… Potential leeway to Namibia’s inclusive growth agenda
By Hilary Mare
FOR many African countries, one important way to create productive jobs is to grow the labour-intensive light manufacturing sector, which would accelerate economic progress and lift workers from low-productivity agriculture and informal sectors into higher productivity activities.
Essentially, Namibia’s reasonable wage costs and abundant material base have the potential to allow light manufacturing to jump-start the nation’s long-delayed structural transformation and over-reliance on low-productivity agriculture.
Moreover, as globalisation advances and China evolves away from a comparative advantage in labour-intensive manufactured products toward more advanced industrial production, African economies such as Namibia are uniquely positioned to take advantage of this opportunity.
Justin Yifu Lin, World Bank senior vice president and chief economist last week noted that, “The time is ripe for such economies to undertake sharply focused policy interventions to initiate rapid, substantial, and potentially self-propelling waves of rising output, employment, productivity, and exports. By adopting such an approach, African countries can follow a path of structural change of the sort recently achieved in countries such as China and Vietnam.
“These are some of the key findings from an upcoming book by me and my team titled Light Manufacturing in Africa: Targeted Policies to Enhance Private Investment and Create Jobs. The team conducted qualitative interviews with about 300 formal and informal enterprises of all sizes in three African countries (Ethiopia, Tanzania, and Zambia) and two Asian countries (China and Vietnam). We combine the results with other research, including empirical work on the investment climate facing firms in Africa, independent quantitative interviews of about 1 400 formal and informal enterprises by the Centre for the Study of African Economies at Oxford University, in-depth interviews of about 300 formal medium enterprises by a consulting firm Global Development Solutions, and a Kaizen study.
“We find that in the African countries (across subsectors and firm sizes), six types of constraints work against the competitiveness of light manufacturing: i) input costs and quality; ii) access to industrial land; iii) access to finance; iv) lack of entrepreneurial skills, both technical and managerial; v) worker skills; and vi) trade logistics. For small firms, entrepreneurial skills, land, inputs, and finance are the most significant constraints, while for large firms, trade logistics, land and inputs are among the more important,” he said.
Given Namibia’s comparatively low skill-to-labour ratio, it needs mainly low-skilled jobs to ensure wide and faster structural transformation. Manufacturing rather than services provides the basis for low-skilled jobs. To get there, Namibia must work on its strengths. The country has a strong comparative advantage in natural resources, either in the form of energy, minerals or agriculture. These can be drivers of structural transformation through linkages, employment, revenue and foreign investments, provided adequate business environment and supporting policies are in place. There is no inherent trade-off between commodity-based and labour-intensive industries: countries with diversified natural resource sectors also exhibit more diversified manufacturing.
Addressing a recent high-level meeting organised by the Economic Commission for Africa (ECA) and the United Nations Economic and Social Council (ECOSOC) on ‘Innovations for infrastructure development and sustainable industrialisation’, director David Mehdi Hamam of the office of the Special Adviser on Africa (OSAA) said Agenda 2063, the UN 2030 Agenda for Sustainable Development and the Third Industrial Development Decade of Africa, are all reviving industrialisation and infrastructure development for inclusive growth and sustainable development on the continent.
“It is time to fast-track Africa’s structural transformation. As we intend to achieve the aspirations of African people and the world, it is critical to create wealth, income and employment,” he said.
“Industrialisation through local value-addition and local processing offers great opportunities in this regard, particularly if it allows to build forward and backward linkages.”
Hamam said achieving industrialisation requires an enabling environment which includes, among other things, sustainable infrastructure and services in energy, transport, water, sanitation, and information communication technologies. It also requires soft infrastructure such as institutions, adequate skills and technology, as well as peace and stability, he said.
“Poor infrastructure in general has been undermining the competitiveness of African economies and thereby slowing the per capita growth by two percent annually according to the ECA,” he told participants as he urged African leaders to take advantage of innovation and technology to ramp-up Africa’s industrialisation drive.
“It is therefore imperative to fast-track infrastructure in order to foster sustainable industrialisation and ultimately leave no one behind”.
It is well known that efforts to accelerate the development and structural transformation of African economies are hindered by very substantial obstacles, particularly those related to finance, infrastructure (electricity and roads), governance, and human capital. But Namibia should not wait until all of these obstacles are resolved to create productive jobs. Other economies managed to expand production and exports of light manufactures while still grappling with the same sorts of constraints currently observed in Sub-Saharan Africa.
By focusing on a handful of carefully chosen manufacturing subsectors, Namibia will be able to leverage value chain analyses and other analytical tools to undertake a detailed stock-taking of the constraints in each subsector. Picking reasonable benchmarks and aiming for price competitiveness will be fundamental to trim the list to a few leading constraints in each subsector. Such priorities make the exercise more manageable, the policy actions more precise, and the sequencing more realistic. Perhaps most importantly, a handful of critical steps that Government can take to remove the most serious constraints in those subsectors that hold the most promise, are ripe for exploitation.
By identifying and addressing these constraints, African countries can expand light manufacturing production in areas where they have a comparative advantage. But this can only happen if enterprise owners and Government policymakers keep up competition pressures in all pertinent markets. Doing so makes the targeted policy solutions practical and feasible within the country’s limited financial, fiscal, and human resources and political environment. This approach can complement Government efforts to relax other economy-wide constraints to sustainable economic growth.
Confidente. Lifting the Lid. Copyright © 2015