INDUSTRIALISATION OF AFRICA: AFRODAD's Submission to the AU/UNECA CONFERENCE OF MINISTERS, Abidjan, Cote d'Ivoire. March 2013

AFRICAN FORUM AND NETWORK ON DEBT AND DEVELOPMENT

Contribution at the

6^th Joint Annual meeting of the AU Conference of Ministers of Economy and Finance and the ECA Conference of African Ministers of Finance, Planning and Economic Development.

By Dr. Collins Magalasi

Abidjan, Cote d’Ivoire

Opening Remarks

On behalf of the African Forum and Network on Debt and Development (AFRODAD) Board, Management and Staff, I would like to thank the African Union (AU) and the Economic Commission for Africa (ECA) for inviting AFRODAD to the Conference and also for the opportunity to contribute to the discussions. I have a few points to state and suggest on, but first a short background.

Background

AFRODAD is a Pan African Civil Society institution born of a desire to secure lasting solutions to Africa’s debt and development problems which has impacted negatively on the lives of the continent’s citizens and the future generation. AFRODAD’s strategic goal is to support ‘African Governments institute and implement policies and practices that enable African countries to develop without indebtedness.

The African continent is richly endowed with high value natural and human resources including gold, platinum, diamonds and other precious metals, timber, gas and oil. Paradoxically Africa is the poorest continent on earth, and yet highly indebted to the developed countries. Many African countries have become heavily indebted in the process, or as a result of following western prescribed policies and programmes such as Structural Adjustment Programmes (SAPs). Three quarters of Africa’s population, whose majority are women and youths are poor and lack basic services such as food, clean, water, shelter and clothing.1 Unfortunately, poverty makes these majority of the citizens disempowered and are unable or prevented from decision making processes largely due to structural reasons.

Africa has for long wished and discussed the need for industrialisation. The African Heads of State and Government, at January 2008 Summit of the African Union, endorsed the resolution of the 2007 Conference of African Ministers of Industry (CAMI) themed “Africa’s Industrialisation”  and resolved to put into action the Accelerated Industrial Development of Africa (AIDA).

In 2013 the 6^th Joint Annual meeting of the AU Conference of Ministers of Economy and Finance and the ECA Conference of African Ministers of Finance, Planning and Economic Development are meeting in Abidjan, Cote d’Ivoire to discuss the operationalisation of “Industrialisation for an Emerging Africa.”

AFRODAD was officially invited to the aforementioned 2013 Joint Annual Meeting and is participating as an “Observer” and is entitled to making contributions to the Committee of Experts that prepares reports for adoption by the Conference of Ministers. Following therefore is the submission that AFRODAD and its partners make to the Committee of Experts and subsequently to the Conference of Ministers.

1.       AFRODAD is fully in support of the industrialisation of Africa.

Literary, all developed countries are industrialised; and evidence shows that their industrialisation came about through specific trade, industrial and technology policies and institutions that protected their national infant industries. AFRODAD therefore calls on African governments to resist and desist any irresponsible western-type laissez-faire and free market dogma, and take responsibility and deliberate actions to promote African institutions to industrialise, including small and medium enterprises (SMEs).

2.      Enough lessons should have been learned from Africa’s experience under the painful Structural Adjustment Programmes (SAPs) which focused on creating macroeconomic stability and structural reforms conducive for foreign firms at the expense of Africa’s own home grown firms. SAPs made Africa withdraw its support to infant domestic firms in the presence of pervasive market failures and unfair trade liberalization. New SAPs, in whatever forms or languages must not be entertained.

3.     AFRODAD is aware that the industrialisation of Africa faces many challenges, among them (a) poor infrastructure, (b) Inadequate or poor access to finance, (c) low labour productivity, (d) high uncertainty and investment risks (both perceived and real), (e) lack of capacity to improve, certify and assure quality and standards of Africa’s industrial products, (f) limited technology, and (g) threats of climate change. We call on African governments to work on these challenges and others expediously.

In this regard, AFRODAD recommends that studies and decisions must be documented on the following areas:

·         Lessons that Africa has learned from its past efforts on industrial policy, in order to design, implement, monitor and evaluate its new industrial strategies.

·        Lessons that Africa can draw from the industrialization of East Asia (as their conditions are similar).

·        Define in clear terms what role the governments and other stakeholders will play in addressing the above constraints.

·        Agree on how Africa can stand against the pressure against Africa’s industrialization that is exerted in the World Trade Organisation talks.

