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Hemmed In: Responses to Africa's Economic Decline
Thomas M. Callaghy and John Ravenhill, editors
New York
1993
6: The future of the Manufacturing Sector in Sub-Saharan Africa
R OGER R IDDELL
| The most crucial structural change required in Sub-Saharan African countries is the one which brings about a minimum level of industrialization in those countries. In most of them, a genuine industrialization process has either yet to take hold or is still in the nascient stage. 1 |
Introduction: Downgrading Manufacturing
Recent efforts to come to grips with and solve Africa's development crisis, particularly influential initiatives supported by Western donors and the international institutions, have tended to ignore or underplay the role of industry in general and of the manufacturing sector in particular. 2 In recent years, industrial development has increasingly been placed within a broad macroeconomic context, dominated by short-term, market-based structural adjustment programs, while no (or only minor) industry-specific policies have been proposed to encourage the expansion and diversification of the sector. This minor role given to industry is mirrored in aid priorities. Foreign aid to manufacturing industry, which constituted less than 12% of total official aid to Sub-Saharan Africa (SSA) at the start of the 1980s, fell to no more than 7% by 1989, 3 and this trend appears set to continue.
There are four reasons why this downgrading of the role of manufacturing in both short-term adjustment policies and in discussion of longer term development in Africa appears surprising. First, industry and industrial development were given pride of place in almost all former long-term strategies for African development drawn up by individual countries, often with the advice and consultation of the international agencies.
Second, and relatedly, the preeminence (or bias) given to industry in the development process did not arise from the whim of either African scholars or the newly independent governments of African countries: it was rooted in mainstream analyses and theoretical insights of the development literature, and has persisted down to the present day. In the early 1960s, the words "development" and "industrialization" were practically synonymous and, in the intervening period, that link has been preserved. More recently, accelerated industrial development aided by a range of industry-specific policies have been important elements in the successful development of the Newly Industrializing Countries (NICs); they have also featured prominently in the growing importance of what have been termed the new NICs. 4 As Hollis Chenery commented in the opening paragraphs of his seminal work on industrialization and growth: "Development is now conceived as the successful transformation of the structure of an economy. . . . Historically, the rise in the share of manufacturing in output and employment as per capita income increases, and the corresponding decline in agriculture, are among the best documented generalizations about development." 5
Third, in the 1980s the emphasis placed on the role of manufacturing in debates and strategies for long term development within Africa continued. Indeed in parallel with a slowing down of manufacturing growth across a majority of African countries, the role of manufacturing industry appears to have been given a central place in policy statements emanating from African leaders, and from consensus statements from African regional organizations. 6
Fourth and finally, one of the reasons why industry has increasingly been driven off the policy map is the belief that import-substituting industrialization has been such a failure in Africa. As we shall discuss below, in most cases the impact of import-substitution policies has been quite limited, and thus rather than the industrialization process being directed along the wrong path, it has scarcely even begun.
In the late 1980s, an increasing consensus appeared to be evolving over what course African development ought to take, manifested most strikingly in reaction to the World Bank's 1989 long-term perspective study Sub-Saharan Africa: From Crisis to Sustainable Growth, which drew praise (or at least only minimal criticism) from both outside and within Africa. 7 Yet the consensus achieved remains predominantly related to objectives, and a wide gulf still exists over methods to marry long term objectives to short-term measures to address especially macroeconomic distortions, over what precisely to do and what in practice is likely to work. What is more, division, disagreement, and doubt over methods and execution would appear to be most visible in relation to industrial policy and strategy.
The strong contrasts between the emphasis given to the role of manufacturing within Africa by African governments and their advisers, its virtual absence in policy debate emanating from outside Africa, and the, at best, minimal treatment of manufacturing in structural adjustment programs (SAPs), all raise a series of questions for African development in the 1990s. Are these differing views on the role and place of the manufacturing sector in future African development merely differences in emphasis or do they also represent differences of substance? If the latter, is this a reflection of new theoretical insights into the process of development? If not, then the question arises whether the downgrading of the role of manufacturing in SAPs might leave SSA more underdeveloped and backward at the end of the 1990s than if an alternative pro-industry strategy were adapted.
As the 1990s opened it was becoming increasingly clear not only that industrial policy executed within the framework of orthodox structural adjustment packages was failing to lead to any form of industrial deepening, but also that the policies that were implemented had become the subject of growing opposition, not least from among industrialists. This has led to both resistance to and reversal of policies, a situation that appears likely to continue.
The purpose of this chapter is to look critically at the type of industrial policy the international financial institutions are promoting in Sub-Saharan Africa as a subelement of structural adjustment programs. We shall do so by looking at a group of countries on the subcontinent where the manufacturing sector has been most highly developed. 8 The conclusion drawn is not only that the approach is suboptimal, but also that there are risks that much industrial potential could be lost in the 1990s, if policies associated with the more orthodox approach to structural adjustment provides the dominant framework within which manufacturing sector development is placed. What is more, it appears that there are alternatives: the "hands-off" policy of neglect could well be altered to incorporate a more explicit package of policies to promote industrial expansion and deepening. Examination of what has been achieved by the manufacturing sector in Africa over the past 30 years, together with a dispassionate look at what will continue to restrain development in the 1990s, suggests that there is a range of benefits to be derived from focusing more attention on the promotion of manufacturing in Africa than is occurring at present under SAPs. This is not to argue that a greater focus on the manufacturing sector will "solve" the problem of African development, in either the short or medium term, or that a big blind push promoting the rapid expansion of manufacturing will short-cut the route to self-sustaining development. The benefits--if they do arise--are likely only to be seen in the longer term.
Alternative Approaches to Industrialization in the 1990s
Three Groups of Alternatives
For the purposes of the present discussion, we can classify the range of strategies on African manufacturing industry for the 1990s into three broad groupings, distinguished both by their general attitude to the market and by their more specific approach to industry. The three can be termed the "industrialize at all costs," the "benign interventionist," and the "harsh withdrawal" approach.
The Demise of the Radical Pro-Industry Approach
Briefly, the "industrialize at all costs" approach is for manufacturing and, more broadly, industrial development to be vigorously promoted-at almost all costs; it is clearly a "radical pro-industry" approach. The strategy is rooted in the view that "industry is the main lever of African development," 9 and built upon the belief that African countries can short-circuit the "normal" process of development and leap into the stage of mature industrialization. This is to be achieved, most commonly, through the promotion of a range of new industries initially linked to import-substitution. The strategy involves the setting up of a range of, first, consumer-good, and then more complex industries, with production initially replacing imports, but then (hopefully) sustained by a mix of increased domestic and export demand. Thus linkages are seen as important in theory, even if, in practice, major gaps are apparent. Low on the agenda of priorities are the costs of importing the machinery required, the technical and managerial skills needed to operate factories, the technology used, the costs of production, the degree of protection needed, current and future levels of demand, and the degree of subsidy required for the products to be purchased.
