1 Industrial Policies and Structural Change - Strategies for Development in Africa and a Research Agenda YAW ANSU (African Center for Economic Transformation—ACET)

Industrial policy in the African context 2  This presentation will:  Provide ACET’s definition of Economic Transformation  Discuss ACET’s research to measure and track economic transformation  Present data showing the lack of economic transformation over the 40-year period from 1970 to 2010 in SSA  Provide a clear statement of our understanding of what Industrial Policy is—i.e. “market-supporting industrial policy”  Use the definition to provide a framework for assessing “market- supporting industrial policy” and  Show examples of use of the framework

What is economic transformation? 3  For ACET, Economic transformation means rapid economic growth accompanied by diversification and technological upgrading of production and exports, growing international competitiveness and rising employment rates leading to shared prosperity.

Measuring and tracking economic transformation 4 In line of our definition of economic transformation, we use the following as indicators:  Production  Diversity (share of manufacturing in GDP)  Technology (Lall decomposition of manufacturing value-added  Productivity (MVA per wage bill – i.e. per worker productivity divided by the average wage; cereal yield per hector  Exports  Diversity (share of top 5 exports; share of manufacturing and services exports in total exports)  Technology (Lall decomposition of commodity exports)  Competitiveness (EXPYl country export growth divided by world export growth)  Investment and savings  Gross fixed Capital formation, adjusted by domestic savings effort  Human Impact  Poverty (US $ 1.25 per day measure)  Employment (% formal)  Health (Maternal Mortality)

ACET 15 Countries 5  Ethiopia  Kenya  Uganda  Tanzania  Rwanda  Senegal  Burkina Faso  Ghana  Nigeria  Zambia  Botswana  South Africa  Mozambique  Mauritius  Cameroon Shares in SSA in 2010 (%) Population = 70 GDP = 76 MVA = 85 AVA = 65 Exports (G & S) = 80

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The African Transformation Index 15  What is it? A composite index of the indicators to compare countries over time and among each other, starting from the ACET – 15

What drives transformation? 16  State capacity for economic management  Business environment for private sector, including state-private sector collaboration  Infrastructure  Finance and domestic resource mobilization  Educations and skills  Technology upgrading policies  Proactive export promotion strategies  Foreign direct investment (FDI) policies  Labor and employment policies,  Targeted sector strategies, including for modernization of agriculture and promotion of manufacturing and high-value services.

What is industrial policy (IP)? 17 It’s controversial  1960s to early 1980s in SSA  Socialist-inspired, state-led development strategy o Import substitution and industrialization o Anti private sector  Failed--failure of state-led development strategy or of IP?  1980s to 2000s  Replaced state-led strategy with Bretton-Woods reforms o Pro-market, anti state involvement  Failed to change structure of economies--failure of pro-market strategy or of IP?

What is industrial policy (IP)? 18  Policies pursued by government to promote the expansion or upgrading of production, or to boost competitiveness of exports or import-substitution of a targeted set of products or services. o Policies that aim to improve the general economic environment, while desirable, are not by themselves, in our view, sufficient to constitute the existence on an Industrial Policy regime. o The definition is not restricted to industrial products; a set of policies aimed at expanding or upgrading production or exports of targeted agricultural products or service activities also qualifies as IP.

Market-Supporting industrial Policy: State-enabled, but private-sector driven 19  Elements: Medium or Long-term Transformation strategy or plan A set of targeted activities nested in transformation plan A condusive business environment for private sector (macro, exchange rate and trade, regulations, public goods— infrastructure) Strategic partnership between the state and the private sector (plan formulation, targeting of activities, and implementation) Support instruments for targeted activities Performance control of targeted activities and associated support instruments State capacity; at least “centers of excellence” for transformation drive

The Africa experience 20  No Sub-Saharan Africa (except Mauritius and possibly South Africa) has ever practiced IP (in the sense outlined here)  Nevertheless framework can be used along 2 dimensions : 1.Country approximations: Evaluate current/recent plans, policies and institutions with respect to the above framework to judge the extent to which a country is moving towards an IP regime—i.e. country IP regimes 1.Sub-Sector approximations : Evaluate developments in particular economic sub-sectors or products to judge, with respect to the foregoing framework, the extent to which they reflect the pursuit of aspects of IP—i.e. specific product/sub-sector examples of IP 2.Initial illustration with 3 Countries and 3 Products

Ethiopia - Horticulture 21 Assessment Under General Inst & Policy Environment, ✔ means good; ✖ means not good/strong Under Support Instruments, ✔ means applied or favorable to activity; ✖ means not. Gen. Institutional & Policy EnvSupport Instruments Transformation Plan ✔? ✔? F. Subsidies—Direct ✖ FDI Promotion ✔ Targeted Econ Activities ✔ F. Subsidies—Indirect ✔ Research/Tech Institutes & Services ? Business EnvAccess to Finance ✔ State Procurement ✖  Macro inflation ✖ Interest rate Subsidies ✔ Info on Export Markets ✖  Exchange Rate ✖ Trade Protection ? Export Market Opening ✖  Trade Policy ✖ Land Access ? State Enterprises ✖  Regulation ✖ Gen. Infrastr & Port Logistics ✔? ✔? PPP Ventures ✖ State-Private Sector Collaboration ✔? ✔? Industrial Parks/SEZs ✖ Privatization ✖ State Capacity ✖ Target Skills Training ? Performance Control ?

Mauritius – Textiles & Garments 22 Assessment Under General Inst & Policy Environment, ✔ means good; ✖ means not good/strong Under Support Instruments, ✔ means applied or favorable to activity; ✖ means not. Gen. Institutional & Policy EnvSupport Instruments Transformation Plan ? F. Subsidies—Direct ? FDI Promotion ✔ Targeted Econ Activities ✔ F. Subsidies—Indirect ✔ Research/Tech Institutes & Services ? Business Env Access to Finance ✔ State Procurement ✖  Macro inflation ✔ Interest rate Subsidies ? Info on Export Markets ✔? ✔?  Exchange Rate ✔ Trade Protection ✖ Export Market Opening ✔  Trade Policy ✖? ✖? Land Access State Enterprises ✖  Regulation ✔ Gen. Infrastr & Port Logistics ✔ PPP Ventures ✖ State-Private Sector Collaboration ✔ Industrial Parks/SEZs ✔ Privatization ✖ State Capacity ✔ Target Skills Training ? Performance Control ?

Ghana (2000+) – Cocoa Production & Processing 23 Assessment Under General Inst & Policy Environment, ✔ means good; ✖ means not good/strong Under Support Instruments, ✔ means applied or favorable to activity; ✖ means not. Gen. Institutional & Policy EnvSupport Instruments Transformation Plan ✔- ✔- F. Subsidies—Direct ✔? ✔? FDI Promotion ✔ Targeted Econ Activities ✔- ✔- F. Subsidies—Indirect ✔? ✔? Research/Tech Institutes & Services ✔ Business Env Access to Finance ✖ State Procurement ✔  Macro inflation ✖ Interest rate Subsidies ✖ Info on Export Markets ?  Exchange Rate ✔ Trade Protection ✖ Export Market Opening ?  Trade Policy ✔ Land Access ✖ State Enterprises ✔  Regulation ✔ Gen. Infrastr & Port Logistics ✖ PPP Ventures ✖ State-Private Sector Collaboration ✖ Industrial Parks/SEZs ✔ Privatization ✖ State Capacity ✔ -- Target Skills Training ✔- ✔- Performance Control ?