Economic Report on Africa 2015: Industrializing
Through Trade
UNECA
May 2015
Mr Adam Elhiraika
Director, Macroeconomic Policy Division
UNECA
Casablanca, Morocco
12 June 2015
Economic Report on Africa 2015: Industrializing Through Trade
Key Messages
 Africa’s growth prospects remain positive, with
increased private consumption and investment as the
key drivers, and African economies are slowly
transforming.
 However, progress in social development has not been
equally strong, especially in relation to poverty,
inequality and social protection.
 Rapid industrialization and structural transformation are
imperatives for African countries to increase
productivity, create decent jobs and reduce inequality
and poverty.
 Trade can play a catalytic role in promoting
industrialization and structural transformation (ERA 2015
is a continuation of the last 4 editions).
Economic Report on Africa 2015: Industrializing Through Trade
Africa’s growth continues to be strong despite weak global economy
Figure 1: Growth in emerging and developing regions
2010-2016
 Mainly
driven by:
• Increased domestic demand and
investment;
• Improved governance and
macroeconomic management and
rising middle class;
• Diversified trade and investment ties
with emerging economies and
improved regional integration
efforts; and
• Sustained demand for commodity
exports despite moderating
commodity prices.
 Africa’s
growth is well above global
growth, which increased marginally
to 2.6 per cent in 2014 from 2.4 per
cent in 2013.
Economic Report on Africa 2015: Industrializing Through Trade
Private inflows continue to rise signifying a vote of confidence in Africa’s
improved economic management and governance
Figure 2:Inflows of external finance, 2010-2015 ($ bn)
 FDI an important external source of
finance despite being surpassed by
remittances since 2010;
 Remittances are expected to further
increase to 4.6 per cent of GDP in
2015, as more African expatriates
seek to invest in their home
countries;
 However, the cost of sending money
to Africa is relatively high at global
levels.
 Hence the need for African countries
to reduce the cost; and develop
financial instruments to channel
them towards developmental
programmes.
Economic Report on Africa 2015: Industrializing Through Trade
Innovative strategies to mobilize domestic and external resources are needed
for Africa to bridge the domestic resource gap
Figure 3: Africa’s domestic financing gap, by
economic group, 2000-2011
 Africa’s financing gap rose from 3.1%
of GDP in 2010 to 6.1% in 2011, mainly
driven by:
 Oil exporting countries as they build
buffers against exogenous shocks;
 Partly due to increased private
consumption, and increased
expenditure needs especially for
infrastructure;
 This calls for innovative ways of
financing through:
 Leveraging remittances by reducing
the cost of sending money to Africa;
 Better use of pension funds and private
equity;
 Use reserves for development rather
than for building buffers against
exogenous shocks.
Economic Report on Africa 2015: Industrializing Through Trade
Africa’s growth is associated with slow structural change calling for welltargeted measures to accelerate structural transformation
Figure 4: Sectoral share of employment and value
added in Africa, 2000-2012
 Most African countries tried to promote
industrialization and structural
transformation through development
planning after independence; but lacked
sound industrial foundation to meet
growing internal demand, resulting into a
limited contribution to transformation;
 Structural adjustment programmes (SAPs)
-80s & 90s- led to the abandonment of
planning and there was massive
deindustrialization; leading to the
reallocation of resources from industry to
agriculture and the informal sectors.
 Since 2000, the share of agricultural
employment & value added decreased
with growth, while employment shares for
industry and services continued to rise.
Economic Report on Africa 2015: Industrializing Through Trade
Africa’s growth has not been job-rich, with the majority of African workers
trapped in vulnerable agriculture and the informal sector
Figure 5: Employment by sector, Central, East,
Southern and West Africa, 2000-2013
 Progress in social development
remains slow especially in relation
to poverty, inequality and social
protection.
 Jobs in Africa are not moving out
of agriculture as fast as theory
predicts, and non-agricultural
employment remains largely in
the informal sector;
 Services are absorbing most of
new
African
jobs,
leaving
employment in industry stagnant
at around 8.4 per cent during
2000–2013;
 Increased employment in highend services reflects a successful
shift. E.g. Mauritius expanded its
tertiary sector through highly
productive and labor-intensive
activities.