In the history of postcolonial Africa, the radical pro-industry approach has had the longest run, and has been the most influential in relation to both policy-thrust and resource allocation, enduring from before the 1960s through the mid-1980s, if pronouncements in development plans are any guide to policy practice. Outside some academic ivory towers, however, the approach is now no longer taken seriously either outside Africa or, more significantly, by policymakers within Africa: there is little political support for it even among the ruling elites, while there are simply insufficient funds, either domestic or foreign, to return to such a strategy of economic engineering, blind to the limitations and costs of forever ignoring market and price signals.
The demise of this approach can be traced to a series of industry-specific as well as broader factors the importance of which have risen and become more influential as wider macroeconomic constraints began to bite especially during the 1980s. The most obvious problem is that in spite of channeling substantial resources to promote and establish manufacturing industry in Africa, the manufacturing base of most countries remains small, fragile, and predominantly high cost, linked predominantly to further processing of agricultural (and in some cases mineral) products but resulting largely in the manufacture of products of low quality internationally and thus not easily exportable. Surprisingly, too, while the strategy of industrialization was to establish a growing range of import substitutes, many countries have failed, in any marked degree, to achieve this. The fragility of the manufacturing base is also apparent from the low degree of interlinkage between manufacturing and other productive sectors of the economy, except through receipt of agricultural and/or mineral products for processing. The slowdown of overall economic growth in the 1980s, together with the rising shortage of foreign exchange and falling levels of investment, exposed these weaknesses as capacity utilization levels plummeted and what industry there was became increasingly affected by shortages of spare parts, exacerbated by failures to maintain plant and equipment. For the 1990s for most countries in SSA, the "industrialize at all costs" approach is a nonstarter if for no other reason than it simply cannot be financed.
To Intervene or Not?
As the radical pro-industry approach appears for practical purposes to have been laid to rest, the key policy choice for the 1990s revolves around the question of whether to let the pace and pattern of industrialization take its course "naturally," within the context of wider macroeconomic policies, and guided exclusively by these signals and incentives, or whether some (a different and less prominent) sort of assistance should be given to promote manufacturing industry directly, and in so doing, to engineer a particular, and probably more rapid, form of industrial development than if its development was not the subject of such intervention. Herein lies the difference between the benign interventionist and the harsh withdrawal approaches.
Harsh withdrawal is the term used to encompass the approach linked most closely with the more orthodox type of structural adjustment programs promoted in SSA during the 1980s. Under this approach, manufacturing industry and its development are placed firmly within the broader macroeconomic framework: the shape and manner of manufacturing sector evolution are influenced predominantly by short-run market and price signals, as the state--in its various guises--stages a series of retreats from direct involvement in the manufacturing and other sectors, and as state marketing declines. Manufacturing is treated no differently from other productive sectors, and any special treatment historically accorded the sector is withdrawn. Thus, subsidies to and incentives for manufacturing are removed, protection through banning the import of competitive products ceases, and competitive imports are increasingly permitted at the same time as tariff levels are lowered. Consumer subsidies to stimulate demand for local manufactures are eliminated as any bias in the overall terms of trade is removed, while the likely fall in the external value of the currency results in increasing costs to manufacturers dependent on imported intermediate inputs and capital equipment, and foreign skills. The underlying objective of this approach is that the forces of supply and demand, and the increasingly market-determined price regime, increasingly determine the degree and pattern, and set the pace for change in the structure, of industrialization in the economy.
The most crucial question this raises is what effect such an approach is likely to have on African manufacturing sector development. Clearly what is not ruled out is a process of deindustrialization. 10 To the extent that manufacturing industry is unable to survive in the increasingly competitive world to which it is exposed, contraction of the manufacturing sector is to be expected, at least in the short term. There are few people who advocate deindustrialization; there are more who maintain that what is sometimes called "industrial restructuring" might well be a necessary precondition for a more viable form of industrial development to rise from the ashes of three decades of high-cost failure. At its best, the structural adjustment approach to manufacturing development anticipates not only restructuring of the manufacturing sector but also a type of restructuring that will in time result in industry being more cost-effective and, most importantly, enable the sector to turn outward and become more export-oriented.
Lying somewhere between the radical pro-industry- and the orthodox structural adjustment-type approaches lies a third one, whose characteristics are less easy to capture precisely. We have termed it the benign interventionist approach. Like the radical pro-industry model, two of its leading characteristics are interventionist and pro-industry. Yet, like the structural adjustment type, it is sensitive to the distortions and high costs that led to the adoption and influence of structural adjustment policies, and acknowledges that these are unsustainable. It is thus far from dismissive of the importance of responding to market and price signals, and of the need to attempt to eliminate macroeconomic distortions and imbalances. Thus its advocacy of industrial expansion and deepening is located within the context of a viable macroeconomic environment. The sharpest differences in the approach to macroeconomic policy-making between the benign neglect and harsh withdrawal approaches lie in the timing of the adjustment process, in the mechanisms to be used to promote a more efficient type of industry in the (longer) adjustment period envisaged, and in precisely how to respond to price signals.
Those who reject both the old "import-substitution" approach to industrialization (which is noted in SSA more by its absence than its failure) and the blind export-oriented approach, argue that the future prosperity of SSA is likely to be enhanced by a three-pronged type of industrialization. Policies to promote the expansion of manufactured exports and a more systematic approach to further import substitution need to be vigorously implemented, not in isolation but in conjunction with policies that seek to raise the efficiency of existing manufacturing enterprises. 11 Such an approach is likely not only to enhance the growth and deepening of the manufacturing sector, but also, in so doing, to assist rather than hinder attempts to solve Africa's longer term development problems. What is more, such an approach is finding increasing political support within Africa, which could well intensify as the current decade unfolds.
Few would quarrel with the objective of creating more industries which are internationally competitive or with the more general desire to increase the export-earning capacity of the manufacturing sector in Africa. The crucial question for policymakers is: what is the best method to achieve these aims? As the benign interventionist approach emerges from an examination of the performance of manufacturing in SSA over the recent past--in particular from attempting to isolate those factors which have inhibited industrial expansion and deepening, and those that have assisted it--the more detailed content of such an approach will follow a summary of analysis of the development of the manufacturing sector.
An Overview of Performance Trends
12
A number of features of manufacturing industry in SSA reveal differences with other regions of the developing world. One is the smallness of manufacturing in SSA. In 1988, total manufacturing value added (MVA) of all the countries of the SSA region amounted to just over $18 bn, $1 bn less than the level reached in 1985. Excluding Nigeria, the MVA of the remaining countries of the SSA region in 1988 came to just over $15 bn, lower than the individual levels of Turkey, Finland, or Indonesia. 13
There are, however, differences other than size, most notably that the level and share of manufacturing in SSA remains extremely low compared with other parts of the developing world and there has been minimal growth in manufactured exports from the SSA region. Thus between 1965 and 1989, the ratio of MVA to GDP for SSA did not rise above 11%, compared with an increase from 20% to 30% for all developing countries, from 20% to 27% for all low-income countries, and from 20% to 23% for lower middle-income countries. From 1965 to 1984, the MVA/GDP ratio for low income economies of SSA rose from 9% to 10%; it fell from 9% to 7% for the middle-income countries of SSA. 14
From 1965 to 1986, the ratio of manufactured exports from SSA to manufactured exports from all developing countries fell from 4.6% to 1.5%, while the ratio of the manufactured exports from developing economies to world manufactured exports rose from 8.4% to 15.6%. 15 Trends in the ratio of manufactured to total exports over time also reveal the poor performance of SSA. Thus from 1965 to 1984, this ratio fell from 7.8% to 5.9% for SSA; it rose from 3% to 8.2% in developing west Asia, from 28.3% to 58.5% in developing south and southeast Asia and from 5.2% to 18.6% in developing Latin America. 16
If these were the only features of note, they might point to an approach to industrial policy different from that advocated and promoted in other parts of the developing world, and to similar policies being executed in all countries of the SSA region. Yet these trends provide only a partial picture. Thus in the decade of the 1960s, the average growth rate of MVA for SSA was greater than the average for all developing economies (8.3% to 6.5%), with this 1960s growth spurt contributing to a slightly higher than average performance for SSA over the entire period 1965 to 1980 (8.8% to 8%). It appears, too, to have been only in the 1970s that the performance of SSA began to lag behind other regions (except uniquely the Indian subcontinent), although these growth rate comparisons are clearly biased because of the low base from which SSA expansion is derived.
