With regard to industrial policies, it helps to recall that economic transformation is both a necessary and sufficient condition for industrialization. However, economic transformation cannot occur in the absence of diversification. Given the correlation between diversification and economic transformation, industrial policies are part and parcel of the new economic policies for diversification that Africa needs. This is particularly the case given that it has also been established in this report that industrial policy is critical to the ability of a country to deepen diversification. Therefore, as in the case of trade policies, there is need for more proactive industrial policies.
This calls for strategic use of industrial policies to target diversification efforts in those sectors that are aligned to the overall industrialization strategy.
There is much to be said about the way forward in designing proactive industrial policies. One can recall that import substitution strategies enabled Africa to achieve high levels of economic development in the late 1960s and in the early 1970s, the same period when diversification gains were evident across many African countries.
However, these industrial strategies failed as early as the 1980s, due to reasons such as lack of internal structuring of the industries concerned, weaknesses in internal markets and their inability to provide significant markets for new industries, reduced availability of financing to developing countries, and -low productivity of new enterprises.
The response to the failure of this domestic-market orientation in the development model via reorientation towards external markets did not yield the expected results in Africa. In a similar fashion akin to the role of strategic trade policies, it is also necessary for African countries to have more strategic and dynamic industrial policies that are based on well thought out choices for diversification and, by extension, economic transformation paths.
Such policies should include adoption of sector-by-sector, bottom-up strategies, from downstream to upstream, in order to deepen horizontal diversification in sectors ranging from intermediate goods up to capital goods. Applying this strategy to diversification might make it possible for countries to develop vertical diversification paths by building connections between internal markets and exports. Downstream industrial segments would be export oriented while the intermediate sectors would be oriented towards internal markets. Eventually, the multiple optima of comparative advantages would evolve and export competitiveness would gradually reach intermediate and capital goods sectors.
To learn more about this author, visit United Nations Economic Commission for Africa's Website.
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