Economic diversification and manufacturing in Africa

 'Economic diversification and manufacturing in Africa', was the theme of the African Union - UNIDO conference held on 4-5 June in Addis Ababa, within the framework of the African Union Action Plan for the Accelerated Industrial Development of Africa (AIDA) and in support of the theme of the next AU summit on 'Boosting intra-African trade' to be held this month in Addis Ababa. The goal was to build consensus and to make specific recommendations on how to promote economic diversification in Africa with a focus on investment in the agribusiness and pharmaceutical sectors, as well as promote exchanges and investment collaborations among companies.

1. Dependency on a narrow range of primary products still characterises Africaneconomies(a single commodity accounts for more than 50% of export revenue for 20 countries), thus the purpose of the conference.

2. The case for diversification in Africa was made by providing an overview of the current state of diversification measures and a set of industrial policies currently being pursued by governments in the continent, with best practices fromBrazil and India:

Manufacturing value added in Africa‘s GDP is around10%on average (compared with 22% in Asia) and dominated by small and informal firms; 50%of firms are resourcebased (compared with 13% in Asia); intra regional trade is low and unsophisticated. However, African countries demonstrated renewed commitment to diversification in recent years, i.e.  with the adoption ofAccelerated Industrial development of Africa (AIDA)in 2008 and its operationalisation.Industrial policies currently being pursued byAfricangovernmentsincludework on creatingsound regulatory and institutional frameworks,creatinga conducive business environment, investing in backbone infrastructure, value chains, R&D & innovation, and human resources. Governments can redirect resources and production to priority activities for industrialization, supportingand at the same time challenging firms to be competitive. Regional economic cooperation allows for larger markets and economies of scale andcreates opportunities for intra-regional trade.

The respective roles of government and private sector in undertaking diversification of a country’s economy, were discussed and illustrated with examples.The Brazilian case illustrated the need for working with all levels of governments. Agriculture is regarded as a spring board for industrialization. Brazil’s policy instruments include state support & incentives to family farms and cooperatives; investment in research, training and new technology for agriculture and investment in rural infrastructure. The African Business Round Table pointed out  the role of private sector in facilitating job creation and how to use revenues from raw materials for private sector development.  Lessons learnt from India are the focus on research and innovation and the use of public procurement mechanisms as a tool for industrial development policy.

3 .The debate also touched upon the role of the state and how to support private sector investment in agribusiness, particularly in creating incentives for private investors to unblock situation for infant industries to develop. This includes specific incentives for a more effective use of land, to support the first part of the value chain (supply side).Once the start up phase is over, the industry should be encouraged to work in a competitive environment.  Public – privatesector partnerships can help facilitate inflow of quality investment in agro business in Africa.

4. Another theme related to public-private partnerships for a successful implementation of thePharmaceutical Manufacturing Plan for Africa, adopted by the Summit of the African Union in 2007. Small and medium size companies, i.e. in India, could be suitable partners for Africa. Coordination between health and industry portfolios is essential for the development of the pharmaceutical sector.

5. Check out the Investment Monitoring Platform (IMP) implemented by UNIDO with EU support through the 9^th EDF (FED/2008/ 199-288).The IMP contains information about 7000 companies in 19 African countries, allowing analysis of investment trends, growth rates, comparative performance, cost structure, etc.  Some of the findings :  the fastest growing and largest investment inAfricathe latest years have been through joint ventures, and particularly joint ventures that are regional exporters are the fastest growing (i.e. in East Africa); inter African investment is big in the food and beverage sector.http://investment.unido.org/imp/