Perhaps of more significance is that the rate of growth of MVA for middle-income economies of SSA was higher than that achieved by all middle-income economies in both the 1960s and 1970s. It was only in the 1980s that the growth rate of MVA for the economies of SSA fell dramatically (to an annual average of 0.6% a year 1980 to 1987 compared with 4.9% in the 1970s); but not even this was unique, for the growth rate of MVA for Latin America fell equally sharply, from 5.5% in the 1970s to 1.1% for the period 1980 to 1987. Yet even these figures conceal differences. The average manufacturing growth rates of seven countries-Botswana, Cameroon, Côte d'Ivoire, Kenya, Nigeria, Zambia, and Zimbabwe-in the period 1980-87 remained higher than that achieved (on average) by all middle-income developing countries.
Of major importance is that aggregate trends for all the countries of the SSA region conceal some marked variations between countries over time. Thus, the performance of manufacturing exports when analyzed by numbers of countries has not been entirely adverse. For instance, the ratio of manufactured to total exports exceeded 15% for only three countries of SSA in 1966, for six countries by 1976, and 13 by 1986. Moreover, the contribution of a handful of countries to aggregate MVA growth has increased rapidly: in 1965, the combined MVA of Cameroon, Côte d'Ivoire, Ghana, Kenya, Nigeria, Zambia, and Zimbabwe came to 31% of the total MVA of SSA, but by 1985 it accounted for 66%. As for the pace of industrialization, the rate of growth of MVA exceeded 5% a year from 1963 to 1973 in 34 countries of SSA, from 1973 to 1979 in 13 countries, and in the difficult period from 1980 to 1986 in at least 10. For Botswana, Burundi, Mauritania, and Rwanda a sustained expansion of MVA of over 5% a year was recorded from 1963 to 1986.
Other trends highlight the complexity of performance. Thus out of the 20 countries that recorded a lower annual rate of growth of MVA from the period 1973-79 to 1979-86, eight had a higher MVA/GDP ratio in 1985 than they did in 1973. On the other hand, out of the 26 countries whose annual average MVA growth rate was higher in the period 1979-86 than in the period 1973-79, a full 15 recorded a fall in their MVA/GDP ratios.
Thus even a rapid overview of some of the aggregate data of manufacturing performance within SSA reveals that a view of African industrialization that suggests both progressively poor performance across all countries of the subregion and a record markedly different from other parts of the developing world is wrong. This should have implications for policy prescription and, in particular, should caution against two types of policy advocacy. First, the evidence provides few grounds for advocating policies for SSA industry that are markedly different from those followed in other regions. Second, differing performance between countries should make one extremely wary of policies that are applied willy-nilly to all countries of the subregion, especially if they are based on a premise of pessimism about the ability to embark on a process of industrialization. At minimum, blanket prescriptions for all countries of the subregion are bound to be suboptimal, they may also be counterproductive.
More worrying still is if the prevailing structural adjustment programs, which provide no role for direct intervention in industry to stimulate the growth of the sector, are advocated on the assumption that the interventionist policies of the past caused the problems and relative underdevelopment of manufacturing in SSA. This assumption can be challenged in at least three ways. First, as just noted, the record is not exclusively one of failure: there were and there continue to be successes. Second, some of these successes can be attributed in some (often large) measure to interventionist policies aimed at creating and stimulating the growth of manufacturing enterprises. Third, while much of African manufacturing industry is undoubtedly "high cost," it is too simplistic to attrib-ute this to rising trade protectionism and restrictions on potential import substitutes. A closer look at the process of industrialization in a number of the more "successful" industrializers provides support for these conclusions.
Types and Patterns of Industrial Growth
Domestic Demand
Following approaches to industrial growth analysis utilized in other parts of the developing world, 17 it is possible to make a quantitative assessment of the manufacturing sector not merely by looking at trends such as growth in output and value added, but also by estimating the relative importance of domestic demand, import-substitution, and exports in explaining, or accounting for, the growth of manufacturing and its major sectors. Analysis of manufacturing in seven key countries--Botswana, Cameroon, Côte d'Ivoire, Kenya, Nigeria, Zambia, and Zimbabwe--produces the (unsurprising) conclusion that the predominant source of growth in manufacturing has been domestic demand (rather than either import-substitution or export growth). 18 For Botswana, 54% of output growth was derived from domestic demand, for Cameroon, about 55%, for Kenya, 69%, Nigeria, 76%, and Zimbabwe, 72%, 19 while for Côte d'Ivoire and Zambia, domestic demand has been no less important. 20
The dominance of domestic demand in aggregate growth could be interpreted either as caused predominantly by the growth of demand from within the sector itself, to which the wider (domestic) economy was able to and did respond favorably, or as a result of positive changes that occurred within the wider domestic economy with manufacturers supplying an increasing quantity of goods for the domestic market. There are a number of reasons why the latter explanation is likely to be of by far the greatest importance. First, the overall share of manufacturing in total output in the seven countries while significant is far from dominant. Furthermore, as subsectoral decomposition of the data reveals, manufacturing expansion has originated predominantly at the consumer-products end of the manufacturing process. Additionally, too, any substantial generation of domestic demand originating from within manufacturing would be confirmed if there had been both a high and rising level of import substitution in the different countries; the data, however, provide little support for such a conclusion to be drawn. Finally, the interpretation tends to be corroborated by comparing World Bank data for trends in MVA and trends in GDP growth rates: the four countries with average growth rates for MVA in the 1965 to 1980 period higher than the SSA average-Botswana, Côte d'Ivoire, Nigeria and Kenya--also had rates of growth of GDP higher than the SSA average.
We would thus seem to be able to make some important initial generalizations about manufacturing expansion. Not only does growth in manufacturing in these "successful" countries appear to have been predominantly dependent upon the growth of domestic demand, rather than upon either import substitution or export growth, but also the pace of growth of manufacturing seems to have been critically determined by the dynamics of the wider domestic economy. Relatedly, manufacturing growth has been dependent on access to sufficient amounts of foreign exchange required to finance both the purchase of plant and equipment and a significant proportion of inputs, which the manufacturing sector itself has in large measure been unable to earn. In the pre-1980s period, rapid growth of MVA was significantly enhanced by expansion of the more dominant productive sectors, led most frequently by agriculture. 21 In the 1980s, though, it was the policies adopted to address broad macroeconomic distortions (and therefore largely external to either agriculture or manufacturing) that played a major role in the slowdown in manufacturing growth in six of the seven countries, while, in the unique case of Botswana, it was a combination of a favorable macroeconomic climate and rapid expansion of the leading (nonmanufacturing) productive sectors that boosted manufacturing sector growth.
