in other regions, the focus on infrastructure is not enough and technology may take the jobs we are hoping to attract.

Reimagining industrialisation

In the face of this Africa needs to get creative, we need to reimagine industrialisation for Africa and there are several ways we can do this.

  • Agriculture as industry

Farming is the primary source of food and income for Africans and provides up to 60 percent of all jobs on the continent. [4] It is impossible to industrialize without the agricultural sector playing a significant role and it is no accident that China, Japan and South Korea all pursued land and agricultural reform as the first step in their industrialisation. Africa’s agriculture sector holds immense potential not just for growing food but for value addition (processing and marketing of agricultural products). Most agricultural products exported from the continent are exported as raw or lightly processed and this is a problem. Every sack of coffee and tea exported elsewhere to be processed and sold, all the cocoa exported elsewhere to be made into chocolate, all the avocados exported to be made into guacamole, palm oil, etc (this list could go on) is millions of jobs of and billions of dollars of income lost. African governments must make a concerted effort to bring these jobs to Africa, put in place tax incentives, tax penalties, regulations and make available funding to ensure that processing into finished products takes place on the continent. Furthermore, African governments need to help agricultural producers and processors understand the markets they want to serve, what sort of production and logistics chain they will need, what trade and safety regulations do they need to obey.  Creating jobs and income in agriculture will have significant impacts on other industries. All those people with jobs and increased income will want to buy goods and services in other industries which would make Africa an even more attractive investment destination for the industries that we are trying to attract. Agriculture, agricultural processing and marketing can be the foundation of industrialisation on the continent and it is high time governments recognised that and gave it the focus and help it needs.

  1. Don’t be afraid to copy

Many countries such as Japan, China even Germany in the 18th century kickstarted their industrial growth by copying others, not their policies but goods. Japanese cars, and Chinese electronics started out being derided as cheap knock offs, today they are global leaders in their industries. African policy makers should search for commonly imported goods that can be made cheaply on the continent and provide incentives and protection for African businesses to make them on the continent. Why import second-hand American clothes when they can be made in Africa, why import expensive medicine when we can set up generic pharmaceutical manufacturing, why import motorcycles that can just as easily be assembled on the continent. This will take some courage from leaders on the continent as they will face resistance from importers and foreign governments but only by being bold can we achieve industrialisation.

  1. Give African investors and entrepreneurs a leg up

In 1958, the USA created the Small Business Investment Company (SBIC) program to facilitate the flow of long-term capital to America’s small businesses. The SBIC partners with private investors to that finance small businesses.[5] Over the course of it is lifetime the SBIC has provided over $60 billion dollars of funding to small businesses and despite many of them not ending up as success stories, the ones that have succeeded (figure 1) are worth much more than all the money that has been lent out over the course of it is history. The biggest is Apple, back in its early days before it had much private investors apple received a loan from the SBIC which was crucial in allowing it to produce it is first products and get additional investment. Today, Apple is worth over $900 billion[6]. African governments must show the same willingness to invest in African businesses as the private sector has not done so yet and we cannot sit around hoping it will. If only one of these investments is half as successful as Apple it can transform the continent.

Figure 1 (source: http://www.sbia.org/?page=success_stories)

  1. Trade with each other.

Intra-African trade is pitifully low (figure 2). And despite much talk and several initiatives on the subject it remains more expensive and much more of a headache for African countries to trade with each other. This must change, initiatives such as the Continental Free Trade Area[7] and regional trading blocs require leadership and concrete policy from the continent not just lip service. Furthermore, it is important that governments make a concerted effort to link African businesses, and traders with markets across the continent. It is not enough to build infrastructure and sign trade agreements, businesses need to know the regulations of other markets and most importantly link up with whom they can work. African governments have embassies and diplomats across the continent, but they do little work in the commercial realm. They can be tasked with identifying opportunities in export markets as well as providing information to businesses in other countries on opportunities, tax and regulatory information and key contacts at home. Jump starting intra-African trade will require a concerted effort to link African businesses to African markets.

Figure 2 Africa’s intraregional trade as a % of the continent total trade 2002-10

Industrialisation African style.

Industrialisation policy on the continent requires a rethink. African leaders and policy makers must recognise that the world has changed, and we cannot simply copy what Asian countries did 40 years ago or western countries did in the 19th century. Africa must forge its own path to industrialisation and development and doing so will require policy that capitalizes on Africa’s own advantages in agriculture. That is bold and aggressive in kick starting industries such as being willing to copy products and processes. It will require African governments to step up to the plate and fund African businesses that will be at the forefront of indigenous industrialisation. And it will require governments to proactively open up and allow Africans to trade with themselves.

If we want to create the millions of jobs that Africa needs, to move our economies into the next stage of development we must be bold and imaginative. We must re-conceive industrialisation to the African context and remake our policy to pursue it. If not, I fear in another 50 years we will still be wondering when if at all Africa can industrialize.

 

[1] https://www.uneca.org/sites/default/files/PublicationFiles/era2016_executive-summary_en-rev6may.pdf

[2] https://en.oxforddictionaries.com/definition/industrialization

[3] https://en.wikipedia.org/wiki/Industrialisation

[4] https://www.brookings.edu/blog/africa-in-focus/2016/01/22/foresight-africa-2016-banking-on-agriculture-for-africas-future/

[5] https://www.sba.gov/sbic

 

[6] http://money.cnn.com/2017/11/03/investing/apple-market-value-900-billion/index.html

[7] https://au.int/en/ti/cfta/about