Economic Report on Africa 2015: Industrializing Through Trade
In light of the above, building an educated and healthy workforce to support
Africa’s structural transformation is imperative
 The
skills
required
for
transformation
go
beyond
acquisition of formal schooling;
 The
assimilation
rather
than
imposed adoption of technology
through international trade was a
key factor in East Asia’s structural
change;
 There is need to promote industrial
and social policies that are in line
with the needs for an economy’s
transformation: that foster
diversification, create
employment and reduce poverty;
 For example, policies in which the
educational system is combined
with on-the-job training and
apprenticeships could produce
the
skills
required
for
transformation.
Encouraging
entrepreneurship and innovation is
also key.
Economic Report on Africa 2015: Industrializing Through Trade
Trade can be a veritable tool in promoting industrial development and
structural transformation in Africa.
• A properly designed and implemented trade policy – alongside complementary policies
– can launch an economy into industrial take-off;
• This requires a deep understanding of the market structure and possible firms ’
interactions on the continent;
• Production structures with huge economies of scale create incentives to specialize and
trade in differentiated products, even without differences in resource endowments or
technology;
• Industrial production is characterized by externalities and spillovers, however, negative
externalities, since they are detrimental to social, economic and environmental
sustainability, need to be curtailed as they negatively affect industrialization;
• The need for government intervention may be clear, but it requires policymakers (or their
advisers) to understand global trade (the World Trade Organization (WTO), its many
complicated rules) and the economic channels through which trade and trade policy
affect industrialization.
Economic Report on Africa 2015: Industrializing Through Trade
Need for a selective trade policy frameworks for industrialization
•
The starting point for a selective trade policy framework as well as any national
development policy should emanate from a country’s National Development
Strategy;
•
There must be a strong relationship between industrial policy and the country’s
national development strategy, with an integrated trade and industrial policy;
•
A good trade policy must be interactive (coordination), iterative and evolving;
–
–
–
Should engage all stakeholders and should have equal opportunities to contribute to the process;
Should present a platform for the exchange of ideas and experiences, and in the process be able to
strategize to take advantage of the new trade policy;
Evaluate the parameters informing the process relative to other countries’ attributes e.g. country
endowments, technological capabilities of firms;
•
A selective trade policy entails two “big tasks”: selecting industries (or tasks) that
will receive special treatment; and choosing trade policy instruments to influence
not only the products but also the process, with products’ value-addition at the
core of it;
•
Monitoring and evaluation - Trade policy should be dynamic, responsive to
changes in the internal and external environment and reviewed at intervals long
enough for firms to use it for their planning and investment purposes.
Economic Report on Africa 2015: Industrializing Through Trade
Selective trade policy framework for industrialization
Economic Report on Africa 2015: Industrializing Through Trade
Trade policy coherence and selectivity experience from case studies
•
Most of the countries have attempted to achieve coherence between trade
policy and national development strategy, although trade policy coherence
with industrial policy appears to be weak among African countries;
•
Most of the countries recognize the need to be selective, add value, and
develop or join RVCs or GVCs (as ideas feature in most of their policy
documents) but they are not being fully adopted or effectively enforced;
•
Most of the stakeholders are involved in trade policy making however they
are left out when policies are being reviewed or changed, especially traders
and consumers in some countries;
•
African countries are being increasingly constrained in deploying trade policy
instruments that were once legal and used by most developed countries but,
are being outlawed under WTO, hence affecting Africa’s industrialization
process.
Economic Report on Africa 2015: Industrializing Through Trade
GVCs are an important feature in today‘s global trade, especially with regards
to trade in intermediate goods.
Figure 6: GVC participation by sector, backward and forward
integration, 2011
• African countries show high
participation in GVCs, though at
low rungs of the ladder;
• African regions that are most
integrated in GVCs, also show
highest Regional Value Chains
(RVC) integration;
• However, Africa’s participation in
value chains is mainly due to
forward integration driven by
exports of raw materials;
• The level of participation in GVCs
to support structural
transformation is hence largely
untapped;
• Hence, intra-regional trade in
processed goods is the first
opportunity for African firms to
move up the value chain.
