‘Africa’s industrial policies lack clarity and clear goals’

Cross

Economic growth, reduction in unemployment, access to new technological advancement are some of the parameters that define a country’s growth. Coincidentally they are all tied to industrialization. Nigeria as a country struggles with the diversification of economy due to the stagnant nature of her manufacturing industry. There is currently an over reliance on imported goods. The industry is seen as a high risk area for bank lending because it is plagued with lack of infrastructure and there is inadequate manpower and raw materials. A legal expert in energy, transport, infrastructure and construction industry who have worked extensively throughout the Middle East, Europe and Africa, Christopher Cross, a partner at Hogan Lovells, shares insight and his international experience with JOSEPH ONYEKWERE on Industrialization in Africa and the necessary steps for the manufacturing industry to forge ahead.

Can you give us a case study of how Industrialization has contributed to economic growth in the world?
Industrialization has had many impacts. It has brought about huge changes to infrastructure, development of transport, education and also the ability to deliver services efficiently to the public as many of the great technological advancements were developed through industrialization. For example, the application of modern technology, equipment and machineries for the production of goods and services are as a result of Industralization. If we look at the United States during the 18th and 19th century, manufacturing industries increased productivity dramatically thanks to industrialization. The presence of factories and various types of equipment used had a huge impact on the way people live. Approximately, 15 percent of Americans lived in cities in the 1800’s. By 1900, that percentage had increased to around 40 percent and it kept growing as America moved from a rural to an urban economy. Industrialization has also allowed the existing rural population to do a lot more with less.

To what level has plenary industrialization affected economic growth in Africa and Nigeria in particular?
I think the issue in Nigeria and Africa in general is that the heavy industrialization required to kick-start the regional and local economies has not really taken place in the way it was hoped for. The development of a competitive and sustainable manufacturing base should be at the core of economic transformation in Africa, however, the required manufacturing investment has not been undertaken in the last 30 years and it has resulted in stagnation and regression for the manufacturing sector across the continent. Manufacturing is a key part of industrialization. Despite successive governments in Nigeria implementing many policy measures and programmes to achieve industrial growth and development, this has not lead to tangible development of an indigenous manufacturing sector. Industrialization cannot be attained until manufacturing capacity is utilized to a reasonable extent. For example, it was expected in the 1990’s and early 2000s that China would look to Africa to buy natural resources to fuel its construction boom; a move that would have defined Africa’s manufacturing industry but it didn’t happen because there was better potential for growth in Asia due to better suited economic terms, the perception of an easier and better known business environment and previous investment towards manufacturing capabilities had already been undertaken. So China decided to invest in Asia instead.

Many economists also argue that that industrialization’s contribution to economic growth rate is dependent on the threshold level of income. With many Nigerians living on less than a dollar a day, it means Nigeria and other developing African countries have to reach a certain income level before the benefits of industrialization can be properly identified. Therefore the focus must be on the adoption of new technologies, human capital development and an improved managerial sector for Nigeria to meaningfully achieve the required levels of industrialization.

Africa has a strong desire to industrialize in order to create increasingly productive employment opportunities and higher living standards for its people. Yet, it remains among the lowest level of industrialization in the world. What are the major challenges mitigating this process?
Although Nigeria has enjoyed a long period of sustained expansion of its non-oil based economy, this has not been significantly contributed to by the industrial sector. A key challenge is having to play catch-up with other countries and continents who now have a much more developed manufacturing base. Other developing nations have already spent a lot of money and capital in developing their manufacturing base to deal with global demand and invested in the development of human capital. There has not been enough investment in Nigeria in developing the right workforce, a key requirement for the manufacturing industry. The investment in highly educated engineers, who will develop industrial processes and operate facilities, particularly in this modern age, is limited. The number of graduates taking science based subjects such as in engineering and manufacturing is very low in Africa compared to other places like Europe, Asia or Mexico, where you find a large portion, in some countries as high as 30 percent of their students involved in science based subjects . In Africa, the number of students taking science based subjects (which will impact the manufacturing sector) is mooted to be somewhere between 3 percent – 12 percent depending on the specific country. There is therefore a huge knowledge gap which is hindering Africa and Nigeria’s move towards full-blown industrialization.

