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INDUSTRIAL POLICY FOR STRUCTURAL TRANSFORMATION OF AFRICAN ECONOMIES DISCUSSANT’S NOTES:

Joint ECA/AUC/UNIDO Expert Group Meeting: Implementation of the Plan of Action of AIDA Addis Ababa, Ethiopia, 4-7 October 2010. INDUSTRIAL POLICY FOR STRUCTURAL TRANSFORMATION OF AFRICAN ECONOMIES DISCUSSANT’S NOTES: DR. MBUI WAGACHA (KENYA). SUMMARY COMMENTS.

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INDUSTRIAL POLICY FOR STRUCTURAL TRANSFORMATION OF AFRICAN ECONOMIES DISCUSSANT’S NOTES:

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  1. Joint ECA/AUC/UNIDO Expert Group Meeting: Implementation of the Plan of Action of AIDAAddis Ababa, Ethiopia, 4-7 October 2010 INDUSTRIAL POLICY FOR STRUCTURAL TRANSFORMATION OF AFRICAN ECONOMIES DISCUSSANT’S NOTES: DR. MBUI WAGACHA (KENYA)

  2. SUMMARY COMMENTS • 40-50 YEARS OF FALSE STARTS- AS DOORS CLOSE TO PAST POLICY APPROACHES SUCH AS OF NIC • WEAKNESS OF AFRICA’S INDUSTRY & MANF’ • RESTARTING INDUSTRIALIZATION POLICY: • The new country taxonomy • Options- identifying the optimal and targeted industrial policy mix- a new framework of comparative advantage among African countries?

  3. 1. FALSE STARTS • AFRICA MISLED WITH TECH . ADVISE OF SAPS AND TRADE LIBERALIZATION FOR 40-50 YEARS WHILE NIC’s INDUSTIALISED WITH TARGETED INTERVENTIONS • LESSON: There is no question that it makes a big difference whether Africa promotes exports of primary commodities or manufactured goods. NICs recognized that economic incentives were crucial to development success. That in development, the “right” prices are NOT always the current international market prices.

  4. FALSE STARTS (contd.) • IN CONTRAST TO NICs, SAPS, IMF LOANS, BRADY PLAN, ETC, ALL CONDITIONED AID TO AFRICA ON TRADE LIBERALISATION AND COMPARATIVE ADV. IN PRIMARY COMMODITIES. • INDUSTIAL POLICY TOOLS AFRICA MISSED WHILE FOLLOWING TRADE LIBERALISATION & COMPARATIVE ADVANTAGE: 1. Periodic devaluationseffective exchange rates (EER) favorable for exporters relative to importers = pro-export bias 2. Preferential access to imports needed for producing exports 3. Tariff exemptions on inputs of capital goods needed in exporting activities. 4. Tax breaksfor domestic suppliers of inputs to exporting firms, which constitutes a domestic content incentive. 5. Domestic indirect tax exemptionsfor successful exporters. 6. Lower direct taxon income earned from exports, 7. Accelerated depreciation allowancesfor exporters. 8. Import entitlement certificates for exporters(exemptions from import restrictions)

  5. FALSE STARTS (contd.) 9. Monopoly rightsfor first firm to achieve exports in a targeted industry 10. Subsidized interest ratesfor exporters. 11. Preferential credit accessfor exporters, I2. Reduced public utility taxes and rail ratesfor exporters. 13. A system of export credit insurance and guarantees, 14. Free trade zones, industrial parks, ana’ tzxport-oriented infrastructure 15. Public enterprises created to lead establishment of new industries- For example, public enterprises produced the first Korean output of ships and refined petroleum products and petrochemicals 16. Export sector promotion THIS LIST SHOULD DISPEL THE MYTH THAT NICS SUCCEEDED BY TRADE LIBERALIZATION OR “ALLOWING THE FREE MARKET TO WORK ” Furthermore, Development institutions initiated research into effective government strategies for promoting industrial development that could avoid the pitfalls of either excessive import protection or pure trade liberalization.

  6. 2. WEAKNESS OF INDUSTRY & MFNG. • PRIMARY PRODUCTS now account for nearly three-quarters of total exports • RESOURCE-BASED MANUFACTURED GOODS account for 12–15 per cent • INTRA-AFRICAN TRADE IS CHARACTERIZED BY A MORE BALANCED COMPOSITION. At the same time, Africa is increasingly importing manufactures from non-African developing countries

  7. 3. RESTARTING INDUSTRIALIZATION THE NEW COUNTRY TAXONOMY • Endowments (resource-rich vs. resource-poor countries) • Geographical location(landlocked vs. coastal countries) • Population level(large vs. small) • Education level of the population(high vs. low)

  8. RESTARTING (Contd.) • OPTIONS: HOW WELL DO THEY FIT? • DISCUSSION RECALLS DEBATE ON ECONOMIC GROWTH FROM MALTHUS TO ROBERT SOLOW OF MIT TO ROMER OF STANFORD- THE ROLE OF PRODUCTIVITY GROWTH IN SECTORS AND OVERALL GROWTH NOW RECOGNIZED- WITH TECH. CHANGING THE GROWTH OF POTENTIAL GDP, NOT JUST FLUCTUATIONS AROUND THE POTENTIAL. • WE SHOULD EMPHASIZE INDUSTRY & MFNG. BECAUSE IT HAS GREATER POTENTIAL FOR RAISING TECHNOLOGICAL CAPABILITIES AND INCREASING TOTAL FACTOR PRODUCTIVITY , A KEY IN NEW GROWTH THEORY • WE SHOULD EMPHASIZE GOVT’-PRIVATE SECTOR-RESEARCH INSTITUTIONS’ ROLE IN DEVELOPING INDUSTRIAL STRATEGY

  9. RESTARTING (Contd.) • TYPOLOGY & CATEGORIES OF THIS PAPER ARE EASILY CONTRADICTED= LACK OF FIT: E.G. LANDLOCKED LESOTHO AND BOTSWANA ARE BOTH LEADERS IN INDUSTRIALISATION AND POLICY INTEVENTIONS; YET THEY HAVE NOT GOT THERE BY FOLLOWING THE POLICY PRESCRIPTIONS IN THIS FRAMEWORK. (E.g. for BOTSWANA- use “… a full set of industrial policies …implemented using the resources coming from the natural resource sector (diamonds???)…” or for LESOTHO- “….prioritize the agriculture sector …” See. Pp. 48 of paper. • RECOGNIZE DYNAMIC OF SECTOR SHARES IN GDP- SERVICES –ESP ICT-HAVE GROWN DRAMATICALLY. • USE ICT OPPORTUNITIES.

  10. RESTARTING (Contd.) • IMPORTANT TO CREATE A RESEARCH AGENDA IN SEARCH OF INDUSTRIAL POLICY STRATEGY- PERHAPS START AN AFRICA-WIDE PRODUCTIVITY INSTIITUTE LINKING GROWTH & DEVELOPMENT

  11. THANK YOU FOR YOUR ATTENTION

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