It would thus appear that a major cause of manufacturing growth in SSA has had its root in the establishment of an environment conducive to steady expansive growth outside the sector itself and principally primary product-related. As this conclusion seems to be confirmed for those countries in SSA with the most advanced manufacturing sectors, it would seem safe to add that for countries of the region with even smaller manufacturing sectors (the vast majority), substantial growth of manufacturing would be highly unlikely to take place unless their leading productive sectors were also experiencing sustained growth and expansion.
Import-substitution
The role of domestic demand in stimulating the expansion of manufacturing output should not be overemphasized. A far from insignificant part of manufacturing output growth for this cluster of countries originated in import substitution and/or export growth-ranging from 24% for Nigeria to 46% for Botswana. Of importance, too, in two countries for particular (albeit relatively short) periods of time, import substitution constituted the major source of growth: accounting for 55% of output growth in Zambia in the late 1960s and for 54% of output growth in manufacturing in next-door neighbor Zimbabwe from the period 1952-53 to 1964-65. Furthermore, doubts can certainly be raised about the ability of sources of growth analysis to convey the full extent of import substitution accurately, because it regards a reduction in the import ratio as import substitution only in the year in which the relevant fall in imports is recorded. Thereafter the import substitution effect is not explicitly considered and the change in output is allocated either to domestic demand or export, as appropriate.
The case-study evidence, however, reveals a second feature: while the degree of import substitution has varied from country to country, the overall impact appears in all but one of these countries (the exception being Zimbabwe) to have been minimal. It has resulted in neither a very significant degree of interlinkages with other subsectors of manufacturing or to other productive sectors of the economy (excepting, of course, further processing of primary products) nor to a significant fall in the importation of even simpler consumer goods. What this suggests is that the process of substituting for imports has tended to be rather haphazard. This is confirmed by other evidence, which also indicates that in many of the countries a large and, not unusually, a growing absolute quantity of manufactured imports still consist of consumer goods. Thus, even as late as the mid-1980s, almost exactly half of manufacturing in SSA was concentrated in the food, beverages, and textile branches, only 8% in chemicals and 10% in the manufacture of machinery and transport equipment. The dominance of consumer rather than intermediate or capital-oriented manufacture in present day SSA would suggest not only that manufacturing is relatively simple in technique but also that there has been little structural change in the postindependence period. Analysis of "apparent consumption" trends, shown in table 6.1, would tend to confirm this. 22
Indeed the data suggest there has been a marked deterioration in the P/AC ratio of products within the foodstuffs subsector and those intermediate products for which SSA has had a relative high level of domestic production capacity. In the case of vegetable oil, there has been a decisive swing from aggregate surplus to overall deficit; for both soap, minimally, and for cement, more significantly, the P/AC ratios have been falling. Similarly there has been a deterioration in the relative production of other intermediary products and minimal production of more sophisticated products, including fertilizers crucial for agricultural development. 23 It is thus apparent that there is plenty of scope for further import substitution in SSA, placing in better perspective the view that future manufacturing policy should be dominated and determined by an expansion of domestic demand.
Complex rather than simple explanations appear to be the hallmark of the particular successes achieved in import-substitution. This can best be illustrated by the case of Zimbabwe where 30% of manufacturing sector growth was derived from import substitution activities for a period of more than 30 years. Its success came from a judicious mix of policies directed to the manufacturing sector and to events occurring, and incentives offered, in the wider economy.
The most important ingredients of this "success" would appear to have been the following:
What seems to have been important for Zimbabwe's success in import-substituting industrialization was not so much the dominance of one or other characteristic, but rather the convergence of so many supportive elements for long periods of time, together with the ability of both the government and manufacturers to adapt as circumstances, internal and externally induced, changed. This was shown most clearly in the period surrounding and just after the Unilateral Declaration of Independence (UDI) in 1965. Thus, prior to and during the Federal period (1952-53 to 1964-65), the economy was characterized by relatively low tariffs and few quantitative controls, the period of UDI (1964-65 to 1978-79) was dominated by almost all-embracing controls and regulations, including prohibition of a wide range of competing imports and limited access to foreign exchange. Yet in both periods the share of import substitution in overall growth exceeded 30%, a share equalled only by one other SSA country, Botswana.
While Botswana's manufacturing base remains minute, its importance lies in both its rapid and consistently high rates of manufacturing sector growth (in the world context surpassed only by China, South Korea, Singapore, Indonesia, and Libya) and in the very different policy environment from next-door neighbor Zimbabwe in which that growth took place. Botswana's open economic regime has been far more akin to that favored by the international financial institutions than that which prevailed not only in Zimbabwe but also in all our other case-study countries. Supporters of interventionist policies might wish to point to the uniqueness of Botswana--especially its lack of foreign exchange problems as well as its linkages both with South Africa and the rest of black Africa--as significant factors enabling it to pursue such an open policy. While this was undoubtedly important, perhaps a more critical conclusion to be derived from the differing experiences of Botswana and Zimbabwe is surely the need to tailor policies to the particular circumstances of different countries. What is more, in their analysis of Botswanan manufacturing, Sharpely, Lewis and Harvey 24 end by questioning the wisdom of maintaining the present largely noninterventionist approach to manufacturing sector development into the 1990s, when traditional sources of foreign exchange are likely to be insufficient for growth, and an even greater acceleration of manufacturing growth appears increasingly necessary.
Manufacturing Export Growth
Not only has manufacturing export performance been poor for SSA countries in aggregate, but there has also been an absolute decline in manufactured exports in real terms for most countries-major exceptions include Botswana and, for a short period, Cameroon. Additionally, what are termed "manufactured" exports have tended to be dominated by the further processing of primary products (largely agriculturally linked) goods destined for markets outside SSA. In contrast, the (smaller) quantities of nontraditional manufactured exports have predominantly been destined for countries within SSA, usually near-neighbors. It is more than coincidence that the three countries with the largest value of manufactured exports over the post-1960s period--Côte d'Ivoire, Kenya, and Zimbabwe 25 --were initially the most industrially developed in their respective regions; in the early years, regional markets within Africa were often little more than extended domestic markets. 26
The conventional and widely shared explanation for such a poor and deteriorating export performance runs along the following lines: manufacturing industry in SSA is not competitive internationally--probably because it never was and certainly because it has tended to become ever more high cost over the past two to three decades--because of, or significantly aggravated by, rising levels of protection, persistently overvalued exchange rates, and quantitative restrictions placed on competing imports.
The policy conclusions emanating from this assessment are that if the trends of the past two to three decades are to be reversed, priority should be given to reducing tariffs, eliminating quantitative restrictions, and ensuring that there is far closer alignment between nominal and real exchange rates. Does the evidence confirm or contradict this view? It appears at best to be ambiguous, as illustrated by examining the performance of a number of the industrial "frontrunners."
