Africa: The path to industrialization and wealth creation

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Seoul South Korea. Photo-Flickr. From $103 per head income in 1963 to $7,435 by 1993 and $25, 458 by 2016.

There is a general recognition that to end backwardness and poverty and become developed, prosperous, secure and powerful, a country’s economy must be industrialized (Gerald M. Meir and Dudley Seers 1984).

In one of his policy statements about the development of Singapore, then Prime Minister Lee Kuan Yew stressed industrialization as a critical factor (Steven Schlossstein 1989). The four Little Dragons of Hong Kong, Singapore, South Korea and Taiwan have developed very fast in large part because of export-oriented industrialization. African countries which have attempted to industrialize since independence have not been successful. In fact the continent is de-industrializing particularly in Sub-Saharan Africa.

“Deindustrialization not only limits African economies’ potential for strong productivity and economic growth, but it also has a more immediate effect on its populations – a lack of formal employment opportunities, particularly of low skilled workers. The manufacturing sector, in particular, employs a resource that poor households have in abundance - labor. While Asian developing countries were able to absorb growing numbers into a booming manufacturing sector, Africa has failed to do so. As a result, unemployment and underemployment are widespread, and low productivity activities in the informal sector are the predominant sources of income for much of the population in many countries” (Jomo Kwame Sundaram etal., 2013).

In a 2013 report submitted by the heads of African Union and United Nations Economic Commission for Africa sub-titled “Industrialization for Growth, Jobs and Economic Transformation” it is stated “This report argues that the deindustrialization of many African economies over the last three decades, resulting in their increasing marginalization in the global economy, was mainly the result of inadequate policies”.

These inadequate policies have included the failed import substitution industrialization that was constrained by balance- of- payments difficulties and a small domestic market (Colin Legum et al., 1979). Others have argued that it is not inadequate policies per se, but a deliberate effort to extend "… the colonial pattern of integration in the world capitalist system” (Adebayo Adedeji et al., 1991). Consequently, African countries have continued to produce and export cheap foodstuffs and raw agricultural and mineral materials in exchange for expensive manufactured products from industrialized countries. Furthermore, “Structural adjustment and stabilization in Africa have also weakened the manufacturing sector. … With the Washington Consensus presumption that import substitution must be bad, there was little attempt to consider how such industries might be the bases for new export initiatives. Presuming that African import substituting industries had been protected for far too long and would never become viable, let alone internationally competitive despite considerable evidence to the contrary from Northeast Asia, the policy preference was simply to abandon existing industrial capacity, precipitating deindustrialization (UNIDO 1999)”(Jomo kwae Sundaram et al., 2013).

During the UN sponsored negotiations for the 2030 Agenda for Sustainable Development, African delegations presented a Common African Position (CAP) with six pillars. Part c of Pillar One sub-titled “Diversification, industrialization and value addition” underscores in part the need to “Promote processing of primary commodities by developing national value chains across sectors and designing and enforcing content and beneficiation policies in the extractive and primary commodity producing sectors of the economy”. Goal 9 of the 2030 Agenda is to “Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation”.

To implement this goal, each African country should design a manufacturing strategy based on its specific conditions. Before designing country specific industrial strategies, African policy makers and their partners need to draw lessons from countries that are already industrialized. These countries followed a common path characterized by activist leadership, protection of infant industries and export markets for surplus manufactured products and sources of raw materials. The purpose of this article is to highlight these three characteristics with reference to France, England, United States and South Korea. Activist leadership played a crucial role in the industrialization of these four countries.

In France, at the start of the reign of Louis XIV in 1643, the economy was weak. In 1665, the king appointed Jean-Baptiste Colbert as minister of finance to turn the economy around. For the next 20 years the minister worked tirelessly especially on the manufacturing sector. He imported experts to train French workers in the skills needed or undertake manufacturing activities. By 1683, France had become the industrial leader of Europe (Larry S. Krieger et al., 1992). "Contrary to the popular myth, Britain was an aggressive user, and in certain areas a pioneer, of activist policies intended to promote its industries”. Such policies date back to the 14th and 15th centuries during the reign of Edward III and Henry VII respectively.

During that period, England was an exporter of raw wool to the Low Countries. Henry VII tried to change that structure by imposing a tax on raw wool exports and encouraging its processing in England by “poaching skilled workers from the Low countries”. British government intervention in industrialization was stepped up in 1721 when Robert Walpole Britain’s first prime minister launched an ambitious industrial program. It provided tariff protection and subsidies. By the 1770s Britain was ahead of other industrial countries (Monthly Review January 2003 and Ha-Joon Chang 2014).

In the United States, there was debate about the development path the newly independent country should take. Alexander Hamilton, the first Treasury Secretary under George Washington believed strongly that for America to develop, prosper and become strong and compete with Britain and France, it needed to promote the industrialization of her economy. Thus, during Washington’s first term, Hamilton produced in 1791 and presented to Congress a “Report on Manufactures”. In it he argued that America should deliberately encourage industries (James Fallows 1995 and Ha-Joon Chang 2014). During the 1950s, South Korea was described as “the poorest, most impossible country on this planet” (Daniel Tudor 2012).

