It is a known fact that Africa’s industrialisation is a long journey. There is a huge execution gap between the design thinking behind the entire ecosystem and implementation of same. It’s a very challenging continent with many hurdles. The Pan African Industrial Policy constructs across the regional blocs have not only failed to help African countries develop industries, but have also led to inefficiencies and an excess of liabilities. This article will discuss the design and implementation flaws in African economic policies, as well as what changes are needed in these policy decisions moving forward; so that they can truly support Africa on its way toward economic growth.
Modernisation and industrialisation are said to be the backbone of development, but they are proving extremely difficult to achieve in Africa. This is due to multiple reasons, one of which is that African countries have not adequately addressed their existing industrial policies. These policies have become a victim of their own success by creating incentives that have either not been properly implemented throughout the rest of the economy, or simply implemented incorrectly in how money is moved throughout it. The lack of good policy decisions has created an inefficient and wasteful system. This waste has made it profitable for corrupt business-people and bureaucracies to easily take advantage of these policies. This has led to hurtful, inefficient and wasteful policies in Africa.
The African economy’s public sector is dominated by parastatals that are dependent on government, and thus are not economically sound. The private sector, on the other hand, is made up of limited firms which depend on government for support. This dependence has created incentives for these firms to engage in rent-seeking activities by maximising their profits without being competitive with other firms. There is a high level of monopoly in Africa because of this relationship between private and public sectors, as well as a small number of large firms dominating most sectors. The main problem with this relationship is that it has led to inefficient allocation of resources.
This is because the private sector’s profits are not taxed or regulated in a way that incentivises competitive firms to enter the market. Instead, government has subsidised these firms to enable them to operate and even compete with other businesses. The only way the private sector can compete with parastatals is through subsidies or direct handouts from taxpayers. This creates a hidden subsidy, which results in an incentive for bad policies and poor allocation of resources instead of proper regulation and taxation of firms.
All parastatal businesses in Africa depend on government for their survival, and therefore are not valued based on contributory factors such as how much they benefit citizens. This has led to what has been referred to as a ‘bureaucratic subsidy’. The bureaucrats of African governments have become so powerful that they do not hesitate to take advantage of this by placing their favoured firms before other businesses. These firms are commonly known as ‘cronies’, and are able to take advantage of the system by abusing their positions for personal gain. This effectively leads to weak national industries, which causes them not to be competitive with foreign firms and is one of the factors which have kept African countries from implementing effective trade policies.
The lack of competitiveness in African industries has led to inefficiency and waste of foreign aid. The African states are quick to accept help from donors, but they are slow at implementing policies that will help them move forward. This is because there is a lack of transparency as well as an inability to effectively deal with corruption within these firms. Government tries to take care of all types of problems, which causes inefficient spending and leads to corruption in the public sector. These problems then affect developing countries negatively, due to the level of waste and inefficiency that occurs during this process.
There are many things that will have to be changed for African industries to become more competitive and efficient. One of the fixes that African countries need to make is a change of their policy decisions regarding industrial policies. These changes would include altering the incentive structures in Africa’s public and private sectors, and also creating a more competitive economy with transparency as a feature. This will help eliminate waste, increase efficiency and cut down on corruption.
In order to achieve these changes, African countries will have to adopt an economic strategy that can provide incentives for foreign direct investment, as well as a strategy for domestic investment in firms that are focused on international competitiveness. This would provide the needed stability and sustainability in Africa’s private sector so that it can be encouraged to invest more aggressively in its industries.
The strategy would also include creating an environment that is open to new-entrant firms with a focus on diversifying the economy. African states will also need to create programmes that will help them develop policy changes which are aimed at improving Africa’s industrial sectors. Their strategies must be based on the strengths and weaknesses of Africa’s economies to stop the loss of wealth through corruption and waste of money.
These reforms are necessary if Africa wants to construct a successful path toward industrialisation. The continent has yet to have this happen – and it is critical to make these changes soon, or else African countries will continue being stuck in their current state of stagnation while others continue growing and developing their economies. African countries will have to work together to implement these reforms to accomplish what they set out to do.
One of the first steps in this process should be the creation of an independent regulatory agency that will be responsible for facilitating trade, including foreign investment and development. This agency would be responsible for administering foreign investment into the state’s industries and making sure it is managed efficiently. Developing African industries and increasing competitiveness would provide an incentive for more people to invest in their countries because of the higher return on their investment.
African states will also need to create a programme that is run by them but operated by external agencies – such as economists that can advise governments on how best to allocate resources toward Africa’s overall industrial development. The programme would also need to be able to deal with the problem of corruption within parastatals. This programme would also need to be responsible for overseeing the privatisation process. The purpose for this programme is to have it be an evaluation agency that oversees the privatisation process and ensures this it is being done in a way which benefits the state. This will help create an environment wherein the private sector can flourish and be competitive with its peers in other countries.
Another issue with industrial policies in Africa is how poorly-designed they are. In most cases, these policies were created by powerful officials who had no intention of implementing them effectively in order for them to make a difference. Therefore, many of these policies have been poorly-designed and implemented throughout the economy. A big example of this is the price-support policies in the agriculture sector. These price supports provided to farmers in several countries have led to many losses due to overproduction and inefficient allocation of resources.
This has created an inefficient market with prices determined by political decisions rather than what consumers are willing and able to pay for goods. In this case, we can see those government officials were not knowledgeable about how effective their agricultural policy would be. Thus, they implemented it in a way that harmed industries and markets across the board. It was also not properly implemented because there was no proper administration system for monitoring, so it did its job ineffectively.
There has to be a change in how African countries introduce and implement their industrial policies so that they are not so prone to failure. There needs to be a more careful study of the problem and design of the policy before it is implemented for it to succeed and not cause more harm than good. Industrial policies should work with private sector firms, rather than against them, while focusing on creating profit opportunities, incentives and competition throughout the country. These policies should also be properly monitored to make sure they are working as intended, and helping more than hurting. Overall, introducing industrial policies that have been poorly-designed or implemented will only hurt Africa further on its journey toward industrialisation.
Africa’s journey toward industrialisation has been hindered by a range of issues, including inefficient and wasteful industrial policies. The Meridian Industrial Park in the Tema Free Zone Enclave, however, is a success story worth highlighting. Unlike other parastatals in Africa that are dependent on government and not economically sound, the Meridian Industrial Park is privately owned and highly competitive.
Its success demonstrates the need for changes to Africa’s industrial policies, including the creation of a more competitive economy, transparency, and the development of policy changes aimed at improving Africa’s industrial sectors. Implementing these reforms is critical for African countries to successfully industrialise and keep pace with the growth and development of other economies. The creation of an independent regulatory agency could be a first step in this process, providing an incentive for more people to invest in African countries and facilitating foreign investment and development.
The writer is an award-winning financial advisory, trade and transformation consulting professional with almost two decades of enterprise leadership experience across EMEA.