SHOULD AFRICA INDUSTRIALIZE?
JOHN PAGE
THE BROOKINGS INSTITUTION
APRIL 2010
An earlier version of this paper was presented at the UNU-WIDER/UNU-MERIT/UNIDO
workshop Pathways to Industrialization in the 21st Century on 22 and 23 October at UNUMERIT. Comments of the workshop participants are gratefully acknowledged.
SHOULD AFRICA INDUSTRIALIZE?
John Page
The Brookings Institution
Industry rather than agriculture is the means by which rapid improvement in Africa’s living
standards is possible…
Kwame Nkrumah, 1965
After four decades industry is making its way back onto Africa’s agenda. 1 The continent’s postindependence leaders – like many other developing country policy makers in the 1960s and
1970s – looked to state-led, import substituting industrialization as the key to rapid economic
growth. But, the industries they created were frequently uncompetitive and unsustainable and
efforts to spur industrial development in Africa largely vanished with the economic collapses and
adjustment programs of the 1980’s and 1990’s. 2 From 1990 to 2007 Africa remained on the
sidelines of the greatest expansion of manufacturing production and exports by developing
economies in world history. Industry in Africa declined as a share of both global production and
trade (UNIDO, 2009).
Today – driven by doubts over the durability of Africa’s recent growth and the prospects for its
recovery from the global recession of 2008-2009 – discussions of the role of industry in Africa’s
development are again beginning to emerge. This paper addresses two questions: should Africa
industrialize and how? Sections 1 and 2 set out the rationale for a new focus on industry in
Africa. Section 1 examines the nature of Africa’s post-1995 growth recovery and the impact of
the recent global economic crisis. Its message is that even prior to the current crisis Africa’s
growth turn-around was fragile.
Section 2 argues that, given this fragility, there are two substantial risks inherent in Africa’s
continued marginalization from global industrial production and trade. First, what Africa makes
matters for its future growth. While it is possible for economies to grow based on abundant land
or natural resources, more often structural change – the shift of resources from low productivity
to higher productivity sectors - is the source of sustained economic growth. Industrial
development drives structural change, and lack of industry limits Africa’s growth prospects. 3
Second, where industry locates limits Africa’s ability to industrialize. Because geographic
concentrations of industry -- agglomerations - confer powerful benefits to firms, economies that
1
In this paper I will use the term industry and industrialization to encompass high productivity activities including
manufacturing, tradable services and agro-processing.
2
The international community – a key partner in Africa’s economic story – also virtually abandoned interest in
growth in pursuit of the Millennium Development Goals.
3
The study of structural change was an important area of development economics until the 1980s. The ascendency
of single equation cross country regressions in the 1990s virtually eliminated consideration of the role structural
change in growth by assigning it to the “residual”, total factor productivity and focusing on “whole economy”
explanations for differences in income levels and growth rates.
1
already have industry are the most likely to attract more, placing Africa at a competitive
disadvantage relative to other more industrialized economies.
Section 3 presents new evidence on changes in industrial structure and industrial product and
export sophistication for 18 African economies between 1975 and 2005. It shows that since the
1980s industrial production in most African economies has declined in relative importance,
diversity, and product sophistication. In contrast to most of the developing world Africa has
“deindustrialized”.
Section 4 takes up the how of industrialization. It outlines two broad areas for action. The first is
the less controversial: continuing the investment climate reforms urged by the international
financial institutions, but with increased emphasis on public action in infrastructure, skills and
regional integration. The second is likely to provoke more debate: the need for industrialization
strategies. These include creating an export push, spatial policies for industrial development, and
attracting task-based production. Section 5 concludes.
1. GROWTH, FRAGILITY AND CRISIS
After stagnating for much of its post-colonial history, economic performance in Africa markedly
improved after 1995. Between 1994 and 2007, average economic growth was close to 5 percent
per year. Countries with at least 4 percent GDP growth constituted about 70 percent of the
region’s total population and 80 percent of its GDP. As a group, these countries grew
consistently at nearly 7 percent a year from the mid-1990s to 2008.
In a series of papers Arbache and Page (2007, 2008, 2009) use a new approach to the analysis of
“growth episodes” to examine the sources of Africa’s growth turnaround. 4 They find that the
improvement in economic performance in Africa after 1995 was due largely to two factors, a
substantial reduction in the frequency and severity of growth declines in all economies and an
increase in growth accelerations, primarily in mineral rich economies.
To assess the durability of growth Arbache and Page (2009) test whether there have been
significant changes in such long run “determinants” of growth as investment, trade openness and
macroeconomic stability during growth episodes before and after 1995. They find little evidence
to support the view that significant changes in structural variables underpin more rapid growth.
While Arbache and Page find evidence of modest improvements between 1975-1994 and 19952005 in some correlates of growth, such as foreign direct investment and trade openness, they
fail for the most part to find significant increases in structural variables. The shares of total
investment and private investment in GDP for example do not differ before and after 1995.
Where investment did increase, it was confined largely to the resource rich economies. They
also find little to suggest that better policies and institutions have spurred growth accelerations,
although they appear to have been associated with fewer growth declines.
4
Important contributions to this literature on growth episodes – focused on growth accelerations only - include
Hausmann, Pritchett, and Rodrik (2005) and Jones and Olken (2005).
2
The weight of the evidence leads Arbache and Page (2009) to conclude that Africa’s growth
before the recent crisis was fragile. In resource poor economies this fragility is due to the main
source of their recent success, avoiding the sharp growth declines -- reflecting economic policy
mistakes - of the past. Fewer economic mistakes allowed economies to return to their production
possibilities frontier. Longer run growth will depend, however, on increased accumulation and
productivity change, and Arbache and Page find little to suggest that these drivers of growth
improved significantly after 1995. In the case of the resource rich economies fragility is directly
related to the likely persistence the “resource curse”. 5
The global economic crisis of 2008-2009 has reinforced concerns over the course of future
growth. Growth in Africa is expected to slow sharply from over six percent in 2007 to less than
2.0 percent in 2009, due to falling export demand, lower commodity prices, and much tighter
external financing constraints. The prices of many African export commodities have dropped by
40 percent or more. In response to their own domestic fiscal pressures, some donors are under
pressure to scale back official development assistance (ODA) on which many countries rely for
balance of payments and budget support. Foreign direct investment is falling, particularly in
natural resource sectors, and remittances, which represent a major source of foreign exchange for
many countries and an important source of income support for many households, are expected to
contract in 2009 (World Bank, 2009).
Those African countries that had achieved some success in diversifying exports have been hit
hard. 6 Sectors such as apparel, food products, wood products and mineral products have come
under heavy pressure. For example Ghana and the Ivory Coast – two West African, rapidly
growing manufactured exporters – are heavily concentrated in food and wood products exports,
which together account for more than 60 percent of their total manufactured exports. These two
sectors are also highly (more than 80 percent) concentrated in high income markets and are
likely to be strongly affected by the decline in high income country demand.
