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Industrial policy: from conceptualisation to implementation in Africa

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Industrial policy: from conceptualisation to implementation in Africa

22nd November 2024

By: Saliem Fakir

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Someone gave me valuable advice once: Do not solely rely on the opinion of a policy wonk about anything if the wonk has not experienced it himself or herself. In other words, experience matters, and those without it are not true experts.

Industrial policy is making a comeback. For instance, Alexander Hamilton’s legacy is being revived in both the US and Europe, while, in a recent report, Mario Draghi was at pains to explain why Europe should not be left behind in industrial innovation as the US and China are advancing at great speed.

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Technology is advancing rapidly, and Africa risks being left behind the new industrial revolution. However, the continent has several advantages: a youthful population with numerous basic needs, abundant natural resources, and the potential of an integrated regional trade regime offering significant opportunities.

However, not all industries will rise at once; some will take a lead, while others will follow.

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Industrial policy has the power to connect labour, ideas and markets in a transformative way. Over time, varying depths of knowledge are applied – turning raw materials, labour and untapped potential into a productive force by making and integrating goods into broader services.

Engaging industrial capability marks a shift from resource dependence to diversification. Industrial capability requires political coherence, administrative coordination (between the State, labour and business) and strategic positioning to ensure success in areas where there is stiff competition. This requires mastery of supply chains, logistics, negotiating the right partnerships and networks, and continuously improving and upgrading techniques and technology.

Moving up the ladder (to use Ha-Joon Chang’s metaphor) requires time and consistency, as well as political and commercial skill. It also requires favourable trade policies with partners if there is to be any success. Numerous studies suggest that preference should be given to export orientation over mere import substitution with local content.

Industrial policy can be divided into two strands: the actual making of goods, and the soft technologies, ideas and creativity that transform raw materials into valuable products, bringing together the tangible and intangible.

You need to understand your product, the consumer you want to buy the product and the broader competitive landscape, especially if you are trying to enter markets where others may resist your competition.

When these elements are considered together, it becomes clear that building industrial capability or manufacturing takes time and requires partnerships with those who already have a head-start and have figured out how this is done.

Having nickel, cobalt or lithium deposits is one thing; they can be mined as raw materials and shipped to offshore markets, often leaving behind little prosperity, especially when the finished goods return at a higher value.

Lithium, for instance, must have high levels of purity to meet the optimal standards for batteries. You do not want a lithium battery to explode in your laptop bag or fail to store energy for a long period.

Think of all the individual components that make up an iPhone or iPad. The iPad, a product of creativity and ingenuity, must not only resonate with consumers but also remain attractive over time. Consider the journey it takes to reach consumers and maintain its loyal-user base.

Also consider the raw material processing, technical designs, software, extensive production lines, and complex logistics that must be coordinated, along with the sales and service aspects of the supply chain that tie everything together. High-value industrial products are built on an end-to-end industrial production philosophy, from product design and high-quality manufacturing to consumer satisfaction and ongoing service.

This level of complexity requires resources and supply chain coordination that take years to perfect. This sounds all intimidating, but it can be done.

We can gain valuable insights from other countries that had no advanced industrial capability but later became highly industrialised. Many years ago, while working with the Department of Public Enterprises in South Africa, my colleagues and I studied the industrialisation journey of South Korea. In the early 1960s, South Korea was poor and underdeveloped. Yet, within a few decades, its flagship companies and products became household names and brands worldwide.

The South Korean government needed reliable and significant sources of power. In the 1970s, the country opted to build a nuclear power fleet as part of efforts to align energy supply with the needs of heavy industries. The nuclear fleet approach was implemented in phases: the first was dominated by foreign firms, followed by joint ventures (JVs) with local firms, which eventually took over from the foreign firms after they had gained sufficient experience and know-how.

There is no other way to acquire skills and to ensure technology transfer and market integration besides forming strategic JVs with foreign firms or original-equipment manufacturers. However, all this must be aligned with other essential assets, including a supportive industrial ecosystem featuring research and development, workforce training, and the establishment of domestic flagship companies, component suppliers and other key capabilities.

Today, South Korea exports nuclear power generation know-how, including its own version of a nuclear reactor called the advanced power reactor – or APR – to other countries.

Industrial development is not merely about making something; it’s about knowing something by making something. Inevitably, an industrial product involves bringing together many things, each of which requires a specialised knowledge stream. This process fosters continuous innovation, enabling industrialism to stay ahead of the curve.

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