As the nations of East Africa have united in the pursuit of regional development, we have come to realise that there is a need to industrialise; we cannot develop while bypassing the primary industry phase.
Africa has experienced a net fall in industrial output over the last 10 years according to IMF sources; the privatisation of public industries, heavy competition and the China phenomenon has reduced industrial output.
Even looking anecdotally, one can see a nation like Kenya imports things it used to manufacture not long ago; the market forces of the global economy are such that they cannot compete with the efficiency of its Asian counterparts. When we look at the state of industry in our region we need to address the fundamentals.
We still produce low-value added goods that we do not consume ourselves; our new found mineral wealth should be used to power our own industrial revolution.
Firstly logistics and communication should be addressed in order to reduce transport costs and energy consumption.
When we achieve that we have to focus on base industries such as metals like steel, aluminum, as well as chemicals and plastics; these give way to other manufacturing methods.
There are only a handful of smelters in the whole of Africa, and few we have are mostly in South Africa, Nigeria, Zambia, Ghana, Mozambique; so we have an African market that is not connected.
Import substitution industrialization was popular in the post colonial period but has since been mostly abandoned as an economic policy; firstly the projects cost too much, these projects were funded by high interest loans, the products produced by these industries were not appropriate for the local market as well as being overpriced.
However, it would be wrong to dismiss import-substitution as an economic policy; if done in a coordinated way it can stimulate local industrialisation.
The nations that carried out import-substitution in the 50’s to 60’s are the emerging global powers of today; such as China, Brazil, South Africa, Mexico as well as the tiger economies.
The reason why import-substitution worked there was that the export market was the primary objective of the policies, but the internal market was also an important driver in the success.
Africa was left with many “white elephants” which were a monument to poor planning; such as Mobutu’s smelter that barely produced a fraction of its capacity.
We should attempt to reindustrialize as a region, but learning from the mistakes of the past; we should encourage and subsidies emerging primary industries such as mining, metal processing, chemicals, food processing.
The downside of import-substitution is that nations often put up high tariffs to give an unfair advantage to the local industry; if we could find a way to keep them competitive but without tariffs or subsidies, then it could work.
We cannot avoid the process of industrialization; it is the only way to provide mass-employment and add value to goods. Maybe we can start import-substitution on a small scale; for example, why do we import biscuits from China or India?
We can make them here for a fraction of the cost. Import-substitution can be success if there are a number of key changes; first a currency must be devalued to encourage exports, our relatively strong currency punishes manufacturers but favours importers.
Foreign investment must be encouraged; import-substitution was see as a way to maintain ownership and control of vital industries but Brazil encouraged import-substitution as well as foreign investment and is reaping the rewards.
Government funding, private local capital and foreign investment are the three pillars of good import-substitution, there must be a 33.3 percent equal share for success.
Industrialization follows a three step process of; infrastructure and heavy industry, then consumer goods such as plastics and processed foods, then finally durable goods such as cars, electronics and machinery.
China shows us that a nation can industrialize quickly, provided there is collective will to do so; right now in East Africa we import 2 million cars a year, we are a market of 120 million and this is enough market for a car industry. We should use the high tariffs on motor vehicles to build towards our own car industry.
We have the most valuable commodity in the market; our cheap labour and we ought to be able to entice investment provided it is for our market and coordinated regionally.