In sharp contrast with earlier economic downturns, however, African governments have worked
to adjust to the crisis. To preserve macroeconomic stability many countries have significantly
restricted their fiscal programs and a number have been able to protect some growth oriented
expenditures. Better macroeconomic management is likely to mean that the growth declines will
be less severe than those of the past, but the same structural weaknesses that made growth fragile
before the global recession may also limit the region’s prospects for recovery. For the vast
majority of the region’s economies, lack of economic and export diversity act as a powerful
constraint on future growth.
5
See Collier (2007) for a discussion of the resource curse and Page (2008) for a discussion of the industrialization
challenges faced by resource rich economies in Africa.
6
See Page (2009b) for an assessment of the impact of the 2008-2009 crisis on manufacturing in Africa.
3
2. WHY INDUSTRIALIZE?
Two strands of recent academic literature suggest that without a growing industrial sector
Africa’s economies will find it increasingly difficult to sustain growth and to participate fully in
the recovery of global economic activity projected. The first links industrial structure to growth.
There is a growing body of evidence that industry’s contribution to growth depends upon its
composition. The second links industrial location to firms’ productivity. Geographical
concentration has been shown to raise the productivity of firms, making it more difficult for
economies where industry is sparse to compete with countries with large industrial
agglomerations.
What Africa makes matters – diversity, sophistication, and structural change.
Two recent bodies of empirical work underpin the assertion that what Africa makes matters for
its long run growth. The first shows that countries with more diversified production (Imbs and
Wacziarg, 2003) and export (Carrere, Strauss-Kahn, and Cadot, 2007) structures have higher
incomes per capita. The second indicates that countries that produce and export more
sophisticated products – those that are primarily manufactured by countries at higher income
levels - tend to grow faster (Hausmann, Hwang, and Rodrik, 2007; UNIDO, 2009).
Poor countries and - to a lesser degree - rich countries tend to specialize in a fairly narrow range
of activities. Across a wide range of incomes, however, the diversity of what a country produces
increases with the level of per capita income (Imbs and Wacziarg, 2003). The relationship
between specialization in production and income per capita is not solely a product of structural
change between primary production and manufacturing. Within the manufacturing sector new
product lines are introduced and new activities are taken up within existing sectors until
countries reach quite high levels of income. Other recent studies indicate that the same U-shaped
relationship holds for export diversification (Klinger and Lederman, 2004; Carrere, StraussKahn, and Cadot, 2007). As per capita incomes rise, exports diversify within existing product
lines and through the introduction of new products. At OECD levels of income some export
lines close down and exports become more concentrated, largely due to increases in the market
share of existing exports.
Why should industrial and export diversity matter for growth? Structural change not only occurs
between low productivity, traditional activities and modern, “industrial” activities but also within
the modern sector, itself. Resources move from lower to higher productivity industries. One
source of productivity gains may be that more diverse economies are better able to take
advantage of export opportunities as they emerge. Evidence suggests that industrial diversity
leads export diversity in fast growing economies (UNIDO, 2009). This is consistent with the
view that as the manufacturing base broadens economies build industrial competence, and firms
enter global markets. If export opportunities can be successfully exploited, “learning through
exporting” may take place, raising the productivity of the manufacturing sector as a whole.
Another, complementary path may be that a wide range of industrial activities provides a basis
4
for productivity growth through “churning” -- the entry or expansion of more productive firms
and the exit of less productive ones. 7
Recent research (Hausman, Hwang, and Rodrik, 2007; UNIDO 2009) has also found that there is
a strong, positive relationship between the level of “sophistication” of a country’s industrial
production and export structure and its subsequent growth. 8 Rather than viewing technological
complexity as an outcome of “moving up the production ladder” from relatively simple mass
manufacturing activities such as textiles or footwear to increasingly more complex production
processes such as metal-mechanical, chemical or electronics industries, this research measures
the degree of sophistication of a product or export based on the per capita incomes of the
countries that “intensively” produce (export) it. If mostly high income countries produce
(export) a product, the associated income level is high and the product is classified as
sophisticated; it is low for products mainly produced (exported) by low income countries.
Countries that produce and export a high proportion of products that are mainly produced by
richer economies grow faster.
The link between producing and exporting more sophisticated goods – measured in terms of the
income levels they embody - and growth is again likely to be through changes in productivity.
High income goods embody high income country productivity levels. These reflect some
“narrow” aspects of technological sophistication, such as capital intensity or process complexity,
but they also reflect broader capabilities, such as superior market knowledge, design, and
logistics. All of these factors tend to contribute to higher firm level productivity. Low income
countries with a high concentration of production and exports in higher income products are
likely to have a higher concentration of high productivity firms. In addition as the manufacturing
base shifts from lower sophistication to higher sophistication activities income levels may rise
due to knowledge-based spillovers to the rest of the economy.
The UNIDO (2009) study represents a first attempt to link the two strands of the literature by
looking simultaneously at the impact of both diversity and sophistication on growth. It finds that
fast growing low and middle income countries both diversified and increased the sophistication
of their production and export structures between 1975 and 2005. Slowly growing low and
middle income countries in contrast were less successful at diversifying, and performed
especially poorly in terms of increasing product and export sophistication.
Where Africa makes it matters – agglomeration economies
Manufacturing and service industries tend to concentrate in geographical areas, driven by
common needs for inputs and access to markets, knowledge flows, and the need for specialized
skills (Fujita, Krugman and Venables, 1999; Sonobe and Otsuka, 2006). Proximity to input
suppliers and customers allows firms -- including backward and forward linked industries - to
7
Hausmann and Rodrik (2005) refer to this process as “self-discovery”, firms learning what they are most
competent at doing.
8
Rodrik (2007) and his colleagues argue that their econometric evidence points to the relationship running from
greater complexity to growth. The relationship is robust to a number of specifications and treatments for two-way
causality. UNIDO (2009) uses a different approach to address the endogeneity problem and arrives at similar
results.
5
realize economies of scale and resolve coordination problems. Information spillovers, such as the
sharing of technological, management, or marketing knowledge are enhanced when firms in the
same industry are located near one another: it is easier to monitor what neighbors do and to learn
from their successes and mistakes. Workers with specialized skills are attracted to areas where
employers use such skills intensively and firms are attracted to areas in which there are a large
number of workers (or managers) with skills relevant to their industry. Externalities from spatial
concentration may arise from common skills and services (accounting, law) and from knowledge
spillovers that are not specific to individual production technologies (Henderson, 1997; Jacobs,
1969; Nakamura, 1985). Proximity may also provide better information about which
entrepreneurs can be trusted, facilitating informal contract enforcement and cooperation
(McCormick, 1999).
Econometric evidence from advanced industrial and middle income economies supports the view
that agglomeration effects are significant. Proximity to other firms has been found to strongly
encourage entry and employment growth in agglomerations, due to productivity, price, or cost
changes (Glaeser et al, 1992; Henderson, 1997, 2003; Combes, 2000). Although the evidence is
sketchy, it also appears that agglomeration externalities are important in low income countries
(Bigsten, Gebresius, and Soderbom, 2008; UNIDO, 2009; JICA, 2009).
