Industrial Policy and Development in Africa

Economic development involves increasing agricultural productivity, building technological capabilities among domestic firms, export diversification, and industrialization. In the 21st century of fragmented production processes dispersed globally, it also entails positioning domestic firms in global production networks in order to create wealth and employment as well as increasing production for a growing domestic market. Despite two decades of high levels of growth between the mid-1990s and mid-2010s, very few African countries have created manufacturing industries that are internationally competitive and have diversified their exports away from dependence on a few primary commodities, and most African countries still import the majority of their manufactured goods. Economic transformation does not emerge from the interplay of free market forces but rather requires proactive, targeted government policies. Such industrial policies include providing infrastructure, access to credit, and training labor but also incentivizing and assisting locally owned firms to build their technological capabilities in order to become internationally competitive. Well-conceived industrial policies are only successful if they are implemented, and that is much more difficult. African governments have been relatively less successful with implementing industrial policies, in the past and the present. They pursued ambitious industrial policies in the immediate post-independence period in the form of import-substitution industrialization strategies. At that time, industrial policies relied on the creation of state-owned enterprises, as in other regions of the world, but unlike in other developing countries, these strategies did not support private firms as well. This trend is explained by the political settlements in the newly independent African countries, which were generally characterized by a small domestic capitalist class with low capabilities. The experience accumulated during the import-substitution period was undermined by rapid trade liberalization and privatization in the 1980s and 1990s. Liberalization and privatization opened up new economic opportunities and shifted the locus of capital accumulation from the state sector to the private sector, while democratization and elections created pressure on political leaders to find more political financing with which to maintain their ruling coalitions and to find it through avenues outside of the state, including starting their own businesses. Ruling elites’ strategies for political survival inevitably became intertwined with government strategies to promote economic development. Whether or not contemporary African governments pursue industrial policies and are able to implement them depends on how ruling coalitions are formed within the distribution of power in a particular society. No set of ruling elites is ever completely autonomous. What matters is how coalitional pressures shape the political costs of certain policies and the ability to implement them, given the resistance or support from powerful groups within and outside the ruling coalition. This is because industrial policies require decisions about resource allocation and institutional changes that usually are contested by some group in society and because they entail creating, allocating, and managing economic rents.