Africa is on the right path

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South African business is becoming more aware of the growth prospects across the rest of Africa. But what has received little attention is the policy development that supports these improvements. This support will gain momentum at the forthcoming Meeting of African Ministers of Finance, Planning and Economic Development in Abidjan from March 21 to 26. The theme is: Industrialisation for an Emerging Africa.

It is now several years that Africa’s leading official organs, the UN Economic Commission for Africa, the AU Commission and the African Development Bank, have jointly sponsored proposals for economic advance. In 2012 a similar conference of ministers adopted a proposal called “Unleashing Africa’s Potential as a Pole of Global Growth”. One major element of this perspective was the Africa Mining Vision, which contained detailed proposals for ensuring greater benefit to the continent from its mineral resources.

My contribution to the forthcoming meeting will be to indicate how mining can be linked to industrialisation. Our own history in South Africa shows how the gold mining and diamond industries led to substantial services and manufacturing capabilities, although this process slowed down subsequently. This was because the mining companies concentrated on exporting relatively unprocessed ores without further beneficiation or fabrication. The same condition applies across the rest of Africa.

By examining all the potential linkages associated with particular minerals, it is possible to create new supplier and service industries around the mineral sector. This will increase employment and build a new set of capabilities such as engineering, design and other technological skills. What all mineral rich countries must realise is that relying on the export of raw and semi-processed minerals is not sustainable.

The theoretical model for a major adjustment lies in three sets of linkages, backward, forward and lateral. Backward linkages means strengthening all the capabilities and resources needed in order to carry on a mining enterprise. These include energy supply, water, labour, infrastructure, services and an increasing capability to produce machine tools and machines. Forward linkages relate to moving the mineral up the value chain before it is exported or made available on the domestic market as an input into other forms of manufacturing. Lateral linkages are often forgotten, but are crucial. They refer to knowledge creation, training, research, financial institutions, etc, many of which may be initially developed around mining, but which can subsequently feed into growing the rest of the economy.

Since much of Africa’s private sector is still undeveloped, there is a clear role for the state in promoting mining based industrialisation. This is necessary because much of mining exists as an enclave within the economy, often reaping excessive resource rents and paying little in taxes.

The state also has a role in adjusting tariff policy, trade policy and localisation in favour of domestic business. Local, rather than imported, procurement of goods and services, where possible, is an important measure.

Foreign advice to Africa is often focussed on improving physical infrastructure, road, rail, ports, etc. While this is essential if industrialisation is to happen, it should also link to local procurement and where possible to manufacturing.

Another example of unhelpful advice relates to concessions granted by governments to foreign mining companies. These licences give few rewards to the host countries, even while their natural resources are being depleted. A particular hazard found in South Africa is the minerals that are made available for manufacturing are supplied at import parity prices. This makes our manufactured goods uncompetitive abroad.

African governments have been too cautious in defending their natural wealth. These resources belong to the people of Africa and their governments should examine carefully what measures are possible to bring benefits to the people, within the constraints imposed by the international system of regulation.

While import substitution industrialisation earned a bad name in the past, there remains a variety of measures to support infant industry, particularly within the ambit of mineral beneficiation. A great deal of further research is needed, but Africa’s leading institutions are on the right path.

Professor Ben Turok is a MP and a consultant to the UN Economic Commission of Africa and editor of New Agenda, a South African Journal of Social and Economic Policy.