It is likely that the source and size of agglomeration economies vary with the technological level
of the industry concerned and with the per capita income of the country in which the
agglomeration is located. UNIDO (2009) suggests that in low income settings where only a small
share of the labor market is engaged in formal sector employment a thick labor market
externality may provide the incentive for unrelated firms to cluster. In middle income countries
the evidence suggests that closely related firms in more technologically complex industries reap
the largest agglomeration effects, while in high income countries “urbanization effects” among
unrelated firms appear to dominate, especially in information intensive activities.
Thus, countries with existing concentrations of industry are likely to have firm productivity
levels that exceed those in countries where industry is geographically dispersed. Moreover,
where agglomeration economies are significant, starting a new industrial location is a form of
collective action problem. If a critical mass of firms can be persuaded to locate in a new area,
they will realize agglomeration economies, but no single firm has the incentive to locate in a new
area in the absence of others. Countries in which there are significant industrial agglomerations
have an advantage in attracting new industry.
3. Africa’s “De-industrialization”
The last two decades of the 20th Century were boom times for industrial development in low and
middle income countries. By 2000 the center of gravity of global industry was shifting rapidly to
the developing world. Between 2000 and 2005, manufacturing growth in industrialized
economies was only about 1 per cent per year; in developing economies it was more than 7 per
cent per annum (UNIDO, 2009).
In stark contrast, the 1980s and 1990s were marked by a shift of manufacturing production
capacity out of Africa. Africa’s share of global manufacturing production (excluding South
6
Africa) fell from 0.4 percent in 1980 to 0.3 percent in 2005, and its share of world manufactured
exports from 0.3 to 0.2 percent (UNIDO, 2009). Today, Bangladesh alone produces as much
manufacturing value added as the whole of sub-Saharan Africa, excluding South Africa.
Table 1 compares selected indicators of industrial development for Africa and all developing
countries in 2005. The share of manufacturing in GDP is about one third of the average for
developing countries, and in contrast with developing countries as a whole, it is declining. Per
capita manufactured output and exports are less than 20 and 10 per cent of the developing
country average, respectively. The region has low levels of manufactured exports in total
exports and of medium and high technology goods in manufactured exports. Particularly
worrying is the fact that these measures have changed little since the 1990s (UNIDO, 2009).
The decline in Africa’s manufacturing base is worrisome in and of itself, but it has also been
accompanied by a decline in the diversity of the region’s manufacturing sectors and a fall in the
sophistication of the products produced. Following UNIDO (2009) the sophistication of each
ISIC three digit industrial sector is measured by the weighted average of the per capita GDP of
all countries producing or exporting goods in the sector, where the weights are the export or
production intensities of the sector in each producing (exporting) country (normalized to 1). 9
From these it is possible to estimate the production and export sophistication of 18 African
counties between 1975 and 2005. 10
Figure 1 plots the relationship between the sophistication of the manufacturing sector (on the
vertical axis) and each country’s level of development represented by per capita GDP (on the
horizontal axis) for the earliest and latest years for which comprehensive data on African
economies are available. 11 Figure 2 repeats the exercise for export sophistication. The
regression line indicates the cross-section ‘average’ level of manufacturing sophistication
associated with a given level of development.
By the nature of its construction the country measure of sophistication shows a high positive
correlation with aggregate per capita income levels. OECD countries cluster around the
regression line in the upper right of the each graph. Countries substantially above or below the
regression line are of considerable interest. Positive outliers produce goods more typical of
countries at higher levels of income. Countries below the regression line produce goods that are
less sophisticated than would be predicted by their levels of income.
Moving between the figures from earliest to latest traces the path of economic development and
manufacturing sophistication for individual economies. The paths taken by such successful
industrializing economies as Hong Kong (HKG), Malaysia (MYS), Singapore (SGP), and South
Korea (KOR) move up and to the right in these figures, reflecting the positive correlation
9
Production intensity is measured by the ratio of the value-added share of the sector in a country’s total
manufacturing relative to the sector’s value added share in world manufacturing. This approach is analogous to the
use of revealed comparative advantage for exports by Hausmann, Hwang and Rodrik (2007).
10
Country level sophistication is the weighted average of each country’s individual product sophistication indices,
where the weights are the share of manufacturing value added of each sector.
11
Because the indices of product and export sophistication are measured in current US dollars it is not possible to
compare sophistication levels from year to year directly, since they are affected by price changes. The relevant
comparison in the figures is the distance from the predicted relationship.
7
between per capita income growth and product and export sophistication. China and India stand
out among the low income countries. Early on both economies had structures of manufacturing
production that were significantly more sophisticated than those associated with their level of per
capita income. In India’s case, however, its manufactured export sophistication was more in line
with predicted values.
The African economies in the sample are concentrated in the lower left corner of each figure.
Figure 3 maps the average level of production sophistication between the 1980s and 1990s for
the 18 African economies for which production data are available. Relative to predicted values,
the sophistication of the manufacturing sector in 16 of the 18 economies declined between the
1980s and the 1990s, but the most striking thing about the Africa sample is how little change
there is in either per capita income levels or product sophistication between the two periods.
Only Botswana and Mauritius show substantial income growth, and in both cases their level of
production sophistication is below that predicted by their level of income in the 1990s.
Botswana is an almost unique African case of successful development from natural resources.
But, while per capita income has grown dramatically, there has been little change in the
country’s industrial structure, a source of concern to Botswanan policy makers, and a
manifestation of the negative impact of natural resource rents on tradables production. Mauritius
is sub-Saharan Africa’s most successful manufactured exporter, and one of the region’s fastest
growing economies. The evidence that both product and export sophistication have declined,
relative to income, in Mauritius since the 1980s suggests that the type of industrial
transformation that has taken place in East Asia has not occurred in Mauritius. However, while
there is evidence of a growth slowdown in Mauritius prior to the 2008-2009 crisis, it would be
premature to conclude that the relative stagnation of the industrial sector in terms of product and
export sophistication is the cause. Chile has been a rapidly growing economy over the same
period with a similar pattern of low product and export sophistication.
Figure 4 shows how two stylized classes of industrial activity – low sophistication products and
high sophistication products - have evolved between 1975 and 2000 in Africa relative to several
comparators. 12 The average production intensity for the country-product group is plotted along
the vertical axis. The beginning point of each arrow in the figure marks the average production
intensity for the country- product group in 1975-1981. The tip of the arrow marks the average
production intensity for the period from 1995 until the last observation, 2003 in the case of
production and 2005 in the case of exports. A value of 0 – marked by the horizontal line indicates that the average production intensity for the country-product group is equal to the
global average. Production intensity indicates whether a country’s production in a sector is more
or less concentrated than the world average. Hence, changes in production intensity indicate
whether an economy is entering or leaving a sector relative to the evolving structure of global
production.
12
Manufacturing activities are classified as “sophisticated” if they have an index value of US$ 13,500 or above for
the period after 1995 (regardless of their values in the earlier periods). Unsophisticated activities are classified as
those with values below US$ 10,000 in 1995. The omitted category of products lies between those two bounds.
