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Import substitution industrialization in Africa necessitates comparative advantage, regional value chains

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United Nations Economic Commission for Africa (UNECA)

The United Nations Economic Commission for Africa (UNECA) on Wednesday underscored that import substitution industrialization in Africa should be based on principles of export promotion and value addition with comparative advantage and intra-Africa trade.

The UNECA made the call in its latest publication titled “Is Import Substitution Industrialization (ISI) in Africa – a silver bullet or poisoned chalice to Africa’s development agenda?” The UNECA said import substitution industrialization has evidently proved largely a failed strategy for the continent owing to poor distributional consequences, uncompetitive state-owned enterprises driving high budget deficits and rent-seeking behaviors.

It, however, said these failures seem to have eluded peers in East Asia and to some extent Latin America who have successfully transformed their economies, indicating that a successful ISI strategy entails a quick progression from a regime protecting infant industries, to an export-oriented industrialization (EOI) approach.

“A recalibrated ISI strategy for Africa should be based on principles of export promotion, competitive industrialization production, value addition, comparative advantage, regional value chains, intra-Africa trade, and technological learning,” the UNECA said.

It said the African Continental Free Trade Area (AfCFTA) Agreement presents an immense opportunity to leverage export-oriented industrialization and overturn the path of industrialization for the continent.

According to the UNECA, implementation of the AfCFTA would facilitate access to a larger market with lower barriers to trade and drive competitiveness on the continent, thereby alleviating the key domestic structural constraints faced in the past.

It said the AfCFTA is poised to encourage domestic production of finished goods, gradually replacing importation of goods and services from outside the continent, while accelerating implementation of the AfCFTA.

It advised that African countries can reduce import bills and external vulnerabilities by identifying sectors of comparative and competitive advantage and exploiting those opportunities. “This will encourage local production and value addition. In addition, for goods that cannot be domestically produced, countries could pursue the next best competitive alternative, with respect to importing from other regions on the continent.”

The UNECA said the phenomenon points to the need for Africa to support business-to-business linkages for increased market accessibility, especially in the face of the AfCFTA.

Africa will ensure a sustainable development pathway where the continent is able to exploit intra-Africa trade of higher value goods, particularly commercial and consumer goods while investing in skills development and technologies of the future.

The UNECA recommended key interventions for Africa to effectively adopt ISI and EOI approaches that include facilitating foreign direct and domestic investment and savings; the promotion of new technologies and industrial upgrading in the manufacturing sector; effective infrastructure development for the free flow of goods; and facilitating the ease of doing business. It further underscored the importance of access to affordable long-term capital; promoting skills development; and implementation of effective national quality policies to ensure that the manufacturing industry produces quality products for exports.

“Transformation of the continent will, thus, not emerge from the interplay of free market forces but will require proactive, concerted, and targeted efforts,” the UNECA said.

It, however, said unlike in the past, African countries have a promising instrument — the AfCFTA — to change the narrative of ISI on the continent and collectively begin to play in the same league as other regions in the world. Enditem

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