While for a range of industries in most of these countries, comparative price data indicate that domestic prices are higher (often considerably higher) than border prices, evidence from a number of countries, including Zimbabwe, Cameroon, Kenya, and Côte d'Ivoire, indicates some contradictory trends. Here international competitiveness across a range of industries appears to have been maintained in a climate of rising protectionism; what is more, there is strong evidence to show that indicators of competitiveness 27 between industries and, significantly, between firms in the same industry differ, often quite markedly, and that the degree of competitiveness has increased for certain firms over time.
Part of the reason for poor export performance lies in the prevailing policy environment. Until the mid to late-1980s, there was little if any concerted effort put into promoting manufactured ex-ports, especially to destinations beyond SSA, excepting processed agricultural and mineral products. The principal role assigned to manufacturing in SSA was the establishment of factories in order to supply goods predominantly for the domestic (and regional) markets in the attempt to replace imports and hence reduce the overall import bill. While, as already noted, the effects were quite limited, one did occur: a climate encouraging manufacturers to look for, promote, and expand into markets beyond their borders or those of their near-neighbors was never established. Indeed a combination of the absence of trade promotion activities targeted to manufacturers and few or minimal export incentives reinforced each other and effectively dampened any ambitions manufacturers might have had to try to penetrate and obtain a foothold in overseas export markets. That this provides an important element in explaining the low level of manufacturing exports is confirmed by examining policy changes initiated in the 1980s, and monitoring their effects. In a number of African countries--Kenya, Zambia and Zimbabwe--the mid to late-1980s saw a significant expansion of nontraditional manufacturing exports. This occurred at a time when a series of explicit export promotion policies were introduced, including the establishment or extension of export incentives. 28
Significant though these developments certainly have been, they need to be placed in a broader context. The overall effect on raising the export/output ratio has been modest at best. Additionally, in those countries where manufacturing industry has been relatively "long established"--Botswana is a notable exception here--and where some successes in expanding into the export field in recent years have occurred, there are only a few instances in which firms originally oriented to the domestic market switched in any significant degree to the export market. 29
It is in the context of this discussion that the Botswana case needs to be considered. Botswana appears to be an exception to the general trends in three major ways. First, the growth of manufactured exports in the 1975-1985 period accounted for a higher share of output growth than for any of the other countries in the same period-and in some cases in any other one. Second, manufactured exports (excluding meat slaughtering) expanded at a rate of over 15% a year for much of the 1980s. Finally, the environment for the development of manufacturing in Botswana is characterized both by minimal external protection and by policies determining that the prices of manufactures domestically produced should be similar to the price of competing imports, all in the context of its membership of the South African Customs' Union. To conclude, however, that Botswana's manufacturing export successes have been due predominantly to its overall--and open--trade and tariff policies and to deduce that this liberal approach should be applied to other countries of SSA would be both premature and would ignore the advantages of alternative approaches in some of the other countries just noted.
There are also other factors. One is that, in contrast with the other countries, there has always been a climate of exporting in Botswana. Another is that Botswana's manufacturing base and, even more, its nontraditional exports constitute a tiny volume of goods. Most important, however, not even Botswana has managed to break out of its dependence on regional markets for its manufactured exports: less than 5% of its non-beef manufactured exports go to destinations other than Zimbabwe or South Africa, a share not dissimilar to most other countries of the region that have some manufactured exports.
What, overall, does the evidence suggest for future policies? If recent events are any guide to future policy decisions, it would appear that efforts to alter the structure of manufacturing and, in particular, attempts to raise both the level and share of exports in total output, are highly unlikely to succeed merely by tinkering with tariff levels and especially by rapidly opening up manufacturing to internationally competitive forces, unless and until changes are made to address the problems of what is often widespread comparative inefficiency at the enterprise level. 30 There is also little to suggest that, taken in isolation, attempts to create more domestic competition and to remove the power and control of large firms in particular industrial subsectors by encouraging "competition" will be likely to lead to a rapid expansion of manufactured exports. What is more, recent cross-sectional evidence with data from beyond Africa supports the view that such an approach is likely to be counterproductive, 31 while Botswana's experience would tend to confirm that a liberal trade and tariff regime on its own remains inadequate to induce the creation of a strong manufacturing sector capable of competing internationally.
Contemporary debate about African industrial policy does not seriously question the need for the countries of SSA to expand their manufacturing exports. What is in dispute is the approach to further this objective. The prevailing policy framework and trade and tariff regime in these countries does not provide anything like a sufficient explanation for the internal/external orientation or the cost structure of manufacturing enterprises. Clearly the macroeconomic framework is important, but it is not everything! Both the evidence from Africa and recent international research 32 suggest that what is needed is usually a range of policies aimed at raising productive efficiency, into which a set of broad macroeconomic policies need to be placed. To expand exports, what would appear to be needed, in general terms, is an overall commitment by the management, and supported by politicians and financial institutions, to improve efficiency through implementing a range of policies aimed at raising productive efficiency. Where African countries have managed to expand manufactured exports in recent years, the following factors have contributed to this expansion:
Summary
In their various ways, the manufacturing performance of a number of countries (particularly of Zimbabwe, Kenya, Zambia, Côte d'Ivoire, Nigeria and Botswana) point to the following conclusions:
While analysis of the past can be only a guide to the future and it is clearly not possible to "prove" the merits of alternative future approaches, these various factors provide grounds for asserting that a policy framework more supportive of manufacturing industry-"benign intervention," rather than a "harsh withdrawal" approach, merits greater consideration.
Further Worries About Structural Adjustment Approaches
If an analysis of past manufacturing sector performance throws into question the wisdom of embarking on a policy for the future dominated by noninterventionism, a number of features and effects of contemporary structural adjustment policies provide additional worries. One is that in countries where such policies have been in place for the longest, such as Côte d'Ivoire, Nigeria and Ghana, there seems to be little indication of a rise in investment levels in manufacturing in general or of a rise in foreign investment in manufacturing, in spite of new investment codes and a whole panoply of new incentives offered to investors.
The long-term objective of structural adjustment programs is to raise the productive capacity of the economy through both macroeconomic and institutional intervention. Such intervention is intended to create an environment in which both domestic and foreign private investment can flourish. Yet in the short, or even medium term, the evidence suggests that it is unlikely that the typical SAP "package" will have an overall incentive effect on foreign direct investment (FDI), even if it may be positive in the longer term.
