The Future of Industrialization in Africa

the argument could be made that the early failures may not necessarily define its future prospects for industrialization.

Lack of industries is a defining characteristic of many developing economies at low levels of income. Hence, the industrialization peaks identified in Rodrik (2016) for a few countries may be false starts or unsuccessful attempts at industrialization caused by well-known factors, including political economy constraints, poor investment climate, low productivity, and lack of effective industrial policies and partnerships between governments and the private sector. Thus, to the extent that a strong industrial base has not yet been developed in the region, any suggestion of premature deindustrialization is misleading. The case remains, however, that Sub-Saharan Africa is the least industrialized region in the world. Only a few countries, including Mauritius and South Africa, have successfully developed strong industrial economies.

Failure has often characterized the efforts of developing economies before their successful industrialization. Still, the predominant pessimism about industrialization prospects in the region highlights important challenges that Sub-Saharan African countries face in their industrialization efforts, including technical progress in manufacturing that is making it increasingly labor saving, which limits the traditional mass job creation prospects associated with industrialization. It is therefore important to distinguish between early failures in industrialization efforts and premature deindustrialization, given that the policy implications of this distinction are especially important for the prospects for industrialization in the region.

In summary, countries in Sub-Saharan Africa have had different experiences in industrializing their economies, and clear evidence of premature deindustrialization in the region as a whole is lacking. Yet many countries have not undergone the kind of successful structural transformations associated with sustained economic growth and job creation on a large enough scale to have an impact on poverty reduction. Emerging trends in international trade policies; changes in global production processes, mainly caused by the emergence of global value chains; and unprecedentedly rapid technological advances biased toward labor-saving technologies present significant challenges for the region in its efforts to follow traditional models of structural transformation through industrialization. However, much of the pessimism about the prospects for industrialization in Africa is overstated because the debate has been dominated by the consideration of past failures as signals of poor prospects for the future.

The Future of Industrialization in Africa

Given the uncertainty that has emerged about the path of industrialization that countries should follow, there is no guarantee that all countries in the

Africa region will successfully industrialize (Hallward-Driemeier and Nayyar 2017). This uncertainty is partly due to emerging technologies, including automation, artificial intelligence, the Internet of Things, and 3D printing, that are radically changing the nature of manufacturing. Changing technologies and shifting globalization patterns have raised questions about the prospects for manufacturing-led development. The emergence and impact of the Fourth Industrial Evolution such as automation are phenomena that present opportunities and challenges.

Consequently, there is a need to rethink industrial policy for the new age of global trade and technological development. Industrial policy should not be restricted to the idea that countries should focus on specific industries that provide the greatest welfare and outcome in resource allocation. Instead, industrial policy should be considered within the framework of dynamic comparative advantage or a path of economic transformation that promotes increased growth and job creation.

The failures of industrialization in many African countries since the 1970s are cause for legitimate concern. Moreover, rapid urbanization and growth in the services economy have yielded productivity-reducing structural change (McMillan and Rodrik 2011) and resulted in static gains but dynamic losses for African economies (de Vries, Timmer, and de Vries 2013). Some of the key challenges for late industrializers include the lock-in effects of first movers, the growing sophistication of markets and consumer demand, the slicing up of production into global value chains (GVCs) dominated by buyers, and the greater complexity of manufacturing. These challenges are compounded by recent shifts in the political economy of developed economies toward greater protectionism in international trade.

In addition, the recent COVID-19 (coronavirus) pandemic is expected to have significant implications for industrialization prospects in the region. The combination of trade policy shocks and the enduring public health concerns from COVID-19 has created uncertainty about the future of international trade, resulting in a rethinking of GVCs in manufacturing (Kassa 2020). Because of COVID-19 and emerging geopolitical trends in advanced economies, there is a growing preference for resilience or a “de-risking” strategy. COVID-19 is expected to reinforce an ongoing change in GVCs with respect to geographic rebalancing. The change in heavily traded labor-intensive manufacturing GVCs, where many African countries’ comparative advantages lie, is expected to be significant. On the basis of their comparative advantages, African countries could be viable alternatives for attracting some of these potentially shifting investments. Countries with relatively higher backward linkages in manufacturing GVCs may need to reposition themselves to reap any gains that may arise from fundamental changes in GVCs due to global shocks, including the current pandemic.