See the notes to Figures 4 and 5 for a sectoral breakdown.
8
Figure 4 reveals how little structural change has taken place in African industry over a period of
25 years. The most relevant comparison is between Africa and the fast growing low income
countries. Fast-growing low-income countries both diversified their manufacturing base and
raised their level of product sophistication. They increased their production intensities at both
the high sophistication, and especially, the low sophistication ends of the product spectrum.
Indeed, fast-growing low-income countries were the only country group to increase the intensity
of production in unsophisticated products significantly, driven by the explosive rise in the
intensity of apparel manufacturing. Africa in contrast was virtually unchanged in terms of its
intensity of production of low sophistication products and was exiting high sophistication
activities. Its manufacturing base was becoming less diverse and at the same time less
sophisticated. The decline in manufacturing sophistication was especially sharp in the region’s
early industrializers -- Kenya, Ghana, Tanzania and Zambia.
Figure 5 repeats the analysis for exports. Here again there is little structural change and the
contrast between the fast growing low income countries and the sample of African countries is
equally stark. Fast growing low income countries increased export intensities in both low
sophistication and high sophistication sectors, indicating increasing revealed comparative
advantage in both categories of exports. The Africa economies in contrast modestly increased
export intensities in low sophistication goods, but had virtually unchanged export intensities in
high sophistication sectors. While fast growing low income county exports were becoming more
diverse and sophisticated, African manufactured exports were becoming more concentrated and
less sophisticated.
Putting the production and export stories together, what appears to have taken place in Africa
during the 1980s and 1990s was a narrowing of the production base in manufacturing toward less
sophisticated activities. This is consistent with the closure of non-competitive, import
substitution industries – many of them state owned - following the trade liberalizations and
privatizations of the adjustment period. At the low sophistication end competitive pressure was
largely due to the rapid rise of other low income countries – mainly in Asia – as global suppliers
of such products as clothing and footwear. At the high sophistication end African manufacturers
were not able to compete with OECD and middle income developing country suppliers.
Those manufacturing activities that remained following trade liberalization, however, were more
competitive internationally. As a consequence, exports of low sophistication goods increased
somewhat as a share of total manufactured exports relative to global norms. That was the good
news. The bad news was that, unlike all other groups of developing economies, Africa lost
ground in high sophistication sectors, as export intensities stagnated.
In sum Africa has “de-industrialized” in two senses. First, Africa’s structural adjustment in
industry of the 1980s and 1990s was incomplete. There was little subsequent expansion of
manufactured exports or output following the shake-out of inefficient producers after the trade
liberalizations of the adjustment period. Private investment remained low, direct foreign
investment was largely concentrated in mining and minerals, and despite some notable successes
– cut flowers in East Africa; back office services in West Africa, garments in Madagascar and
Lesotho – production and exports remained highly concentrated in a limited range of activities.
Second, unlike more successful low income countries, Africa’s manufacturing base in terms of
9
both production and exports became less not more diverse and sophisticated, reducing the
prospects for accelerated productivity change and growth.
3. HOW TO INDUSTRIALIZE
If industry returns to the development agenda in Africa, what policies are appropriate? The
state-led, import substitution strategies of the 1960’s and 1970s produced industry without
efficiency. The distortions to the price system and the subsidies from the public purse were
simply too great for the region’s industrial enterprises to be sustainable in the long run. The
adjustment policies of the 1980s and 1990s, however, produced efficiency without industry.
Liberalized international trade benefited the consumers of industrial products, weeded out
obviously non-competitive firms, and improved the allocation of investment, but Africa’s
industry failed to grow even in the product lines that remained competitive following the
economic reforms.
Improving the investment climate
Reacting to the unsuccessful – and sometimes disastrous - results of Africa’s early experiment
with industrialization, policy attention since the mid 1990s – especially from the international
donor community - has tended to focus on the costs of doing business. These have been well
documented in a decade of comparative research sponsored by the World Bank and the World
Economic Forum and summarized in the report of the Commission on Growth and Development
(2008): much of the difference in industrial performance between Africa and other developing
countries can be traced to differences in the “investment climate” -- the physical, institutional
and regulatory environment within which private investors make their decisions. 13 Overall, the
cost of doing business in Africa is 20–40 percent above that for other developing regions.
The reform agenda for the investment climate has centered on economy-wide reforms in trade,
regulatory, and labor market policies, designed to reduce the role of government in economic
management. While perhaps necessary, these policy and institutional reforms have not been
demonstrated to be sufficient to increase investment and growth, especially in the African
context. 14 The Doing Business surveys, especially, can convey the erroneous impression that
such stroke of the pen reforms as reducing the time and cost of opening a business or reform of
labor legislation hold the key to more dynamic industrial growth. At a minimum the view of the
investment climate needs to be broadened to encompass three critical business environment
factors that constrain the competitiveness of industrial enterprises in Africa: infrastructure, skills
and regional integration. 15
13
See for example the Doing Business surveys of the World Bank or the World Competitiveness Report of the
World Economic Forum.
14
The relationship between “doing business” reforms and investment, industrial development, and growth has not
been well established empirically. Despite the 1047 papers recently reported by the Economist to have been written
on the relationship between doing business reforms and growth, there are few careful empirical efforts to deal with
the subject. A number of rapid industrializers -- notably in South East Asia and Central America - score as badly on
the doing business surveys as many African economies.
15
For a fuller exposition of these arguments see Page, (2009a).
10
Infrastructure
Firm level studies of productivity in Africa highlight indirect costs as a significant barrier to
greater competitiveness. Efficient African enterprises can compete with Chinese and Indian
firms in factory floor costs for some product lines, such as garments. They become less
competitive because of higher indirect business costs, many of which are attributable to lack of
infrastructure (Eifert, Gelb, and Ramachandran, 2005). In China, indirect costs are about 8
percent of total costs, but in African countries they are 18–35 percent. Value-chain analysis
identifies several choke points in the supply chain for African firms: high costs of import/export
logistics, lack of timely delivery of inputs, and low speed to market (Subramanian and Matthijs,
2007).
Sub-Saharan Africa lags at least 20 percentage points behind the average for low income
countries on almost all major infrastructure measures. 16 In addition the quality of service is low,
supplies are unreliable, and disruptions are frequent and unpredictable (Table 2). Indicators of
infrastructure access rose between the 1990s and 2000s but mainly in communications
technology and water supply and sanitation. There appears to have been little strategic
orientation of Africa’s infrastructure investments to support industrial growth and little
willingness on the part of Africa’s development partners to finance infrastructure investments
(World Bank, 2007a). Road infrastructure has received little attention, and although concessions
have been awarded to operate and rehabilitate many African ports and railways and some power
distribution enterprises, financial commitments by the concessionaire companies are often small.
Although access to communications services increased dramatically, thanks to the cellular
revolution, high speed data transmission, critical to exporting lags badly.
Three closely related initiatives are needed to close the infrastructure gap:
•
•
•
Changing public expenditure priorities to increase the share of the budget devoted to
infrastructure investments relevant to industrial competitiveness;
Improving the quality of investment and service delivery, including by encouraging
private investment and operation, and
Reaching new understandings with the international community on the need to change
aid priorities to allow expanded public financing of infrastructure projects.