Concern about the short-term effects of SAPs on FDI has been reflected recently in the International Finance Corporation's (IFC's) Annual Report for 1989, which comments thus (p. 23):
| A number of African countries have embarked on economic and institutional reforms. These reform programs often make the business environment more difficult in the short to medium term by introducing the need to adapt to more competitive circumstances. Furthermore, measures aimed at reducing deficits often result in restrained overall demand and depressed local markets. Many businesses find it difficult to adjust to trade reforms and industrial restructuring measures and to absorb increased input and debt service costs caused by local currency devaluations. In this kind of environment, investors adopt a wait-and-see attitude before making new investments or expanding operations. In the long term, however, the success of such reforms should increase the scope for private sector activity. 33 |
The question, of course, is whether the correct environment is being created for accelerated foreign investment inflow and for industrial expansion to occur. Recent studies in foreign investment in developing countries suggest that a low-wage regime is a far less important incentive for location in a developing country than in the past. As Lütkenhorst comments:
| Key factors in steering what has become a thinner flow of FDI to developing countries are skill levels, market size, the existence of an efficient industrial support network, the availability and quality of various support services as well as advanced telecommunication and information-processing facilities. Whereas previously a certain physical infrastructure (transport facilities, energy and water supply) was often sufficient to attract FDI, now a highly developed human and technological infrastructure would appear to be required. 34 |
What this suggests is that the presence of a stable (and expanding) domestic industrial base together with access to, if not a domestic, than at least a reliable regional, market are becoming increasingly important factors in decisions of foreigners to relocate into developing countries. Not only does this provide a counter to the view that investors are likely to be attracted in significant numbers solely to invest in industries geared to the export market, but it also challenges the very assumptions of an industrialization strategy based on a trimming of the domestic industrial base and a shift to export-orientation. 35
As for the hoped-for rise in manufactured exports flowing from adoption of SAPs, the (scattered)--albeit still rather early--evidence would tend to suggest that this has occurred if not to a greater then at least to an equal degree in countries like Zimbabwe and Zambia, where controls and interventionist policies have prevailed, than in those countries which have adopted structural adjustment policies. In Nigeria, the all-pervasive problem of smuggling is still a major factor inhibiting manufacturing export expansion, something untouched in practice by SAPs.
Another question is raised concerning the assumption of structural adjustment programs that the production should best be left to the private sector. In particular, recent work by Grosh 36 in Kenya suggests that "efficiency levels in public manufacturing are comparable with those in private sector manufacturing, and that quasi-public firms combining both private and public control substantially surpass efficiency levels in the private sector considered separately. Perhaps even more surprising, public firms are shown to be the recipients of less governmental trade protection than private firms when comparisons are made within industries."
Two final observations concern the impact on manufacturing attempts in Côte d'Ivoire and Nigeria to stabilize their economies. The first has been a quite marked contraction of production levels and employment in manufacturing, but little evidence of any other sort of "restructuring." What is uncertain is the extent to which this contraction is permanent or temporary. The second has been the level of resistance to tariff reductions from what are clearly politically influential groups of manufacturers. In both countries, tariff reductions were implemented and then reversed. Such effects raise the question of the extent to which these policies can be made to work in practice and over a period beyond the short term. It seems safe to assert that resistance is likely to stiffen if policies leading to substantial industrial contraction are indeed to be executed in the 1990s.
Alternatives to Contemporary Conventional Wisdom
The previous discussion brings us back to alternatives to the current structural adjustment approach. Having argued earlier that policies for the manufacturing sector for Africa for the 1990s need to be tailor-made to the particular circumstances of different countries, it would be inconsistent to propose any single alternative applicable across the African subcontinent. Yet it would appear that any alternative needs to be based on three criteria. First, it would seem sensible to build industrial strategies on the successes of the past, and on the methods that appear to have worked; second, they need to be based on a realistic assessment of the constraints that will continue to impede development in Africa in the 1990s; and third, they need to be capable of implementation.
As argued above, the days are already passed when a radical pro-industry policy presents a practical alternative for the 1990s, while the persistence of foreign exchange shortages argues strongly for a type of industrial restructuring that attempts to raise the level of manufacturing exports and their share in overall production. Further, it would appear that the last criterion listed in the previous paragraph--being capable of implementation--is likely to be addressed at all adequately only if far greater emphasis is given to the manufacturing sector than is occurring at present.
Shortages of foreign exchange, the fact of only minimal import substitution in the past, the need for greater overall efficiency in manufacturing, and contemporary evidence on the type of industrial structure foreign investors require point to an approach whereby the expansion of manufactured exports and a more systematic approach to further import substitution need to be implemented, not in isolation but in conjunction with policies that seek to raise the efficiency of existing manufacturing enterprises.
This perspective provides the context for articulating more precisely what the content of the benign interventionist approach might begin to look like. It clearly needs to be sensitive to both price and market signals, while not shunning either the explicit promotion of manufacturing industry or interventionist policies to enhance the expansion of manufacturing and the furthering of interlinkages with other subsectors of the economy.
Given the concerns expressed about the harsh withdrawal alternative, it might be helpful to articulate some of the main elements of the new approach by highlighting some of the differences between the two. Thus, the benign interventionist approach would tend to take a longer view of the adjustment process than the orthodox SAP approach. It would use the (longer) period of adjustment to implement policies that promote the diversification, strength and competitiveness of industry: industrial restructuring would therefore tend to take place behind the protection of controls rather than in the fuller face of international competition brought about by the rapid introduction of competitive imports and across-the-board tariff reductions. Likewise its approach to prices would be different. Noting current differences between domestic and border prices, the approach would attempt to assess why these differences occur. Instead of simply trying to accommodate to, and be guided by, short-run international (border) prices, consideration would be given either to postpone domestic price movements, if lower border prices are the result of short-run dumping, or to help industries or individual enterprises to reduce price differentials particularly by working to stimulate the competitiveness of domestic industry. It is in this context that the first of at least four broad areas of interventionism would be considered-though not all would apply to all countries or be applied with equal emphasis.
The first such area would embrace one or more of a whole series of potential measures aimed at improving the viability (competitiveness) of specific and currently operating industries. This would be likely to include activities to raise productivity at the plant level, through, for instance, reequipping the plant, altering machine-time and shift operations, enhancing skills, and even improving labor relations. Or it might embrace activities to improve product quality, adapt technologies, change packaging, streamline accountancy practices, or alter purchasing or final product stock practices. The second area would involve assistance in setting up new enterprises, perhaps even new industries. In contrast with the radical pro-industry approach, however, decisions to establish such industries would be informed by current price and market signals and (usually) by the need to produce products that could at least serve subregional markets. However they would also be guided by other factors, such as the need to save foreign exchange on importing final products, or the need to raise the value added of primary product exports and to reduce the cost of imported inputs to those sectors. The third area would involve support for industries that are unlikely, even in the medium term, to be competitive internationally, but that are judged to be crucial for long-term development, most likely (like a steel plant) because of their pivotal role in developing future industries.
A range of different forms of interventionism is envisaged in these different areas. These would include direct (mostly short-term) subsidies, a variety of forms of technical assistance, and subsidized loans and credit facilities. At the macrolevel, policies would be likely to include a slowdown in the pace of trade liberalization, and in the speed with which domestic industries are exposed to international competition in order that the more "sheltered" approach to adjustment be pursued. In some instances, quite high tariff levels might well be maintained for some time, and import bans continued; in other instances, for example where new industries are being developed, former policies of tariff reduction might be reversed, in line with orthodox infant-industry approaches. Additional interventionist measures would include a range of specific export incentives to stimulate the intended orientation of the sector to external markets, supplemented by the finance necessary to provide market intelligence and to help assess more medium to longer term comparative advantage.
