Thursday, October 15, 2015

Fabrice L. Lohadie — Why Industrial Policy is not a solution for Africa’s problem

Since the early 2000s, sub-saharan African countries have experienced modest economic growth thanks to China’s growing appetite for commodities, macroeconomic stability, and strengthening political institutions. This growth has led many Western media outlets such as the Economist to get cheery about the continent’s economic prospects. In his recent post for the blog africascountry, Zambian PhD candidate in economics, Grieve Chelwa, argues for industrial policy–government-led promotion of industry– in order for the continent to truly rise. He sums up his argument thus:
Africa was more industrialized in the 1970s, at a time when the business climate was likely no different from what it is today. In my opinion, the Structural Adjustment Policies (SAPs) that were administered beginning in the early 1980s are largely responsible for halting the pace of industrialization on the continent. With SAPs, Africans were told by their betters to stop supporting industry because doing so was “wasteful”. Subsidies to industry were reduced. Protective trade barriers were removed. Planning for industry was done away with. All this advice was dispensed in spite of the fact that today’s developed countries industrialized behind a veil of considerable state support. For instance, the historian Sven Beckert points out that Britain’s cloth manufacturing industry, which was largely responsible for the Industrial Revolution, was shielded from competition from India for most of the 18thCentury. The Cambridge economist Ha-Joon Chang has called this phenomenon of rich countries forcing policies on poor countries that they themselves did not implement during their time of take-off as “kicking away the ladder”.   
The manufacturing sector has long been viewed as the main economic engine for industrialization. Unlike the primary sector, it provides well-paying jobs, skills transfers (positive spill-overs) and leads to economic development, as was the case in the West, Asian Tiger economies, and today’s China. At the heart of this economic transformation debate is the extent of government’s role. Some argue that good (inclusive) institutions create a climate that promotes innovation and leads to economic ascension. Others, including Chelwa, argue that an activist government plays an important role by fostering industrialization. 

Read the full article HERE.