Skills
Lack of access to post-primary education has serious implications for efforts to build an African
industrial sector. Recent cross country empirical research indicates that there is a strong
empirical link between export sophistication and the percentage of the labor force that has
completed post primary schooling (World Bank, 2007b). There is also limited evidence to
suggest that enterprises managed by university graduates in Africa have a higher propensity to
export (Wood and Jordan, 2002; Clarke, 2005). More broad-based evidence shows that among
16
An important exception is the penetration of fixed-line and mobile telephones, where Sub-Saharan Africa leads
low-income countries by as much as 13 percent. The largest gaps are for rural roads (29 percentage points) and
electricity (21 percentage points).
11
firms owned by indigenous entrepreneurs, those with university educated owners tend to have
higher growth rates (Ramachandran and Shah, 2007).
Africa’s skills gap is large and growing. While East Asian countries increased secondary
enrollment rates by 21 percentage points and tertiary enrollment rates by 12 percentage points
between 1990 and 2002, Africa raised its secondary rates by 7 percentage points and its tertiary
rates by 1 percentage point. Real expenditure on tertiary education in Africa fell by about 28
percent between 1990 and 2002 and expenditure per pupil declined from US$6,800 in 1989 to
US$ 1,200 in 2002. Staff student ratios in West African universities increased from 1:16 in 1990
to 1:32 in 2007 (World Bank, 2007b).
Declining educational quality at all levels is especially worrisome in view of recent research
(Hanusheck and Wosmann, 2007) that suggests that the quality of education has a stronger
impact on growth than years of schooling, after countries have passed a threshold level of
average literacy and per capita years of schooling. Employer surveys report that African tertiary
graduates are weak in problem solving, business understanding, computer use, and
communication skills (World Bank, 2007).
Creating new skills in Africa is likely to be both politically and institutionally difficult. In
Africa’s tight fiscal environments increases in secondary and tertiary education expenditures will
need new agreements with international donors. Improving quality means confronting head on
the prevailing curricula and teaching practices of both secondary and university faculties. Some
elements of an approach to creating new skills include:
•
•
•
•
Reaching agreement with Africa’s development partners on a more nuanced measure of
success in building human capital than the current primary education Millennium
Development Goal.
Encouraging private provision of educational services, especially in technical, vocational and
tertiary education. 17
Strengthening the focus on educational quality. Quality assurance (QA) mechanisms – such
as accreditation - are the primary means by which education systems achieve accountability
for quality and relevance. Currently only 15 African countries have functioning education
QA agencies.
Using the diaspora. Africa is the region of the developing world in which the highly skilled
form the largest share of all migrants. This “brain drain” can offer the possibility of a “brain
bank” from which migrants are recruited to support skills development, through virtual,
temporary, or permanent return. 18
Regional Integration
The small size of Africa’s economies and the fact that many are landlocked make regional
approaches to the common problems that affect trade and industrialization -- infrastructure in
trade corridors, institutional and legal frameworks (customs administration, competition policy,
17
Private universities account for 73, 71, and 75, percent of tertiary enrollments in Brazil, Chile, and Korea,
respectively.
18
See for example Page and Plaza (2006).
12
and regulation of transport) and trade related services - imperative. For exporters in land-locked
countries poor infrastructure in neighboring, coastal economies, incoherent customs and
transport regulations – as well as inefficient customs procedures and “informal” taxes – in
transportation corridors slow transit times to the coast and raise costs.
Tangible progress on regional integration to improve trade logistics has been slow. Investments
in regional infrastructure are hampered by the technical complexity of multi-country projects and
the time required for decisions by multiple governments. Progress has been greatest in regional
power pools (in West Africa and Southern Africa). Institutional reforms – such as common
standards, regulations, and one stop border facilities – have also failed to materialize.
Regional integration also matters for industrialization in Africa for a less well understood reason.
Africa is made up of small countries and small countries have small cities. Big cities generate
powerful agglomeration economies. A firm operating in a city of 10,000,000 people has unit
costs around 40 per cent lower than if it operated in a city of only 100,000 people (UNIDO
2009). To overcome this problem a form of regional integration that permits the free movement
of goods, capital and people across borders -- allowing the formation of regional cities - will be
needed.
Learning to compete
Investment climate reforms focus explicitly on the environment external to the firm. It is not
surprising given Africa’s past, sometimes disastrous, experiments with industrialization that
African governments – pushed by the international development community – have chosen to
focus on the business environment, but recently research has returned to an old theme with a
contentious history: can firms learn to compete? 19 The new attention to what talks place within
the firm is driven by empirical work that demonstrates that the differences in productivity levels
between firms – even in the same industry – are substantially larger in low income countries than
in high income countries. Thus, narrowing the gaps in total factor productivity across firms can
translate into higher aggregate productivity and, ultimately, higher income levels. 20
The debate about what, if anything, governments can do to increase firm level productivity is at
the heart of the decades-long controversy over industrial policy. 21 What is often overlooked in
the debate between “picking winners” and “leveling the playing field” is that governments make
industrial policy every day via the public expenditure program, institutional and regulatory
changes, and international economic policy. 22 These choices tend – sometimes inadvertently – to
favor some enterprises or sectors at the expense of others, and in Africa they often lack a
19
The Commission on Growth (2008) gives a mainstream view of the relevance of these issues and calls for a
deeper understanding of them.
20
Hsieh and Klenow (2009) for example show that these gaps are larger in China and India than in the United
States, and that they have the potential to explain between a quarter and a third of the differences in aggregate
productivity between the United States and China and India in the manufacturing sector.
21
The recent report of the Spence Commission on Growth (2008) concludes that the balance of the evidence
suggests that proponents of selective industrial policies have failed to establish their general efficacy, but that some
policy interventions have yielded positive results in individual country or institutional settings.
22
Rodrik (2007)) makes a similar point.
13
coherent strategic focus. For this reason, a first step for most African economies in learning to
compete should be to deploy the existing arsenal of public policies toward three inter-related
strategic objectives that can raise the productivity of the industrial sector as a whole.
Creating an export push
There is substantial evidence that African manufacturing firms improve their productivity by
exporting (Soderbom and Teal, 2002; Milner and Tandrayen, 2004; Mengistae and Pattillo,
2004). If the higher productivity levels of exporting firms are the result of their export activities
– as might be the case for example in supplier-buyer relationships that involve the transfer of
tacit technological or production knowledge - increasing the share of manufactured exports in
GDP will generate higher levels of economy wide total factor productivity and more rapid
growth. The alternative explanation for the higher productivity of exporting firms is self
selection. More efficient firms are able to export while those with lower productivity confine
themselves to the local market. Both hypotheses are plausible, and indeed, need not be
independent of each other. More efficient firms can more easily access international markets,
but they may still learn from exporting. The most recent econometric evidence suggests that
learning by exporting is more likely to take place in smaller, poorer economies and in new,
modern manufacturing and service exports, rather than in traditional, commodity exports.