Clearly, different types of interventionism proposed would incur different types of cost, and would set in train second round effects on what are already distorted markets. This brings us to the fourth area of intervention, which would consist of the establishment (and funding) of a facility to monitor the current viability and potential competitiveness of industry, and assess the impact, including the costs, of these different forms of interventionism. Clearly in different countries, the form of benign interventionism adopted will depend on the level of industrialization reached and the assessment of the future potential for further industrialization. The experience of Japan, the NICs, and other successful industrializers suggests that industry should be promoted and guided by means of a judicious balance of short-term price signals and interventionist policies aimed at striving to achieve longer term comparative advantage.
For such an approach to become a realistic alternative, it would clearly require both domestic and international support. Within Africa there are encouraging signs. There would appear to be sufficient overlap with strategies already on the table for support to be forthcoming: a policy that seeks deliberately to expand rather than lead to the contraction of the industrial base provides a far more politically attractive future than those peddled by the international institutions in the 1980s. What is more, there is little doubt that the Bank's policies for manufacturing industry in SSA have met with stiff resistance in a number of countries, therefore raising the important question of their feasibility. Thus in Nigeria, Kenya, Côte d'Ivoire, and Zimbabwe, opposition to manufacturing sector policies based on openness and liberalization have, in the past ten years, either significantly delayed or led to the watering down of such policies and proposals.
Of course, no approach to the further industrialization of countries in SSA is likely to work unless it also receives external stimulus and support. In particular for countries that still have a small and high-cost industrial base, there is considerable scope for foreign aid resources to supplement national efforts, in playing an important part in assisting the promotion, expansion, and restructuring of the manufacturing sector. Particular examples could include the following:
However if these resources are to be brought in from outside, it is equally important that they are used more to promote indigenous expertise at all levels, in both private sector enterprises and across the range of public sector institutions concerned with industrial policy and industrial promotion.
Conclusions
Today's environment provides little optimism that any policy to promote and accelerate the development of the manufacturing sector is going to be easy. In particular, most countries of the subregion are going to continue to be "hemmed in" by a range of factors that will dampen domestic demand, and thus limit the pace of industrial expansion and the scope for diversifying the manufacturing base. We have argued here that an approach to the manufacturing sector favoring benign intervention rather than neglect is likely to be more appropriate for helping to solve Africa's development problems. If such initiatives do occur, and especially if they are accompanied by new financial and technical assistance resources to the sector, the prospects will be enhanced for manufacturing to play a more prominent part in the development of a number of countries in SSA, thereby laying the base for a more diversified and sounder path of development than has characterized Africa over the past three decades.
We have been careful not to advocate a complete abandonment of structural adjustment-type initiatives. Not only would this ignore the contemporary political realities of African development, but also, given the distortions that affect many economies of the subregion, a series of adjustment measures clearly remain central to longer term development. We have instead suggested that they be adapted to particular circumstances, but within the context of more interventionist policies that seek to promote industrial growth and deepening. 37 The underlying assumption of the more orthodox structural adjustment package is that the forces of supply and demand, and the increasingly market-determined price regime, should increasingly determine the degree and pattern, and set the pace for change in the structure, of industrialization in the economy. On the basis of historical analysis of African industrial performance and the experience of the industrial process in other developing countries outside Africa, this perspective is rejected.
In the second half of the 1980s, structural adjustment policies increasingly took on a human face-and far more clearly needs to be done in this regard in the years ahead. The plea is that as the orthodoxy of structural adjustment approaches continues to change, it may also take on a new interventionist and industrial face.
Note 1: United Nations Industrial Development Organization (UNIDO), Industry and Development Global Report (Vienna: UNIDO, 1989), p. 20. Back.
Note 2: Although many publications use the terms "industry" and "manufacturing" interchangeably, this is confusing. According to the widely used United Nations Systems of National Accounts (SNA) series F. No. 2, revision 3, industry embraces extractive mining, construction, electricity, water and gas as well as the more narrowly focused sector, manufacturing. For the SSA region, the relative contributions of manufacturing and industry to GDP are very different, accounting respectively for 11% and 27% of GDP in 1989. World Bank, World Bank Development Report 1991 (Washington: World Bank, 1991), p. 209. Back.
Note 3: This is especially true if one sets aside commodity import programs viewed more as balance of payments support. Back.
Note 4: For a discussion of the performance and prospects of some of the leading new NICs see S. A. B. Page, Trade, Finance and Developing Countries: Strategies and Constraints in the 1990s (London: Barnes and Noble, 1990). Back.
Note 5: H. Chenery, S. Robinson and M. Syrquin, Industrialization and Growth: A Comparative Study (New York: Oxford University Press, 1986), pp. ix, 1. Back.
Note 6: Indeed, the 1980s were termed the "Industrial Decade for Africa," with agreement that the 1990s should be called "The Second Industrial Decade for Africa." See also the texts of the two key initiatives proposed by African leaders in the 1980s: The Lagos Plan of Action for the Economic Development of Africa, 1980-2000 and A Programme for the Industrial Development Decade for Africa, and reconfirmed, for instance, in the Economic Commission for Africa's July 1989 report African Alternative Framework to Structural Adjustment Programmes for Socio-Economic Recovery and Transformation. Back.
Note 7: This arose, in large measure, because of the method by which the final text was agreed, with considerable redrafting following from a range of meetings with scholars, politicians, and potential critics especially from within Africa. Back.
Note 8: See R. C. Riddell et al., Manufacturing Africa: Performance and Prospects of Seven Countries in Sub-Saharan Africa (London: James Currey, 1990) for an analysis of the development of manufacturing and future prospects of the sector in seven countries: Botswana, Cameroon, Côte d'Ivoire, Kenya, Nigeria, Zambia, and Zimbabwe. Criteria for country selection included the following: the absolute amount of manufacturing value added (MVA), the rate of growth of MVA and the MVA/GDP (gross domestic product) ratio. Back.
Note 9: A. F. Ewing, Industry in Africa (London: Oxford University Press, 1968), p. xiii. Back.
Note 10: A catch-all term by which is meant to convey a number of outcomes such as the closing down of enterprises and the contraction of particular industrial subsectors, a reduction in the importance of manufacturing in overall production resulting in both the need to allocate more foreign exchange to the purchase of imports that are no longer substituted and a reduction in the (albeit small) amounts of foreign exchange earned through manufactured exports. Back.
Note 11: Expanding manufactured exports is a constituent part of a strategy for the future growth and evolution of the manufacturing sector. It is not envisaged that manufacturing exports would replace primary product exports, at least not for some time: most countries in SSA are likely to continue to face foreign exchange shortages even if substantial manufacturing export expansion were to occur. Back.
Note 12: Because data may be inaccurate, and because different organizations use different groupings of countries to refer to the region "Sub-Saharan Africa," all discussion of quantitative data and trends in performance need to be treated with extreme caution. Back.
Note 13: World Bank, World Development Report 1988 (Washington: World Bank, 1988), pp. 236-237; World Bank, World Development Report 1991 (Washington: World Bank, 1991), pp. 214-215. Back.
Note 14: World Bank, World Bank Development Report 1986 (Washington: World Bank, 1986), pp. 184-185. Back.
Note 15: World Bank, World Bank Development Report 1988, pp. 248-249. Back.
