Yes, Africa can industrialise massively on basis of commodities

Africa has the potential to become an industrial hub and benefit directly from its abundant raw materials as global economies continue to experience hard times.

Edmund Kagire spoke to the executive secretary of the United Nations Economic Commission for Africa, Carlos Lopes during his recent visit to Rwanda to lobby the country to support his organisation’s initiative to start an industrial revolution on the continent.

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What brings you to Rwanda this time?

I have been going around different countries on the continent consulting on the new direction for the Economic Commission for Africa and also trying to promote ideas regarding the industrialisation of the continent, particularly in the report we are going to launch in Abidjan later this month.

The report is on the industrialisation of Africa based on its commodities. Rwanda is an important country for us because of its success story but also because it is an opinion maker in terms of development on the continent. So, I thought it was very important for me to come here and engage the country’s leadership.

What does the report say on the future of industrialisation in Africa?

First of all, the report says that industrialisation is already happening but the scaling remains very low. Better access to capital is needed and it can be done through different types of contract negotiations and through mobilisation of domestic resources. African countries now have the same skills levels that South-East Asian countries had when they took off and the right comparison for Africa is not with the South East Asia of today but rather that of 25 years ago.

We have some of their characteristics — they were also on a demographic surge. More importantly, the value addition that comes with commodities is really to be taken advantage of now. If we position Africa well, these fundamentals can work to the advantage of the continent.

To what extent is political will a challenge?

The biggest challenge is how we maintain this trend. The problem we had in the past was the level of ambition of our political leadership. Not long ago, all governments were fighting to keep their least developed country status because it was the only way to guarantee aid.

Now the discourse has changed and we have an increasing number of leaders telling us they want to graduate to middle-income status.
We also have technical problems, the lack of technical content and lack of understanding of priorities.

International organisations also have to bring to the table issues that are of importance. The technical issue would involve putting in place rules of harmonisation, standardisation of Customs, rules of origin and rules of common investment. We need banks that lend based on a regional integration framework. Today we have banks that have branches in different countries but still operate with markets limited by national borders.

Most African countries still rely on imports while major exports from Africa are mainly of raw materials. How can this situation be turned around?

Contrary to commercial wisdom, it is possible to have meaningful and massive industrialisation based on commodities. Normally, we associate commodities with some sort of curse, where countries will benefit from possible price booms and then be unable to make structural transformation, which is required to take advantage of the windfalls on a sustainable basis.

We need political transformation that will allow industrialisation to be a priority. Africa cannot make it on communal farming, it cannot do it with the expansion of services or by taking advantage of the extractive industry and natural resources exploitation. Jobs have to be created and this can only be done through industrialisation.

How can Africa achieve the level of industrialisation that you want?

Africa is trading together but the trade is still mainly informal. Formal trade accounts for about 10 to 15 per cent and half of that is manufactured goods and services. We have to be able to capture informal sector transactions and transform them into formal trade. We also have a huge potential to become interdependent on trade if we can develop infrastructure and energy projects together.

We are doing well on the integration of telecommunications but we are lagging behind on linking infrastructure and energy. We have about 10 projects on the continent, including the Inga Dam Project in DR Congo and the Trans-Africa highway, which if implemented can change the continent’s economic landscape. The other challenge is that regional economies are not equal. Some are developing at a fast rate while others are not moving at all.

Most developed countries, especially in Europe are facing tough economic times. What are Africa’s chances to stay afloat?

The only country in Africa that is depressed by the current global situation is South Africa because its manufactured goods and minerals are no longer in demand in Europe. They are also suffering because their banking industry is linked to the financial systems of the developed world, but the rest of Africa is not suffering.

There is why there is growing interest in Africa. The reason why Africa is seen as the “continent of hope” today is because in terms of recession, the ones that boom are the venture capitalists who are willing to take risks.

The credit agencies that advise investors say Africa is a better place to take risks than Europe. For example, Rwanda or Zambia would be rated better than Spain. That’s why Rwanda’s Eurobond was oversubscribed. Everyone is saying the time of Africa is now.

Venture capital is destined for Africa, what we need is to turn this to our advantage.