Bigsten et al. (2004) find that controlling for self-selection African firms enhance their
productivity by around 9 percent per year if they export. Learning by exporters may also spill
over to other firms located nearby (Bigsten, Gebresius and Soderbon, 2008).
Africa has always had a relatively high share of trade in its national income and a high ratio of
exports to GDP. However, African exports, particularly non-oil exports, are growing slowly, and
in sharp contrast to the case of China and Asia’s other top performing countries, exports are not
growing as a share region’s output. Of perhaps even greater concern, they are declining in
importance for Africa’s fastest growing economies. Africa’s share of world trade is falling, and
its exports remain heavily concentrated in a few traditional commodities.
The public policy implications of learning by exporting are straightforward but powerful: if
productivity improvements in industry are linked to learning through exports, an “export push”
strategy, involving a concerted set of investments, policy and institutional reforms to promote
manufactured exports can boost competitiveness and raise growth. While Africa has made some
progress in each of these areas, it has not made sufficient progress to create an environment
conducive to the rapid growth of non-traditional exports.
At the border policy reforms are the most advanced. Trade reforms have brought tariffs down in
Africa, and its trade regimes discriminate against exports to about the same degree as those of
other regions worldwide. Countries with flexible exchange regimes now account for about 76
percent of Africa’s GDP and 68 percent of the region’s population. While there remains scope
for further rationalization and liberalization of tariffs, it is unlikely that Africa’s lack of export
dynamism derives from anti export bias in the trade regime.
Beyond the border, surveys of manufacturing firms in African countries highlight – in addition to
the obvious deficiencies in infrastructure - a number of areas in which regulatory or
14
administrative burdens impose penalties on exporters (Clarke, 2005; Yoshino, 2008).
Enterprises involved in exporting are more likely to identify trade and customs regulations as
serious obstacles to doing business. Port transit times are long. Customs delays on both
imported inputs and exports are significantly longer for African economies than for China or the
Philippines. Export procedures – including certificates of origin, quality and sanitary
certification, and permits - can also be burdensome. Duty drawback and tariff exemption
schemes are often complex and poorly administered, resulting in substantial delays.
Creating an export push will require coordinated action across a wide range of government actors
to succeed:
•
•
•
•
Transport, power and communications infrastructure aimed at international markets are
essential elements of an export push. National budgets will have to assign priority to trade
related infrastructure, and, given the high costs associated with these investments,
encouraging private participation will be essential.
Streamlining export promotion activities – from customs administration to export promotion
agencies - and making them more efficient and accountable to exporters has been a key
component of the export push strategies in economies as diverse as Korea and Ireland. In
Africa these institutions generally operate in an uncoordinated way with few lines of
communication to the private sector.
In the area of trade logistics – a key determinant of export performance - infrastructure
deficiencies interact with poor public institutions and lack of competition among service
providers to create a vicious circle of constraints to the efficient movement of goods and
services. Trade logistics reforms need to move beyond the traditional “trade facilitation”
agenda – focused on trade related infrastructure and information technology in customs - to
broader reforms of institutions and transportation and service markets along the supply chain.
“Open regionalism” – using trade agreements to support international competitiveness –
should be a key objective of regional integration. Most regional agreements in Africa are
dysfunctional. There is an urgent need to rationalize the overlapping mandates of Africa’s
sub-regional organizations and to focus them on open regionalism.
Africa’s success in boosting non-traditional exports may, however, ultimately depend as much
on the actions of its international partners as on its own efforts. Aid agencies will need to
support strategic investments in trade related infrastructure and institutions, mainly under the
aegis of the WTO “Aid for Trade” initiative. In addition more advanced economies can reduce
escalating tariffs directed at higher stage processing of Africa’s commodity exports and could
offer a measure of trade preferences for its non-traditional exports. 23
Encouraging industrial clusters
Compared with Asia, Africa has few industrial clusters, making it more difficult for African
firms to compete in the global market place. Because locating near other industrial producers
raises the productivity of firms, policies to encourage the formation of industrial clusters may be
another way of helping African firms to boost their competitiveness. But, since the evidence on
23
See Collier and Venables (2007) for such a proposal.
15
agglomeration economies in developing countries is quite thin, efforts to support existing
clusters or to create new types of clusters need to be approached with caution. Industrial
agglomerations are the outcome of decisions by individual firms, and policy makers need to be
careful to work with the market, not against it. In fact the most import policy tool to help realize
agglomeration externalities in many countries may be to get rid of urban zoning and land use
policies that make it costly or impossible for firms to locate near each other.
Given the low level of industrial export dynamism in most of Africa, linking export promotion
and spatial policies in an export processing zone (EPZ) may be an attractive way of encouraging
agglomeration. The early motivation for EPZs was to provide a so-called “free trade
environment” for exporters and to attract outward-oriented foreign investors. Most of the
literature on them, therefore, has focused on their role as a substitute for or complement to trade
liberalization. Cost-benefit analyses of the performance of export processing zones
(Jayanthakumaran, 2003; Warr, 1987, 1989, 1993) conclude that they are of marginal value as
export promotion tools. From the point of view of spatial industrial policy, however, the main
drawback of these studies is the lack of focus on agglomeration economies.
In thinking about the spatial dimensions of EPZs it is important not to confuse their potential role
in industrial development with trade policy objectives. It is possible to have a free trade
environment for exporters without having them located near one another, through such
mechanisms as bonded warehouses, duty draw back and temporary admissions schemes, or
complete trade liberalization. It is also possible to encourage industrial agglomerations without
providing a special trade regime. The main benefit of an EPZ is that it provides a clear focus for
government investments and institutional reforms designed to encourage the location of firms in
a specific area, and it is also subject to an efficiency test -- firms located in the cluster must be
able to export.
Africa has few functioning EPZs (Madani, 1999). Most fail to attract a sufficient number of
firms to realize cluster economies, and in many cases they offer excessive subsidies to the few
firms that they succeed in attracting. Often in Africa EPZs have been designed and run by
bureaucrats who have no experience in business. Delays are common and service levels are low,
leading to client frustration and losses. Communications between clients and public managers
are often strained, and in some cases corruption further erodes business confidence. Making the
physical and institutional investments to create world class export processing zones should be a
priority strategic objective of learning to compete.
The critical public investment question is how much to invest in the physical and human capital
of a given location and how much of the costs to recover. Case studies suggest that
concentrating investment on high quality infrastructure in a limited physical area is crucial.
They also suggest that improving social services in an industrial zone to levels above national
standards is highly desirable. Despite the export rule it is possible to subsidize firms in an EPZ
cluster excessively. This occurs mainly through low levels of cost recovery on infrastructure and
other public services, rent subsidies and tax holidays. Seeing an EPZ as an industrial cluster
raises the risk that governments may impute too many benefits to spillovers. Because we know
very little about the magnitude of the agglomeration economies that may come from an EPZ, any
16
public subsidies should be based on the quantifiable impact of the zone on employment and
output.
Attracting trade in tasks.
