The 21st World Economic Forum on Africa begins today in Cape Town, South Africa. The three-day meeting will be attended by 900 participants from 60 countries under the slogan of ‘From Vision to Action, Africa’s Next Chapter’. Three “thematic pillars” will underpin the forum: Shaping Africa’s Role in the New Reality; Fostering Africa’s New Champions of Growth; and Building Partnerships for Inclusive Development.
Africa came out of the financial crisis relatively unscathed, and many across the world are now reassessing the continent’s strong growth prospects. The Forum is focusing on how political and business leaders can help diversify and strengthen African economies, to move them away from resource extraction and towards value added manufacturing, industry and services. Think Africa Press asks its experts whether they approve of this focus, what methods they would suggest to achieve the goals, and whether these leaders are the best placed agents to achieve the goals.
The need to shift African economies onto more productive and socially beneficial economic paths is axiomatic. But it’s much less obvious how feasible this is, including in those countries that seem to hold the most potential. Paradoxically, the very features that seem to position some countries favourably along a new path are also major drawbacks. Take Africa’s largest and most powerful economy – South Africa – as an example.
Industrialisation accelerated in the first half of the 20th century, but a coherent industrial strategy never materialised. This was caused mainly by the distorting weight of a minerals-energy complex (MEC) that sat at the heart of the economy. It incorporated a core set of industries associated with large-scale mineral extraction, energy provision, and associated downstream sectors. What looked like import-substitution industrialisation were actually poorly coordinated and erratically supported entrepreneurial forays that lacked solid linkages into the core sectors of the economy. The favoured policies supported the core MEC sectors, at the expense of other diversifying policies. The outcome was stunted and haphazard industrialisation, featuring activities servicing the minerals and energy sectors, the production of (mostly non-durable) consumer goods, and some piecemeal intermediate and capital goods manufacturing.
This is not easily undone. The economy’s misshapen structure expresses the weight of certain sectors. Salient features of the economy have been reinforced in recent decades, but additional disruptive dynamics are now also in play – notably a bloated, hyperactive and destabilising financial sector. Deep restructuring is needed, but the South African state seems to lack the heft to achieve it. Since the mid-1990s, South Africa’s conglomerates were encouraged to globalise, allowed to disinvest, and enabled to circulate their profits anywhere on the planet. Their domestic operations are now aspects of global corporate strategies and do not enjoy privileged consideration. And the state’s sway over the banks and financial sector is slight; the bulk of capital allocation occurs through a decentralised market and the stock exchange, which is prone to jittery reflexes.
That, of course, is a sign of our times. The main institutional casualty of neoliberal globalisation has been the nation state, and with it the ability to harness the dynamism of capitalism and deploy it in the service of social progress. Domestic corporate elites are now threaded into alliances with internationalised capital. This both diffuses and thickens the presence of capital, poses major challenges to state sovereignty, and badly undermines the idea of nurturing a national “patriotic” economic elite that serves national development. This applies to many African countries, including South Africa, where the political and new economic elites overlap so such an extent that even nominally progressive political forces show increasing, reflexive sympathy for policies that put the market ahead of society.
Political will and attractive policies will not be enough. What has to shift first is the balance of power in society.
Prof Owen Skae, Director of the Rhodes University Business School:
This focus is extremely important and necessary. However, whilst most commentators would agree on the necessity to reduce reliance on a narrow stream of commodities, the ‘how’ of achieving it is another matter altogether. In 2009, the World Bank released a report entitled "Breaking into New Markets". In it, Paul Brenton and Richard Newfarmer make reference to an examination of the growth of exports from 99 developing countries to 102 developed and developing countries over a ten-year period. They claim that 80% of the total contribution to total export growth came from existing products to existing markets, and the balance in effect from existing products to new markets. Virtually no growth was registered for new products to existing markets or new products to new markets.
On the one hand this can seem quite a depressing fact. However, what it also says is that countries can do better with what they have already, and this is often overlooked. In other words, this school of thought would argue that diversification as an overriding policy objective may be doomed to fail. Chilé is often cited as a resource-dependent success story, where prudent decisions have been made around the management of their resources for the betterment of the country. On the other hand, advocates of diversification, such as Ricardo Hausmann of Harvard University are adamant that if developing countries don’t diversify, they don’t grow. He cites two oil-dependent countries, Norway and Venezuela, as an example to support this argument.
One hopes that this WEF focus will spend sufficient time on the ‘how’. Countries that have successfully diversified are those which have allowed the private sector to flourish, have removed the barriers to trade and investment, and most importantly invested heavily in their people. Ultimately it is also not about picking ‘winners’, in other words pre-selecting sectors. Government should provide a policy framework that allows entrepreneurial activity to emerge. For this, it requires hard engagement by the stakeholders (government, business, labour, education bodies) to the extent of a high level ‘competitiveness’ council that makes necessary recommendations around creating an enabling environment.
