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6.4 Industrialization policies key to deepened diversification: Economic Report on Africa 2007

Guest post by: United Nations Economic Commission for Africa

Article Overview: 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.

6.4 Industrialization policies key to deepened diversification: Economic Report on Africa 2007

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.

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Article Tags: 1960s, 1980s, african countries, correlation, developing countries, development model, diversification efforts, economic development, economic policies, economic transformation, external markets, import substitution, industrial policies, industrial strategies, industrialization, internal markets, market orientation, reorientation, sufficient condition, trade policies



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