In some manufacturing activities the production process can be decomposed into a series of
distinct steps, or tasks (Grossman and Rossi-Hansberg, 2006). As transport and coordination
costs have fallen, it has become efficient for the production of different tasks to be located in
different countries, each working on a different step in the process. Task based production has
expanded dramatically in the past 20 years. In 1986-1990 imported intermediates constituted 12
percent of total global manufacturing output and 26 percent of total intermediate inputs. By
1996-2000 these figures had risen to 18 percent and 44 percent respectively. Exports use a
substantially higher share of imported intermediate inputs than production for the domestic
market: a ratio of about 2 to 1. Moreover, the import intensity of export production rose from
about 67 percent in 1986-1990 to 78 percent in 1996-2000 (UNIDO 2009). East Asia is by far
the region of the developing world that has the largest volume of task based production and
trade, much of it taking place within the region itself (UNIDO, 2009).
We know almost nothing about the extent and characteristics of task based production in Africa.
Certainly, it exists, and the relatively liberal rules of origin under the Africa Growth
Opportunities Act of the United States (AGOA) have encouraged final assembly operations in
clothing manufacturing in counties such as Lesotho and Mauritius. Africa has a high volume of
imported intermediates in total intermediates and in total output, but given its limited range of
manufactured exports these intermediate imports are likely to be primarily inputs into production
for the domestic market.
One simple way of attempting to identify countries in which task based trade is significant is to
compare per capita values for gross manufactured exports and manufacturing value added. The
more vertically integrated an export activity the closer these values should be. 24 Where
assembly type operations predominate, gross manufactured exports per capita should be
substantially larger than manufacturing value added per person. Table 3 makes such a
comparison for 2005.
For the average African economy exports per person at $ 39 are substantially less than
manufacturing value added per person ($ 64), indicating that there is little in the way of task
based production. Comparisons with four rapidly industrializing economies that have used task
based production extensively – two in East Asia and two in Central America – show the extent of
difference in these relationships. In each of the comparators the ratio of manufactured exports
per capita exceeds the level of value added per capita by a substantial margin. In the cases of
Cambodia and Vietnam the ratio is about 2:1. By this standard only seven African economies
appear to have some task based industry. In each economy the ratio of manufactured exports per
capita to manufacturing value added per capita exceeds unity and ranges from 14:1 in Botswana
24
This measure is of course highly imperfect – it depends on, among other things, the share of exports in total output
and the composition of the manufacturing sector, but for a small open economy it may give a broad indicator of the
significance of task based production. A slightly better indicator would be a comparison of exports and export value
added per capita which is not available.
17
to about 2:1 in Cote d’Ivoire. Interestingly, Lesotho and Mauritius, two countries that have used
the AGOA preferences extensively for market access of tasked based apparel production, have
ratios that are quite similar to those of Cambodia and Viet Nam.
For countries that have failed to industrialize task-based production is a potential lifeline. It is
easier to specialize in a single task than in the entire range of tasks needed to produce a product.
End stage tasks are highly mobile, and African economies can benefit from this mobility through
concerted programs of investment promotion, provision of infrastructure and improvements in
the investment climate. For Africa a logical place to begin the effort to attract task based
production is in export processing zones.
Trade in tasks has amplified the importance of trade logistics. Increases in the logistics costs for
intermediates raise the cost of the final product, and in task based production high shares of
intermediates in final output mean that the effect of changes in transport costs is magnified.
Countries at the final stages in the production chain of a task-traded good are unlikely to be
competitive if their trade logistics costs on imported intermediates are high, and countries hoping
to enter upstream in a global value chain cannot afford to have high trade friction costs for their
exports. Beyond cost, timeliness and the predictability and reliability of supply chains are
increasingly important in a world of just in time production sharing.
4. CONCLUSIONS
This paper began by asking whether and how Africa should industrialize. The answer to whether
to industrialize is relatively simple: for the vast majority of the region’s economies lack of
industrial and export diversity and sophistication act as a powerful constraint to growth. The
answer to how to industrialize is more complex. Undoubtedly, improvements to the investment
climate – the physical, institutional and policy environment within which firms operate – are still
needed. Public policy to improve the investment climate, however, needs to shift from a focus
on stroke of the pen changes to regulations to embrace public action to close the infrastructure
gap, create new skills and achieve meaningful regional integration.
Beyond the investment climate, Africa’s enterprises must also learn to compete. Here the role of
public policy is more controversial. Africa’s past experiments at industrialization have been
largely unsuccessful, and there has been a tendency to dismiss the idea of industrial policy as
inappropriate or unworkable in Africa. This ignores of course the fact that governments in
Africa implicitly make industrial policy every time they make decisions with respect to public
investments, regulations or trade policy. What is often missing is a coherent, strategic view of
how these public actions can be combined to accelerate the region’s industrial transformation.
There is a role for active government in helping firms learn to compete. At the most basic level
what is needed is a strategic use of existing policy instruments to increase the likelihood that
firms in Africa can develop more competitive capabilities. Creating an export push, supporting
industrial clusters, and attracting task based production offer an opportunity to give Africa a new
start on industrialization.
18
Table 1: Selected Indicators of Industrial Development, 2005
Mfg
Exports
PC
2005
(US$)
Growth
PC
Exports
00-05
(%)
Share
Mfg
Expor
ts in
Total
(%)
Share
Medium/
High Tech
in Total
Mfg
Exports
(%)
Mfg.
Value
Added
PC 2005
(US$)
Share
of Mfg
in GDP
2005
(%)
Change
in Mfg
Share of
GDP
00-05
Africa
Average
39.0
1.65
54.9
13.3
63.6
07.6
_
Developing
Countries
487.2
10.05
75.8
57.3
372.9
21.7
+
Source: UNIDO database; author’s calculations
Table 2: Impact of unreliable infrastructure services on the productive sector
Service problem
Electricity
Delay in obtaining electricity connection (days)
Electrical outages (days per year)
Value of lost output due to electrical outages (percent of turnover)
Firms maintaining own generation equipment (percent of total)
Telecommunications
Delay in obtaining telephone line (days)
Telephone outages (days per year)
Source: World Bank
SubSaharan
Africa
Developing
countries
79.9
90.9
6.1
47.5
27.5
28.7
4.4
31.8
96.6
28.1
43.0
9.1
19
Table 3: Manufactured Exports and Value Added Per Capita, 2005
Country
Mfg Exports PC 2005
Botswana
Cote d’Ivoire
Ghana
Lesotho
Mauritius
Namibia
Swaziland
Africa Average
2082
219
164
186
1523
776
1299
39
Country
Mfg Exports PC 2005
Cambodia
198
Vietnam
211
Costa Rica
1251
Guatemala
305
Source: UNIDO database; author’s calculations
Mfg. Value Added PC
2005
146.0
116.2
23.6
85.9
770.9
224.1
346.4
63.6
Change in Mfg Share
of GDP 00-05
+
+
-
Mfg. Value Added PC
2005
75.8
120.3
958.6
211.8
Change in Mfg Share
of GDP 00-05
+
+
-
20
Figure 1: Production Sophistication and Per Capita Income 1975 and 1995.
