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Many African countries began implementing economic reform and liberalizing their economies in the 1980s in order to promote industrial and economic development.
Economists and policy makers believe that economic reform and exposure to international competition would spur African enterprises to become more efficient, enhance their productivity and enable them to achieve international competitiveness.
However, almost three decades after implementing economic reform, most African economies are still monocultural, agrarian, service-oriented or mineral-based. From 1965 to 2005, according at an UNCTAD report, Sub-Saharan Africa’s (SSA) manufacturing value added (MVA) was below the level (15% of GDP) achieved in the early 1960s.
The report also notes that, since the 1970s, MVA has been about half of that of East Asia and Pacific. While Asian and Latin American countries have been producing and exporting high-end manufactured products, most African countries still maintain colonial-type production structures that make them vulnerable to shocks and volatility in global markets.
This underscores, says Stephen Onyeiwu, from Allegheny College, the need for effective long-term diversification strategies, including industrial and trade policies to promote manufacturing.
The unsuccessful attempts by many African countries to diversify their economies after economic reform have generated debate amongst development economists and policy makers about why Africa has had disastrous outcomes, compared to other developing regions.
One group of economists argues that a major reason for the failure of African countries to industrialize is because they have not implemented economic reform rigorously and consistently.
In a study of the impact of economic reform on African economies, the World Bank concludes that adjusting countries typically perform better with regard to industrial development and international competitiveness. Using a sample of 29 countries divided into three categories –“large improvements” in macroeconomic policies, “small improvement,” and “deterioration,” the Bank notes that those with large improvements in policy experienced better outcomes with regard to key indicators of industrial development such as the growth of manufacturing value added.
In another study, the World Bank (1994) found that median annual per capita GDP growth was almost 2% points higher after the implementation of structural adjustment policies and was 2.6% points lower for countries with deterioration in macroeconomic policies.
Furthermore, industrial growth was up 6.1% points in adjusting countries, compared with an improvement of just 1.7% points for countries with deteriorating policies.
Other dissenting analysts contend that economic reform and liberalization per se are not sufficient for industrial growth, and may well precipitate a process of deindustrialization unless complemented by explicit investments in skills, knowledge, and technology.
Despite two major efforts to promote industrial development in the region, Africa’s industrial performance is no better today than it was during the immediate post-independence era. There also are inter-country variations in the industrial performance of African countries, with the top performers located in southern and northern Africa.
There is debate about the factors responsible for the region’s disappointing performance. While some analysts attribute Africa’s poor performance to inadequate and inconsistent economic reform, others blame the lack of investment in innovation, technology and human capital for the problem. This research finds weak evidence to support the contention that lack of economic reform is responsible for the regions lackluster industrial performance.
Specifically, the results suggest that liberalization might even lead to de industrialization. There also is no strong evidence that technological factors or innovation play important roles in the inter-country variations in the industrial performance of African countries.
Rather, education and training seem to be important explanatory variables. A case 24 analysis of the Nigerian textile industry lends some credence to the notion that economic reform and liberalization per se may not be a panacea for Africa’s poor industrial performance.
Results imply that African countries should not rely entirely on economic reform as a strategy for promoting industrial development.
Economic reform and liberalization have their merits, but they should be complemented by explicit investment in education and training. Abrupt exposure of African firms to international competition may be counter-productive, as the case of the Nigerian textile industry. Rather, the process of exposure should be sequenced in such a way that African firms will gradually develop the skills and capabilities for competing globally.
The results also confirm the widely held view that African countries tend to achieve a lower industrial performance than other developing regions of the world. The variation between the industrial performance of African and other developing countries can be explained by differences in human capital and macroeconomic stability.