Economic Report on Africa 2015: Industrializing Through Trade
Intermediate exports have increased but remain dominated by mining
and resource-based goods
Figure 7:Africa’s exports of intermediate goods by sector,
2010-2012
•
Africa’s exports have grown 4-fold over the last 10-15
yrs, but mainly dominated by resource based
products – metals and chemicals, plastics and fuels;
•
This evidence along with increased reliance on
imported inputs from the rest of the world shows
long-standing weaknesses of the manufacturing
sector in Africa;
•
As a result of lack of competitiveness of Africa’s
manufactured goods and the extent to which
domestic value addition is left untapped due to
structural and trade policy constraints;
•
For example, in 2012 Africa accounted for roughly
16% of global cotton exports but only 1% ($0.4
billion) was cotton fabric, while importing $0.4 billion
of cotton and $4 billion of cotton fabric;
•
i.e. trading raw cotton for cotton fabric missing a
huge opportunity to add value domestically and
industrialize; Also Nigeria exported $89 billion of
crude oil , with only $5.6 billion of it refined. At the
same time importing $5.5 billion of refined oil.
Economic Report on Africa 2015: Industrializing Through Trade
Imported intermediates have surged but without boosting Africa’s
competitiveness.
Figure 8: Africa’s imports of intermediate goods by country and
•
main sector, 2010-2012
Intermediates accounted for 60% of
Africa’s merchandise imports, mainly
capital & consumption goods, (20102012);
•
The manufacturing sector dominates
the composition of Africa’s
intermediate imports;
•
SA, Egypt, Morocco, Algeria, Nigeria
and Tunisia represent the largest
African importers of intermediates,
accounting for 75% of the total;
•
BUT these countries source extremely
low shares of their imports from the
continent;
•
Overall, African economies only source
12% of their intermediate imports from
the region.
Economic Report on Africa 2015: Industrializing Through Trade
Intra-African trade in intermediates offers broader scope for regional chains
to emerge
Figure 9:Africa’s exports of intermediates by
main sector and destination
• Intra-African market shows signs of stronger dynamism
and emergence of RVCs through trade in
manufacturing intermediates than Africa’s exports to
the rest of the world;
• Since intra-African trade is more diversified, offering a
broader scope for trading in manufacturing
intermediates;
• Manufacturing intermediates represented more than
two thirds of intra -African exports (2010-2012).
• However, intra-African exports of intermediates
averaged $43 billion in 2010–2012, but represent a
small share of the $313 billion to the rest of the world:
– Due to poorly diversified and similar production
structures; and
– Limited size of the continental market.
• Half of Africa’s intermediate exports to the rest of the
world were accounted for by mining and quarrying.
Economic Report on Africa 2015: Industrializing Through Trade
Services can increasingly play a key role in Africa’s transformation,
particularly in the context of GVCs.
Figure 10: Average annual growth in services by region, 20002012
• Structural
transformation
usually
coincides with a growing role of
industry and services in the economy;
• The services sector was the main
contributor to GDP in 35 out of 54
African countries in 2013.
• Africa’s growth in services was higher
than the world average and faster
than that of several other regions over
2000–2012.
• Services are critical in facilitating
manufacturing activities (finance,
logistics, design, etc.).
Economic Report on Africa 2015: Industrializing Through Trade
Preferential schemes have strongly supported Africa’s trade, but have done
little for Africa’s industrialization
•
Over 2000-2012 not less than 72% of
total exports from African LDCs were
absorbed by just 5 countries; all
offering improved market access
through preferential treatment;
•
But whether the destination is a
traditional partner or an emerging
market, African LDCs exports were
concentrated in fuels and to a lesser
extent ores and metals;
•
Mainly due to imbalances between
productive capacity of African
nations and stringent rules of origin;
•
The third country fabric provision (i.e.
relaxed rule of origin for textile)
under AGOA has helped generating
some degree of industrialization;
•
Yet, by their unpredictable nature,
preferences cannot build RVCs
required to sustain industrialization.
Figure 11: Evolution of LDCs’ exports to top five destinations
outside Africa, 2000-2002 vs 2010-2012 averages ($)
Economic Report on Africa 2015: Industrializing Through Trade
Enhancing regional integration reforms within Africa provide a stronger basis
for industrialization
Figure 12: Changes in intra-African trade, following
implementation of CFTA alone vs CFTA along trade
facilitation measures, by main sector, 2022 ($ bn)
• Regional integration reforms should be bold as
the CFTA along with reduction of trade costs
across borders (through trade facilitation (TF)
measures) has the potential to more than
double the share of formal intra-African trade
over the next 10 years;
• With a boost to the proportion of industrial
products; thereby offering bright perspective for
Africa’s industrialization;
• Moreover, the CFTA has the potential to:
– Enhance intra-industry trade (i.e. exchanges of
products within the same industry, those being
similar or differentiated by quality/variety or at
various stages of production), thanks to positive
correlation between intra-African trade and
intra-industry trade;
– Provide opportunities to move up the value
chain (see next slide).