Manufacturing Production Indicator (in logs)
8.2
8.4
8.6
8.8
9
9.2
1975
LUX
KWT
TTO
SGP
HUN
SWE
JPN
NOR
FIN
ITA
GBR
FRA
ANTBEL
CAN
AUT
AUS
ESP ISRDNKGAB
NZL
CHL
POL
TWN
TUR
JOR
HKG
MYS MLTMEXIRNPRT
KOR
GRC
THA
DZA
KEN
ISL
JAM
TUN
IRL BRB
COL
CYP
IRQ
GHA
CRI
PHL
PRY
TZA
PAN
ECU
NIC
EGY
GTM
BDI
SEN
NGA
MUS
PAK
FJI
SOM IDN
MDG
MWI
CMR
SLV
SYRHND
BEN
BOL
DOM
TGO
BGD
IND
CIV
PNG
GMB
TCD
CAF
MRT
6
7
8
9
Per capita GDP PPP I$2000 (in logs)
10
11
Manufacturing Production Indicator (in logs)
9.1
9.2
9.3
9.4
9.5
1995
SGP
SWE
JPN USA
ISR
HKG
GBR
AUT
FIN FRA CHE
ITA
IRL
TWN
CAN NOR
KWT
ESP BEL
BRA
SVN
AUS
MAC
POL RUS
IND CHN
NZL
SWZ
ROM
BGR
PRI
PRT
HUN
MEX
OMN
SCG
VEN
EGY
TUR
LVA
MKD
PHL ECUIRN
ARGMUS
GRC
PER
COL CRI
IDN
BRB CYP ISL
TUN
CHL
BOL
LCA
TTO
KEN
HND
URY GAB
SLV
ZWE JOR
BHS
CIV
SEN
BWA
LKA
MAR
BGD
MYS
NGA
NER
TZA
MWI
SYR
CMR
GHA
ERI
ETH
MLT
KOR
JAM
DZA
HTI
9
MNG
6
7
8
9
Per capita GDP PPP I$2000 (in logs)
10
11
21
Figure 2: Export Sophistication and Per Capita Income 1976 and 2000
Manufacturing Export Sophistication Index (in logs)
8.6
8.8
9
9.2
9.4
9.6
1976
PAN
QAT
OMN
JPN
POL
CYP
MNG
MWI
CHN
TZA
ROM
IDN
SWE
USA
VENTTO
FRA
NOR
SGP
ITA
GBR
NLD
ESP
FIN
IRN
CHE
AUT
DNK
GAB
KWT
MLT HUN IRL
CAN
JOR
GRC
MUS
KOR
DZA
CIV
HKG
TWN
PRT MAC
NGA
ECU MEX
MAR
CHL ZAF
ISR
IND
EGY
TUR
TUN
COL BRA
SEN
CRI
PHL MYS
AUS
ARG
PAK
BOL
ISL
BEN
NPL MOZ
NZL
SLVPER URY
CMR
THA
GTM
UGA
LKA HND
GHA
KEN
BGD
6
7
8
9
Per capita GDP PPP I$2000 (in logs)
10
11
Manufacturing Export Sophistication Index (in logs)
8.8
9
9.2
9.4
9.6
2000
PHL
MEX
CRI
JOR
THA
SVK
POL
PAN
BRA
CHN
IDN
MOZ
UGA
SEN
KEN
ETH
TZA
ARM
MAR
KGZ
AZE
IND
MDA
NGA GHA
MWI
ZAF
AUS
RUS
TTO
COL
CHL
ROM BGR
ARG GRC
LTU
OMN NZL ISL
TUR
TUN
VEN
UKR
ECU
EGY
YEM
CIV
NPL
BEN
BOL
CMR
HND
JPN
SGPUSA
SWE
MLT
TWNFIN
IRL
GBRCHE
KOR
CAN
FRA
CZE
ESP AUT
SVN
NLD
CYP
ITA
NOR
ISR
DNK
HKG
PRT
QAT
MYS
HUN
IRN BWA
GTM
PER DZA
SLV
KWT
LVAURY
GAB
LKA
MUS
MAC
PAK
MNG
BGD
6
7
8
9
Per capita GDP PPP I$2000 (in logs)
10
11
22
Figure 3: Decadal Evolution of Production Sophistication, Africa 1980s-1990s
Avg Manufacturing Production Index (in logs)
8.6
8.8
9
9.2
9.4
Decadal Evolution of Production Sophistication in SSA
ZAF
SW Z
KEN
NGA
BEN
TZA
MW I
SEN
CIV
ZW E
CMR
GAB
BW A
ZMB GHA
ZAF
CAF
MUS
ZW E
BDI
TZA
MW I
MUS
KEN
CIV
SW Z
NGA
GAB
SEN
ZMB
BDIGHA
CAF
BEN
6
CMRBW A
7
8
9
10
Average per capita GDP PPP I$1000 (in logs)
11
Each vertical line indicates the shift from the 1980s to the 1990s (average in each decade).
23
Figure 4: Production Intensities by Level of Sophistication:
Low Sophistication
Sectors
1
.8
AFRICA
.6
Successful low
income
stagnant mid -income
.4
.2
0
-.2
successful
mid -income
OECD
HIGH INTENSITY
LOW INTENSITY
-.4
-.6
4
1975-1981
1995-2003
Sectors
High Sophistication
1
.5
0
HIGH INTENSITY
LOW INTENSITY
successful
mid -income
-.5
-1
-1.5
OECD
stagnant
mid -income
1975-1981
AFRICA
successful low -income
1995-2003
24
Figure 5 Export Intensities by Level of Sophistication
Lower Sophistication
Sectors
1
.8
.6
.4
.2
successful
low -income
0
AFRICA
successful
mid - income
OECD
-.2
-.4
-.6
-.8
HIGH INTENSITY
LOW INTENSITY
stagnant mid -income
-1
1975-1981
1
1995-2005
Higher Sophistication Sectors
.5
0
HIGH INTENSITY
LOW INTENSITY
OECD
-.5
-1
successful
mid -income
-1.5
stagnant
mid -income
-2
-AFRICA
-2.5
successful low -income
1975-1981
1995-2005
25
Notes to Figures 4 and 5:
The vertical axis represents the logarithm of production intensity, such that a value of zero indicates world average
intensity. A value of 0.5 (1) is equivalent to 165% (265%) of world average, while a value of -0.5 (-1) equates to 61%
(37%) of world average intensity
The horizontal axis is the Sophistication Index for productive sectors, which attaches a representative income value
to each of the 28 manufacturing sectors. Our division between low- and high-tech is based on the sector rankings
presented in UNIDO (2009). The relatively more "high-sophistication" division is made up of the Fabricated Metals
(381), Machinery (382), Electrical Machinery (383), Transport (384), Equipment (385), Furniture (332) and Printing &
Publishing (342) sectors; the relatively more "low-sophistication" division is made up of the Food (311), Beverages
(312), Tobacco (313) Textiles (321), Leather (323), Footwear (324) and Rubber (355) sectors.
26
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