And the incompetence of or lack of interest by President Syngman Rhee was blamed for this state of economic and social affairs. This shortcoming together with his repressive style of governance resulted in student protests that drove him out of power into exile in Hawaii in 1960 (Daniel Tudor 2012) . In 1961, General Park Chung-Hee seized power and immediately began a process of economic transformation based on export-led industrialization. Park wanted to legitimize his rule, make South Korea secure and improve the lives of common people suffering from poverty (Ezra F. Vogel 1991).

South Korea’s per capita income rose from $103 in 1963 to $7,435 by 1993, $10,000 by 1995, and $25, 458 by 2016. The growth rate jumped from an average of 3.4 percent per annum between 1954 and 1962 to over 10 percent since 1965. At the end of 1996 South Korea joined the Organization for Economic Cooperation and Development (OECD), a club of industrialized countries (Adrian Leftwich 1996 and Ian Marsh et al., 1999).

The protection of infant industries was another factor that propelled the above-mentioned countries into the developed category. Adam Smith supported the protection of infant industries until they were able to compete. John Stuart Mill also lent his support to the idea as a temporary measure (Michael Goodwin 2012 and Robert A. Isaak 2005). All the countries – Britain, France, South Korea and USA – protected their infant industries through various instruments including tariffs and subsidies. In France, infant industries were protected through the imposition of high tariffs or import tax on products coming into France. The tariffs also earned the government revenue some of which subsidized the young industries.

Tax benefits were also extended to French manufacturers (Larry S. Krieger et al., 1992). Regarding Indian textile exports to Britain between 1815-1832, “prohibitive duties ranging from 10 to 20, 30, 50, 100 and 1000% were levied on articles from India”…. “Had this not been the case”, wrote Horace Wilson, “the mills of Paisley and Manchester would have been stopped in their outset, and could scarcely have been again set in motion, even by the power of steam. They were created by the sacrifice of Indian manufacturers” (Frederic F. Clairmont 1996). Beginning in the 17th century, England sought to prevent the production and export of manufactured goods from the colonies that might compete with domestic industries through various instruments such as the Navigation Acts and taxes. For example, the 1699 Woolens Act destroyed the Irish woolen industry and prevented the emergence of one in the United States (Michael Lind 2013). In independent United States, Alexander Hamilton argued that “the government of an economically backward nation, such as the US, needs to protect and nurture ‘industries in their infancy’ against superior competitors until they grow up” through tariffs, subsidies, public investments in infrastructure and patent laws to encourage inventions and develop a banking system (Ha-Joon Chang 2014) similar to what Colbert did in France (Larry S Krieger et al., 1992).

As noted above, South Korea’s crippled economy recovered quickly since the 1960s largely through the rapid growth of the manufacturing sector which benefited from “tight economic controls" and this included "protection against imports)”(Nigel Harris 1986). As protected industries increased production two problems emerged: markets for surplus manufactured products and industrial raw materials. Colbert addressed the problem by underscoring “the importance of colonies. They provided a source of raw materials for French industry and a market for finished goods. The government encouraged people to migrate to Canada, where the fur trade added to French commerce and brought more wealth to France” (Larry S. Krieger et al., 1992).

As in France, Britain faced the problem of surplus manufactured products and industrial raw materials. Accordingly, “… British manufacturers sold finished products to a captive market of consumers in the American colonies, Ireland, and India, which in return exported raw materials and food to the British Isles” (Michael Lind 2013). South Korea embarked on export-led industrialization using her cheap labor in part because it did not have natural resources to export. The government was also concerned that as America began pulling out, the country would have to export industrial products to earn foreign currency. In this industrialization effort, the United States and the World Bank “played an active role in devising an export-oriented strategy for industrialization”. The timing was also important because in the 1960s and early 1970s the world economy was growing, money was easy to borrow at low interest rates and there were fewer trade barriers to markets in industrialized countries and little competition from other labor-rich developing countries (Ezra F. Vogel and Frederic C. Deyo 1987).

To solve the problems of surplus manufactured products and raw materials comparative advantage came into full force whereby colonies produced and exported cheap foodstuffs and raw materials in exchange for expensive manufactured products. The manufacturing industries that existed in the colonies were destroyed and the emergence of new ones prevented, explaining in part why import substitution industrialization was abandoned in Africa and the continent is de-industrializing. The African countries that have once again embarked on the industrialization of their economies should draw lessons from the industrialized countries and make adjustments as appropriate. Adopting resolutions like the New International Economic Order (NIEO), the 2030 Agenda for Sustainable Development; creating institutions like the United Nations Conference on Trade and Development (UNCTAD) and the Group of 77 and China; and signing cooperation conventions like the Lome Conventions and the Cotonou Agreement are necessary but not sufficient to bring about industrialization of African economies.

Overall, “The true story of development shows that before their industries were strong enough to compete, neither Britain nor the US were ever the homes of free trade; that no country succeeded only through protectionism and subsidies; … that for so-called ‘developing’ countries free trade has rarely been a matter of choice without coercion; that opening up economies selectively and gradually tends to be the most prudent and effective approach…” (Oscar Guardiola-Rivera 2010). International economist Eric Kashambuzi is a commentator on global politics and economics.

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