Factories will add value to resources, economies

Africa needs to concentrate on transforming itself from an agrarian continent to an industrial society to reap higher profits

As we move from the Year of the Monkey to the Year of the Rooster, African countries should now be thinking of how they can display the qualities of such a bird in tackling industrialization. The rooster is, after all, a very observant, hardworking, resourceful, courageous, talented and confident creature.

Africa has the chance to transform itself from a mainly agrarian continent into an industrialized one if the proper polices are implemented.

"Industrialization cannot be considered a luxury but a necessity for Africa's development," said South Africa's Nkosazana Dlamini-Zuma shortly after she became chair of the African Union in 2013.

The rationale for much of the current discourse on the "Africa Moment" and "Africa Rising" is clear. Some of the fastest-growing economies in the world are from Africa.

Africa has shown relative buoyancy in a period of economic crisis. But although it is growing fast - much faster than it did in the 1980s and 1990s - the growth rate needs to accelerate in order to deliver the kind of results enjoyed by the South-east Asian Tigers and China.

Africa needs to find the path that leads to 10 percent growth.

An old Nigerian proverb states that "a man cannot sit down alone to plan for prosperity". Growing economic cooperation with China provides African countries with a reason to be optimistic about their plans.

The single-digit growth rate of African GDP over the past decade has been lauded as a transformation - almost a miracle. However, the fact is that Africa's growth only looks good in comparison to its abysmal past performance and against the backdrop of recession in the developed world and a slowdown in Asian economies.

China's slowdown from double-digit growth to 7 percent is cited as a huge source of concern, while Africa's 5 percent growth is considered excellent. It is not sufficient. Africa's growth falls short of the 7 percent minimum required to double average income in 10 years.

The reason is partly the fact that numerous African economies are dependent on the production and export of primary commodities. It is imperative that the continent focus on the potential offered by industrialization.

One of the greatest challenges African countries are facing nowadays is their inability to add value to their primary products.

In this respect, Lawrence Mbae raised some important economic examples that are crucial to the value-added issue in his article entitled Industrialization in Africa: Can the continent make it? The author pointed out that Cote d'Ivoire and Ghana produce 53 percent of the world's cocoa but supermarket shelves in Abidjan and Accra, their respective capitals, are stacked with chocolates imported from Switzerland and the United Kingdom - nations that do not farm cocoa.

This scenario is repeated throughout the continent in different contexts. Coffee is the second most traded commodity after oil. Globally, out of the total coffee business valued at around $144 billion per year (2008), the coffee-growing nations together get just $15 billion for their green, unprocessed beans.

The remaining $129 billion remains in the importing (developed) nations that add value to the coffee they themselves have not grown. For instance, 0.45 kilogram of green coffee will earn a Tanzanian coffee farmer around $1, while the roaster in a developed nation will be able to sell similar coffee for about $8. The Tanzanian coffee farmer is losing $7 per 0.45kg of added value, simply because he is not roasting and packing his own coffee.

In other words, Cote d'Ivoire and Ghana were trading cocoa for chocolates. The same scenario applies to the Tanzanian farmer where he trades green, unprocessed coffee beans for coffee, missing a huge opportunity to add value domestically and industrialize.

Such skewed trade patterns could result in a situation in which whatever revenue these African countries generate from exporting raw materials is offset by imports of manufactured goods. Africa has been gifting this level of value to the developed world for decades.

Certainly, the lack of industrial development forces African countries to depend on exporting raw materials while importing value-added goods. The comparative advantages of Africa are consequently annulled, triggering acute dependency and low economic power.

According to the United Nations Economic Commission for Africa study titled Greening Africa's Industrialization, asserts that transforming Africa's mineral export volume by just 5 percent before exporting could generate 5 million jobs annually. The same study also declares that current estimates show that Africa spends $30 billion per year on imported processed food. The removal of that import cost would free capital to assist larger development needs and help bring about industrialization.

In pursuing industrialization, African governments need to think of how to turn the continent's natural resource advantage into a development advantage.

The experiences of Japan, the South-east Asian Tigers and China show the effect of deliberate industrial policies, as well as the role of central regimes in advancing national development goals. While the role of the government may be significant, policymakers must understand global trade dynamics and employ regional and global trade negotiations to pursue their industrialization agenda.

Industrial policies alone will not jump-start African industrialization, but they will provide a robust framework for countries to reassess their industrial goals. This will give them the opportunity to identify the best routes to structural transformation and direct industrial policy to attain the desired objectives.

The author is a researcher with the Institute of African Studies, Zhejiang Normal University. The views do not necessarily reflect those of China Daily.