Economic Report on Africa 2015: Industrializing Through Trade
Increased shares of intra-regional trade are associated with higher shares of
regional value-added in intra-regional trade;
Figure 13: Share of intra-regional trade versus share
of regional value added in intra-regional trade, by
main region, 2011 (%)
•
Therefore, CFTA is expected to stimulate and
diversify intra-African trade and increase
value-added output from the regional
market, thus supporting RVCs;
•
However, as is the case with trade
preferences to Africa, regional integration
alone cannot be Africa’s sole trade strategy
for industrialization.
Economic Report on Africa 2015: Industrializing Through Trade
Need for Africa-wide strategic trade policies when opening-up with the
rest of the world
•
Opening up Africa’s market through reciprocal agreements can clearly deliver
benefits to African countries but their impact on Africa’s industrialization highly
depends on initial conditions;
•
Therefore, Africa should determine its external protection structures such as those that
do not undermine its regional integration and industrialization efforts;
•
For the same objective, Africa should stand firm to preserve its policy space when
negotiating trade agreements with outside partners;
•
Thanks to the principle of “non-interference in the internal affairs of partner countries”
between developing countries, South-South engagements tend to offer greater policy
space than the North-South partnership, suggesting that African countries would gain
by reinforcing ties with their developing partners.
Economic Report on Africa 2015: Industrializing Through Trade
Trade reforms need to be well sequenced and gradual if Africa is to benefit
from its trade-induced industrialization process.
Figure 14: Export changes – MRTAs alone vs MRTAs plus
CFTA, by main region, 2020 (%)
•
African countries cannot afford to be
left out of the new trend towards
Mega-Regional Trade Agreements
(MRTAs) and the CFTA (Africa’s own
MRTA) offers a decisive response;
•
Africa’s market should be opened
progressively, and ideally intensified
only when regional integration has
deepened considerably across the
continent;
•
For
example,
trade-induced
industrialization benefits would be
strongly enhanced if the CFTA is
established before EPAs with the EU are
fully implemented;
•
This
demands
commitments be
that
made
political
swiftly -
African member states and RECs should
redouble their efforts in implementing
the AU action plan for boosting intraAfrican trade.
Economic Report on Africa 2015: Industrializing Through Trade
CONCLUSIONS AND POLICY RECOMMENDATIONS
 African countries need to leverage the progress made and continue building robust
institutions that improve the business environment, economic governance and
macroeconomic management;
 A social development strategy must be anchored on long-term planning; on strengthened
productive capacities through high-quality, equity-based education and health policies; and
complemented by investments in R&D focused on driving industrialization and high-end
services;
 Countries need to mainstream trade policy into their development strategies and ensure
coherence among all national policies, but especially between trade and industrial
strategies.;
 Each country or region should first analyse its best route to structural transformation, with a
gradual approach to industrialization and upgrading along value chains is recommended;
 A highly selective and carefully designed trade policy is important (to promote efficiency of
mature firms and protect infant industries, avoid negative policy externalities, and effectively
engage all stakeholders in the process to enhance industrial development);
 African countries should insist on the need to use negotiating agreements to promote
industrialization. They should turn back the trend in policy-space erosion, especially when
negotiating trade and investment agreements;
Economic Report on Africa 2015: Industrializing Through Trade
CONCLUSIONS AND POLICY RECOMMENDATIONS cont’d…..
 African countries should start developing and strengthening RVCs as intra-African
trade (in view of its more diversified composition) represents a promising avenue to
support industrialization and foster the emergence of interconnected regional
supply chains;
 CFTA can boost intra-African trade and its industrial content, by removing all tariff
barriers on goods still remaining within Africa and tackling those related to trade in
services;
 There is need to sequence trade policy reforms. Evidence shows that CFTA should
be put in place before other trade agreements are fully implemented by African
countries or by the rest of the world;
 African countries should design trade policy that promotes and reverses their
current participation in GVCs, as they show high participation rates in GVCs, but at
a low level;
 These reforms demand that political commitments be made swiftly, and thus
African member States, individually and through the RECs, should make the
necessary policy interventions to enhance the contribution of trade towards
industrialization.
Economic Report on Africa 2015: Industrializing Through Trade
Thank you for your attention
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