The key problem with manufacturing and benificiation is not to do with capability and willingness within African countries. The key problem is to do with access to manufactured goods by a sufficiently wide and dense range of Western markets to make it worthwhile and to allow manufacturing to develop as a rich African sector.
Basically, it isn't going to happen unless it is as service industries for Western concerns - manufacture as farmed-out processing. Chinese manufacture is already causing the West a headache. Basically, the big problem for the West is how to deal with manufactures from BRIC plus SA countries. Africa is far down the list of being encouraged to enter a Western market that will, as with BRIC plus SA, still seek to set terms. The key term is that African manufacture should not threaten Western manufacture. Right now, that's not even a gram of ground and packaged coffee, thank you very much. Beans from Uganda: the grinding's going to be done in Italy and the packaging in France, before a Belgian lorry carries it to a UK supermarket near you.
Keith Hart, Co-Director, Postdoctoral Programme on the Human Economy, University of Pretoria:
So far, African countries have relied on exporting raw materials, when they could. Minerals clearly have a promising future owing to scarce supplies and escalating demand; but the world market for food and other agricultural products is skewed by Western farm subsidies and prices are further depressed by the large number of poor farmers seeking entry. Conventionally, African governments have aspired to manufacturing exports as an alternative, but here they face intense competition from Asia. It would be more fruitful for African countries to argue collectively in the councils of world trade for some protection from international dumping, so that their farmers and infant industries might at least get a chance to supply their own populations first. But the world market for services is booming, and perhaps greater opportunities for supplying national, regional and global markets exist there.
There was a time when most services were performed personally on the spot; but today, as a result of the digital revolution in communications, they increasingly link producers and consumers at distance. The fastest-growing sector of world trade is the production of culture: entertainment, education, media, software and a wide range of information services. The future of the human economy, once certain material requirements are satisfied, lies in the infinite scope for us to do things for each other — like singing songs or telling stories — that need not take a tangible form. The largest global television audiences are for sporting events like the World Cup or the Olympic Games.
The United States’ three leading exports are now movies, music and software. This is why they have sponsored an intellectual property treaty (TRIPs) that seeks to shore up the profits of corporations whose products can be reproduced digitally at almost no cost. The central conflict in contemporary capitalism is between this attempt to privatize the cultural commons and widespread popular resistance to it. Any move to enter this market will be confronted by transnational corporations and the governments who support them. Nevertheless, there is a lot more to play for here and the terrain is not as rigidly mapped out as in agriculture and manufactures. It is also one where Africans are exceptionally well-placed to compete because of the proven preference of global audiences for their music and plastic arts.
Why do you think Hollywood is where it is? A century ago, film-makers on the East Coast struggled under Thomas Edison’s monopolies of electrical products; so some of them escaped to the Far West and kicked off the movie industry with as little regulation as possible. For his first Mickey Mouse cartoon, Walt Disney ripped off a Buster Keaton movie for ‘Steamboat Willie’. Now the Disney Corporation sues Chinese cartoonists for illegal appropriation of the Mickey Mouse logo. Did you know that the world’s second largest producer of movies, after Hollywood and now before Bollywood, is Lagos, in Nigeria (‘Nollywood’)? Most of their movies cost no more than $5,000, a pattern reminiscent of Hollywood when W.G. Griffith was king. American popular culture is still that country’s most successful export. There is no reason why it couldn’t be for Africans too.
Christopher Cramer, Professor of the Political Economy of Development at the School of Oriental and African Studies, University of London:
The WEF on Africa's focus on diversification, and on encouraging value added manufacturing and industry is welcome and important. But it is also important to acknowledge that everywhere that this kind of large-scale structural change has taken place it has required the judicious intervention of states representing and encouraging those with a clear interest in investment domestically (rather than capital flight), in technological upgrading (rather than the kind of emptying out of capacities that has been experienced in some African countries), and in generating decent employment opportunities. States need to be involved in order to allocate what the economist Alice Amsden calls 'intermediate assets' - carefully monitored fiscal and trade incentives - and to manage distributional tussles that result.
States need to work with private sectors to develop the institutions that increase productive capabilities - this is not the same as across-the-board, off-the-peg 'good governance' as piously advised by donor agencies. Industrial development, rapid increases in know-how and in international competitiveness, is not the happy ending of a fairy tale of free markets and lower-the-limbo-dancing pole taxes. It is also important to get away from the cliche of small and medium-sized enterprises. Important though these are, serious industrialisation is likely to turn on the prospects and ambitions of large national leader enterprises. At the same time, large foreign investments can play an important role, in creating productive infrastructure, in direct manufacturing production, and in employment creation: but governments need to develop the nous to negotiate investment deals that maximise the contribution of these investments to the wider economy and to longer term capabilities for manufacturing diversification. Meanwhile, none of this can be secured without a strategic commitment to generating rapid increases in export revenue, which in most African countries will have to come from improving productivity in and diversifying production in agricultural production. It is to be hoped that the World Economic Forum on Africa can acknowledge and develop these issues.