Working Paper 128 - China’s Manufacturing and Industrialization in Africa
AbstractThe objective of this paper is to examine the state of industrialization in Africa and to discuss the interactions between China’s growth and African development. African nations are linked to China through that country’s importance in determining the prices of raw materials, China’s demand for Africa’s raw materials exports, substantial investments in Africa, and exports of low-cost investment and consumer goods. China and other Asian economies have achieved spectacular growth rates through opening up markets to facilitate sensible price signals, and operating trade and exchange rate policies that favour exports over imports in at least the initial stages. They have sought sound incentives framework for investment, and developing large-scale physical infrastructure. These policies have fostered dynamic gains from increased production and export of manufactures. In Africa, by contrast, the acceleration of growth from 2001 until the global recession was based on higher primary commodity prices, while diversification into manufactures production has been limited. Why has Africa failed to emulate the rapid growth of Asian economies, supported by spectacular increases in manufactured exports?� One problem is that Africa’s economic policies, governance, and institutions have been far weaker than in many of the successful Asian economies.� Moreover, Africa’s abundance of natural resources has starved manufacturing sectors of resources, while resource-rich economies (not only in Africa) have generally failed to achieve rapid growth, in part because of weak linkages between the natural resource sector and abundant unskilled labour, and in part because government control of natural resources has encouraged rent-seeking activities rather than productive investment.� Africa’s limited diversification poses grave threats to development, owing to the volatility of primary commodity prices and the failure to reap the potential gains from economies of scale and productivity advances available in manufactures. Africa needs to strengthen ‘the policy umbrella’ through more stable macroeconomic policies, more dependable provision of government services, and expanded infrastructure investments, including support for regional trade (e.g. improved roads and border post management).� Regional and multilateral negotiations should address ‘tariff escalation’, whereby imports of processed goods incur higher tariffs than imports of primary commodities, and should improve the value of tariff preferences by eliminating onerous and unworkable rules of origin.� Dedicated geographic zones with less restrictive rules facing investment could support manufactured exports, although the extent to which such zones will further African development is uncertain. Finally, linkages need to be established between tariff and trade policies on the one side, and industrial policies on the other.� In some cases (South Africa is the outstanding example), a combination of earlier unilateral liberalization and bilateral, regional and multilateral agreements have limited the policy space to nurture industrial development.
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Bibliographic InfoPaper provided by African Development Bank in its series Working Paper Series with number 294.
Date of creation: 23 Jun 2011
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