Note 16: United Nations Conference on Trade and Development (UNCTAD), Handbook of International Trade and Development Statistics (supplement) (New York: United Nations, 1983); United Nations Conference on Trade and Development (UNCTAD), Handbook of International Trade and Development Statistics (supplement) (New York: United Nations, 1987). Back.
Note 17: See, for instance, H.B. Chenery, "Patterns of Industrial growth," American Economic Review 50, (September 1960); S. R. Lewis, Economic Policy and Industrial Growth in Pakistan (London: Allen and Unwin, 1971); Chenery et al., Industrialization. Back.
Note 18: The approach to sources of growth analysis differs marginally from country to country. For Botswana and Kenya see J. Sharpley, S. Lewis and C. Harvey, "Botswana," in R. C. Riddell et al., Manufacturing Africa ; J. Sharpley and S. Lewis, "Kenya: The Manufacturing Sector to the mid-1980s," in R. C. Riddell et al., Manufacturing Africa). Oi was the value of output of industry i, Mi the value of imports of the same industrial classification, Zi the value of total domestic supply (Zi=Oi1+Mi), and Xi the value of exports from industry i; then by subtraction Di (=Zi-Xi) is domestic demand for goods of the i'th industry; ui can be defined as the ratio of domestic production to total supply. All the values are at domestic market prices. The change in output (ĈO) for any industry between year 1 and year 2 can then be partitioned as follows:
O = u1 (D2 - D1) + u1 (X2 - X1) + (u2 - u1)Z2
O = O1 x DD/(O + M)1 + O1 x X/(O + M)1 + { O2/(O + M)2 - O1//O + M1} Note 19: The time periods for these figures are as follows: Botswana: 1973-74 to 1982-83; Kenya: 1970 to 1984; Nigeria:1963 to 1983; Zimbabwe: 1964-65 to 1982-83. Back.
Note 20: In the case of both Côte d'Ivoire and Zambia, however, it is apparent that import substitution was an important source of growth in the 1960s with, in the case of Zambia, import substitution exceeding domestic demand in the respective ratios of 55% and 44%. Back.
Note 21: Botswana would provide an exception here especially in the post-1980 period, where mining development has been a significant "motor" of development while in Zambia the importance of agriculture has been continually eclipsed by the vagaries of the copper mining industry. Back.
Note 22: Apparent consumption is the term used to describe domestic production plus imports less exports. A closely related ratio--production as a percentage of apparent consumption (P/AC)--indicates the degree to which consumption of manufactured products is derived from domestic production as opposed to the importation of the products domestically consumed. Thus a P/AC score of 100 suggests that domestic consumption is the result entirely of domestic production and a score of 0 that domestic consumption occurs completely as a result of importing. A score in excess of 100 shows that the country is an exporter as more of the product in question is being produced than being consumed. Back.
Note 23: Data on fertilizer consumption and imports available from studies carried out by the Food and Agriculture Organization (FAO) of the UN show that in the years 1980 to 1985, SSA imported some 88% of its total fertilizer requirements, totaling 910,700 tons of nutrients, rising from 82% at the start of the period to an astounding 93% by 1985, most of which were obtained from the OECD countries and from Eastern Europe. Food and Agriculture Organization of the United Nations (FAO), Supplement to the Report of the Feasibility Study on Expanding the Provision of Agricultural Inputs as Aid-in-Kind, C.87/20-Sup. 1. September (Rome: FAO, 1987). Back.
Note 24: Sharpley et al., "Botswana." Back.
Note 25: The rise in manufactured exports from Mauritius has been a relatively recent phenomenon, and even by 1983 manufactured exports from Côte d'Ivoire, Kenya and Zimbabwe still exceeded those from Mauritius.z Back.
Note 26: UNCTAD, Handbook (1987) trade data reveal that for developing Africa as a whole, 47% of manufacturing exports went to other African countries in 1970, but the share dropped to 24% by 1984. As Zehander, "Regional Cooperation in Perspective: Some Experiences in Sub-Saharan Africa," The Courier, 112 (November-December 1988): 57, comments in this context: "The relative export success of countries like Côte d'Ivoire, Cameroon, Kenya, Nigeria and Zimbabwe in their respective regions has less to do with the regional 'economic community' machinery (which at best has a strengthening role) than with the historical structure of their industrial sectors." Back.
Note 27: Such as measure of effective protection and the domestic resource cost. Back.
Note 28: For details of the Zimbabwe experience see R.C. Riddell, "Zimbabwe," in R. C. Riddell et al., Manufacturing Africa and R. C. Riddell, ACP Export Diversification: The Case of Zimbabwe, Working Paper No. 38 (London: Overseas Development Institute, 1990). Back.
Note 29: In Zimbabwe, Central African Cables (CAFCA) could be considered an example of a manufacturing company that in the 1980s changed from being domestically to export-oriented. It expanded exports fourfold to over $4.5 million from 1986 to 1988 and was expecting to raise the value by a further 16 percent in 1989; 35% of production was geared to export market in 1988. The company attributes its successes to a massive investment program, management commitment to exporting, and a sustained export drive among others. While almost all exports are to the regional market these markets have been secured both by overcoming South African and overseas competition. Back.
Note 30: These are discussed in the next section. Back.
Note 31: As C.D. Jebuni, J. Love and D.J.C. Forsyth, "Market Structure and LDCs' Manufactured Export Performance," World Development 16, 12 (December 1988): 1518, comment: "Where market power is positively related to export performance, policy emphasis on eliminating monopolistic elements or creating small competitive establishments to promote exports of manufactured goods may be misplaced. Measures to restrict the development of large firms in favor of small competing firms may be counterproductive. The simultaneous positive influence on export performance of economies of scale suggests that export success may depend on having a concentrated domestic market structure which allows companies to enjoy scale economies domestically and thereby to achieve unit costs at which companies can compete abroad." Back.
Note 32: See, for instance, S. Caulkin, The New Manufacturing: Minimal IT for Maximum Profit, Economist Special Report (London: Economist Publications and Computer Weekly, 1989); and United Nations Industrial Development Organization (UNIDO), New Technologies and Industrialization Prospects for Developing Countries, Main Policy Issues, Issue Paper Prepared for Expert Group on Prospects for Industrialization Policies in Developing Countries Taking into Account the Impact of Developments in the Field of New and High Technologies (Vienna: UNIDO, April 1989). Back.
Note 33: In its 1990 Annual Report, the IFC makes similar comments about the negative effects of structural adjustment policies for investment in the short term, as well as the hoped-for revival in the longer term. Back.
Note 34: W. Lütkenhorst, "Challenges from New Trends in Foreign Direct Investment," InterEconomics (September/October 1988). Back.
Note 35: Some of the points raised here are derived from L. Cockcroft and R. C. Riddell, Foreign Investment in Sub-Saharan Africa, Working Paper WPS, No. 619 (Washington: World Bank, March 1991). Back.
Note 36: B. Grosh, "Public, Quasi-Public and Private Manufacturing Firms in Kenya: The Surprising Case of a Cliché Gone Astray," Development Policy Review 8, 1 (1990). Back.
Note 37: The details are spelled out in the previous section. Back.
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