There is also the perception that the business environment is difficult in some African countries. It can take a long time to set up a company, the cost of the business can be high, startup procedures can be complex, and the concerns regarding corruption. Issues like those mean international parties may decide it is not cost effective to develop a manufacturing plant in an African country. Whereas, in other parts of the world, particularly Asia, stakeholders are provided with more streamlined processes to develop manufacturing capabilities.

Another mitigating factor is the access to finance. This includes access to credit and cash to develop not just the manufacturing facilities but also to fund the raw materials required. The process involved in seeking credit is usually more favorable for short term based operations, whereas manufacturing is a long-term process. A solution to this will be the provision of more accessible longer-term credit by banks.

Which areas should Africa focus on more to achieve Industrialization?
Sadly, previous colonial policies discouraged the development of local manufacturing. While this helped to preserve African markets for goods produced in European factories, it led to a continuous decline in Africa and its market. The first step towards realizing industrialization and reversing the trend is investing in new industries. It is important that while local companies thrive to attract Foreign Direct Investments, industrialization should be export led to bring in much needed revenue. Africa has enormous natural resources. You have oil, gas, agriculture, and mining. There is an abundance of the basic materials needed to stimulate basic industrialization and since the raw materials are available the idea is to use what you have to get what you want. The governments should look at the further development of free trade agreement and industrial co-operation arrangements to aid the development and exportation of manufactured goods. The development of logistics and manufacturing hubs (specialist zones) along key transport routes will help this. In Africa there is a lot of dependence on road and air transport, but rail and sea transportation methods need to be developed along with the specialist zones, which have a financial, economic or industrial benefit. Production cost can be reduced and new technologies adopted following the investment in education and training I have mentioned above, helping to make African manufacturers more competitive.

There is a huge population in many African countries and there is not enough focus on ICT. Bearing in mind that ICT and the internet are the foundation of digital economic transformation, technology will be at the forefront of the development of new forms of industrialization and commerce (such as blockchain and laser printing of 3D objects). Nigeria can benefit greatly from technological revolution and its impacts on manufacturing. The government should take recognition of the developing digital economy and assist in its development by pushing for a critical mass of ICT adoption in order to benefit from the next industrial revolution.

Any sustainable industrialization is reliant on power and infrastructure, which sadly, is one of the setbacks of most Africa countries. What can be done in that direction?
Using Nigeria as a case study, the power sector has not yet improved as much as Nigerians would like, despite the privatization of the power distribution sector. Africa in general is plagued with the issue of power instability even though it has made significant efforts to address this. The government needs to focus on removing the regulatory and business road blocks to energy production. If this can be achieved, developers involved in the production of energy can streamline the power generation process.

One of the major problems is the fact that most African countries including Nigeria are still principally dependent on only fossil fuel power generation (in particular gas). In the 21st century, and with Nigeria’s demographics, other sources of power generation must be exploited. In addition to the new push for renewable energy sources such as solar stakeholders need to start thinking about having localized energy, which includes off-grid or mini-grid power systems which can help provide energy to rural and or specific industrial areas, to avoid having to wait for the much needed investment in the principal transmission networks.

What in your opinion should be done to make Nigeria a more attractive place for investors to aid industrialization?
It is all a mix of a better business environment, access to better labor and entrepreneurship skills, and better-developed production technology.

What should be embedded in industrialization policies and legislation in Nigeria to encourage plenary industrialization?
While industrialization has many benefits, it can eventually impede the economic growth of a country if the process is not clearly defined and actively implemented and regulated. It is therefore logical to ask how effective are industrialization policies in Nigeria?
Compared to many western countries, Africa’s industrial policies lack clarity and clear goals, affecting the continent’s ability to be globally competitive in resource processing.

It is important to develop policies that define and develop the growth of a country’s manufacturing sector from an economic and regulatory standpoint. In the drive to create sustainable development via industrialization, Nigeria must focus on innovations that are friendly to the economy of the country as a whole. Stakeholders willing to develop the manufacturing industry must also be given room to operate in a regulatory environment that provides them sufficient comfort. Parastatal institutions like the African Development Bank (AfDB) have developed strong and helpful policies and strategies (and also financing ideas) on how industrialization can work on all sides. These institutions must be empowered to take an active role in developing how African industrialisation will be implemented and will work in practice once implemented. These entities are pushing the agenda to governments to finance the development of industrialisation. Private and public sector collaboration is a key building block for sustainable industrialization across Africa.

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