Policies Targeting Integration into Global Value Chains Key to Harnessing the Potential of Industrialization in Africa
WASHINGTON — As the world continues to be reshaped by emerging trends in technology, international trade and investment, and the COVID-19 pandemic, Sub-Saharan African countries must urgently seize opportunities to better integrate into global value chains, promote value-added manufacturing, and invest more in high-skilled tasks to harness the potential of industrialization that can boost inclusive growth, urges a new World Bank Group book.
The Industrialization in Sub-Saharan Africa: Seizing Opportunities in Global Value Chains book, which assesses the prospects for industrialization in Sub-Saharan Africa (SSA) and the role of policy in enabling a successful industrial development, highlights that although the region experienced an increase in manufacturing employment, from a total of 8.6 million in 1990 to 21.3 million in 2018, the share of manufacturing value-added has not improved. While African countries have made progress to integrate into global manufacturing value chains, this progress has been dominated by exports of primary products and engagement in low-skill tasks.
With population growth continuing to outpace economic growth on the continent, industrialization is essential to promoting rapid job creation that SSA desperately needs. However, the book underscores that the prospects for industrialization differ across countries in SSA depending on resource endowments and initial policy configurations, and thus must be assessed in specific countries in the context of emerging technologies, the evolution of regional and global value chains, and the implications of regional trade agreements for these developments.
“While the fragmentation of manufacturing activities across countries has created opportunities to industrialize, building the capacity to participate in and upgrade manufacturing global value chains will be key. This will require countries to develop an appropriate industrial policy package designed to exploit current comparative advantages while incentivizing competition and innovation in high-skill and high-value-added industries,” said Albert Zeufack, World Bank Chief Economist for Africa and co-author of the book.
The book outlines several ways in which countries can enhance their policies to further this agenda which include: facilitating the establishment of new firms and monitoring growth of young firms, strengthening participation in manufacturing global value chains through increasing value-added in exports, addressing severe misallocations within and across firms and industries, promoting innovation to drive robust productivity growth needed to counter rising wages, and incentivizing firms to sustain jobs growth.
Countries must also leverage the African Continental Free Trade Agreement and other trade agreements to strengthen regional value chains, expand access to external markets, and enhance the gains from GVC integration.
Finally, industrial policy packages should be accompanied by investments in enabling sectors such as digital infrastructure and energy, as well as specific skills-development programs that incorporate the adoption of emerging technologies – all of which combined can produce the much-needed catalyst to productivity growth that is essential to job creation in SSA.