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Industrialisation in West Africa (2): global or regional strategies?

Thursday, July 11, 2019

A previous post took stock of industrial development in West Africa. It was explained that at a time when the international community, including the African Development Bank, elevates industrialisation to a priority range for fighting poverty and exclusion, this process lags behind in the region. This post focuses on some of the strategies that could be implemented in order for the West African countries to move forward.

Overall developments in the last decades, including trade liberalisation, international fragmentation of value chains, and the emergence of new industrialized countries in Asia and Central and Eastern Europe, have posed new competitiveness challenges to countries undertaking to industrialise. Emerging industries in West Africa face fierce global competition whatever the production segment, which may ruin their chances to take off. In order to compete, countries in the region should devise and implement methodical industrial strategies based on their comparative and competitive advantages.

A first opportunity consists in supporting the integration of local manufacturers into global value chains, so they could be driven up by the global production dynamism. Focused on the production of intermediate goods incorporated in the final product, this strategy involves, as a first step, developing low added value and labour-intensive activities leveraging low labour costs, before progressively going up in the value chain. Since the 1960s, this mode of development has been implemented by Mexico, the Asian Dragons, as well as some North African countries, and Ethiopia is now on the process of doing the same. Its implementation requires governments to offer attractive conditions to multinational companies and/or sub-contractors so that their relocation in the country is functional, cost-effective, and sustainable. The incentives notably include offshore schemes (export processing zones for instance) as well as establishment of industrial zones with competitive infrastructure and logistics in a sizable labour pool.

While this model can result in the creation of numerous unskilled jobs, its implementation is costly and cannot be easily devised ex nihilo, as some industrial predisposition (labour skills, basic infrastructure) are required to convince the first-to-market firms to establish. At some point, the lack of preparation can be compensated if the process is based on natural resources endowments, which are an important comparative advantage, by setting up a raw materials processing system built on to the resources deposits (wood, minerals, etc.).

A second strategy is based on the transformation of local goods dedicated to exports. It consists of identifying products specific to the region with low availability elsewhere and for which there is global demand. USAID agency has identified four of these products as part of its initiative West Africa Trade & Investment Hub: mangoes, shea, cashew and apparel. The objective is to process food raw materials into high added value products (shea butter, packaged fruits), which are then exported to the world market. With regards to apparel, the program intends to leverage the expertise of designers and craftsmen of the region, just as the International Trade Centre does in Ghana, Mali and Burkina Faso, as part of its "Ethical Fashion" initiative.

The expansion of these industries would allow the region to benefit from several hitherto untapped advantages, including access to European and North American markets, which is facilitated by the existence of maritime links, trade agreements such the African Growth Opportunity Act (AGOA) and ethnic-based commercial networks (through the diaspora). This mode of industrialization has several advantages, as it contributes to the structuring of a local value chain and boosts regional integration, particularly landlocked countries, justifying additional effort to connect internal production areas and coastal export zones (infrastructure, tariff barriers).

The third strategy known as the one of regional value chains (CVR). As with GVCs, the CVRs are centered on integrating local industries into a production device – i.e. the value chain. The outlet are, however, not global but regional. They could be built upon the increasing urbanization in West Africa and the emerging consumption poles of Nigeria, Ghana and Côte d'Ivoire. This strategy is somewhat similar to the import substitution industrialization (ISI) strategies implemented by most countries in the region in the 1970s, but unlike the latter, the chances of success of the CVRs are enhanced with the present conditions, which are much more conducive than those that led the ISI model to fail, for at least three reasons.

First, domestic consumer markets are today much less narrow than they used to be 40 or 30 years ago, while the sum of these markets form an even more important regional market. Second, regional integration is much more efficient today, because of the many cross-border connections (road, port and airport) developed in recent decades, which facilitates the exploitation of production complementarities between countries (raw material – processing – marketing). Thirdly, the creation of a local industry is relevant given the changes production and consumption patterns, which are now focusing on product differentiation geared towards culturally-specific markets.

Certainly, consumer behaviour in West Africa become closer to the global consumer behaviour when it comes to a number of products. But for many other consumer goods, it would be appropriate to develop an “Africanized” mode of production, which would be more adapted to the local markets. In this respect, indigenous firms from the region have a competitive advantage over their competitors outside the region. This will be the subject of a third post focused on the “Africanization” of the regional industry.

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