Rethinking Industrial Policy for Africa

More generally, the nature of industrialization keeps shifting such that the desire for African countries to industrialize is akin to chasing a moving target. The argument is that industrialization is not impossible but is more difficult. It is, however, nearly impossible for industrially lagging countries to catch up to the existing developed economies by following the traditional approaches. In essence, to industrialize on the basis of the traditional understanding would be tantamount to chasing a mirage.

Rethinking Industrial Policy for Africa

The concept and the practice of industrial policy are continuously evolving, and there is no single widely accepted definition. The discussion of industrial policy in this report refers to government activities in reorienting production, technologies, and trade, aimed at achieving structural transformation. Industrial policies underpin guiding principles on the “best” way for any society to move its human, capital, and financial resources from low- to highproductivity sectors (Stiglitz, Lin, and Monga 2013). In countries that have managed to transform their economies from low income to middle and high income—including European Union countries, Japan, and the United States, and more recently China, Korea, and Taiwan, China—active government interventions that promoted structural transformation, industrialization, and trade, including active pursuit of selected sectors and markets, are key defining features.

There is now an almost complete consensus on the need for a modern industrial policy for Africa. Industrial policies can “tilt” the playing field toward sectors or technologies with positive spillovers or externalities and away from those with negative spillovers or externalities (Stiglitz et al. 2013). Still, for every successful case of industrial policy in East Asia, North America, or Western Europe, there are cases in which industrial policy has failed or may have even restricted the prospects for industrialization and growth, reinforcing the notion that there is no one-size-fits-all policy, and risks of capture by vested interests remain.1 The question is how to implement industrial policy in the current setting in Africa. Pursuing an answer to this question requires a rethinking of industrial policies beyond correcting externalities, market imperfections, and distortions. In this framework, this report adopts two broad classifications of industrial policy—soft industrial policies and hard industrial policies—to address the challenge of providing guidance on industrial policy frameworks for African countries. The distinction is based on scope rather than priorities, and both types of policies are equally important.

Soft Industrial Policies: Building a System of Capabilities and Technologies That Are Conducive to Industrialization

Soft industrial policies refer to policies aimed at supporting the growth and productivity of all sectors in the economy; they are not exclusive to manufacturing. In this respect, every country has an industrial policy, whether explicit or implicit. The traditional approach of “good policy” recommendations may not be relevant in an African context, where efforts to promote “East Asian–like” industrialization have often failed. Soft industrial policies largely reflect a commitment to building competitive advantages across the entire spectrum of the economy, reinforcing the learning capacity of private and public enterprises. These policies should focus on factors that drive the productivity and growth of firms and boost their capacity to adapt to emerging challenges. This approach requires strong synergies across multiple sets of policies in building skills, promoting competition by promoting new entry, easing labor market rigidities, improving trade facilitation, developing physical infrastructure, and ensuring easy access to credit. As latecomers, African countries may have an even greater need for industrial policy, which may require a more robust role for the state compared with their developed counterparts, which, in turn, requires the state mechanism to work effectively to craft and implement policies. Thus, the study of the state policy process is at least as important as the policies themselves (Jordan, Turban, and Wilse-Samson 2013). Four dimensions are critical for the success of such policies (Cusolito and Maloney 2018): the rationale and design of the policy, the efficacy of implementation, the coherence of policies across actors, and policy consistency and predictability over time.

In addition, the country and context matter for industrial policy design and practice. There is no one-size-fits-all industrial strategy. The heterogeneity across countries and time in context, resource base, and level of development, and the likelihood that countries will experience different varieties of industries simultaneously, mean that a one-size-fits-all approach would be suboptimal. Each country will benefit by deliberating on and designing its response to create an environment wherein multiple industrial futures can thrive. However, some fundamental capabilities are needed to support the birth and growth of firms and industries across all countries. Industrialization is primarily a process of capacity building with more and better-quality physical infrastructure, including better and more reliable energy and electricity, low costs of transport and communications, accumulation of workers’ skills and continuous skill upgrading, and technical progress.

If Africa is to capture the emerging opportunities associated with changes in the global economy—including the China’s rebalancing, increasingly lower costs of transport and communications, and the ease of relocating production clusters—countries need to invest strategically in these key capabilities.