4.      AFRODAD is also fully aware that financing the industrialization drive is killer challenge. With gross savings in Africa at only 17.6% of GDP (compared to South Asia’s 26%, Latin America’s 24% and East Asia’s and Pacific’s 42.9%),[1] innovative financing is needed for the industrialization, and in Africa the financing mechanism that is needed is one that promotes savings and investment in the economy. Areas to consider seriously include Financial Intermediation and a well functioning financial system that can mobilize resources and allocate them to productive investments.

The following are areas that Africa should concentrate in raising the innovative finances for industrialisation:

(a)   Domestic Resource Mobilisation

Africa can easily have resource-based industrialization. In this regards, governments must put in place policies and strategies that allow financial and capital markets to make credit available to SMEs, who constitute over 75% of Africa’s intra-trade is with SMEs. In addition, Africa needs to build on the progressive growth of stock markets, development and capitalisation of Development Financial Institutions[2] and consider establishment of National Sovereign Wealth Funds.[3]

(b)   Continental Resource Mobilisation

The African Union has been considering the establishment of a continent wide fund for industrial development in Africa. It is time for action and make this plan a reality. The African Union Industrial Development Fund must have special purpose funds that can be tapped at regional or national level, especially to finance machinery and equipment, which accounts for over 80% of any industry set ups.[4]

(c)    International Resource Mobilisation

For over half a century, Africa has been duped by foreign investors. In the bid to attract these FDIs, Africa has lost its control over its development agenda and lost trillions of dollars that could have been reinvested in Africa. AFRODAD recommends that the AUC and UNECA should study the cost that Africa pays for attracting FDIs. Governments must withdraw tax incentives and holidays given to FDIs and promote local firms.[5]

Much as FDIs to Africa have increased over the years, it is regrettable that most of these have gone into natural resource exploitation. African government need to be in the driving seat and direct the quality of investment flows into their countries towards productive and value addition sectors.

In addition, deliberate actions must be taken to promote local enterprises to become suppliers or subcontractors to Multinational Companies (MNCs).

Every effort must be made to stop MNCs from illicit financial flows. In this regard, Africa must demand closure of tax havens and ensure country-by-country reporting.

(d)   Hybrid Savings and Investment Resource Mobilisation

One innovative source of financing for Africa’s industrilaisation is savings from Africans living in diaspora. It is estimated that between 2012 and 2014, a whooping US$75 billion will be sent to Africa from Africans in diaspora.[6] This is more than half of the net aid expected from donors in the same period.[7]

AFRODAD is pleased to note that the African Union has been championing the setting up of a facility that would leverage diaspora resources. We note however that at the moment there is no Diaspora policy that would guide the relationship between Africans in diaspora to their home countries and we call for development of Diaspora Policy to be developed as a matter of urgency.

All of the above innovative sourcing of financing requires, as a preliquisite, review of legal and institutional frameworks of African countries in order to be able to stimulate sustainable access to credit and private financial resources.

With the debt crisis fresh in the memory of every African, it is imperative that financing of this ‘new African’ industrialization must not lead to continent back into the debt trap. In this regard, we propose that the AUC and UNECA should conduct study on Debt and Industrialisation.

Conclusion and Closing Remarks

In conclusion, AFRODAD fully supports our leaders’ commitment to industrialise Africa. We believe in the saying that “where there is a will there is always a way” and we hope our leaders know that it is time for ACTION, and not just talk. Africa’s wise leaders Kwame Nkrumah and Julius Nyerere gave the scenarios for industrialisation and our generation therefore has the motivation to do things differently. AFRODAD appreciates the growing relationship with the AUC and ECA, Regional Economic Blocks in Africa and individual African governments. Together, we can.

Thank you

Dr. Collins Magalasi and Ms. Nyasha Munditi

Abidjan, Cote d’Ivoire, 23^rd March 2013

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[1] World Bank, 2011

[2] Such as Development Bank of Southern Africa, IDC, PTA Bank, Islamic Bank, AfDB etc

[3] Lessons can be learned from the Norwegian Oil fund , for example

[4] UNCTAD, 2012

[5] Tax incentives given to FDIs are subsidies that poor people make to the rich foreign investors.

[6] World Bank estimates that in 2012 remittances will be $24 billion, 25 billion in 2013, and up to $27 billion in 2014. See http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:22141991~menuPK:34480~pagePK:64257043~piPK:437376~theSitePK:4607,00.html accessed on 2^nd March 2013.

[7] See OECD/DAC, 2012