As the global landscape undergoes transformation, the need to develop industrial policy is gaining momentum globally.

Global Trade Alert research shows that there were more than 2,500 industrial policy interventions worldwide in 2023, with a majority of new measures driven by climate mitigation, supply chain resilience and security. 

Industrial Development Report (IDR) 2024 from the United Nation Industrial Development Organisation provides examples of the reemergence of industrial policy globally. 

In the US, industrial policy is no longer a taboo subject with bipartisan support for the Creating Helpful Incentives to Produce Semiconductors and Science Act (Chips Act), which aims to revitalise the US semiconductor industry with at least two semiconductor manufacturing clusters by 2030. 

Meanwhile, Japan is providing subsidies worth more than $500 million to 57 companies to encourage them to invest domestically as part of its efforts to reduce over reliance on imports.

The European Union is similarly scaling up its industrial policy including setting aside €160 billion ($174.6 billion) of its Covid-19 recovery fund for digital innovations such as chips, batteries, and climate adaptation.

Countries in Africa have also shifted from traditional to diversified and sector-specific industrial policies driven by a desire to address societal challenges and align Industrial Policy with the goals related to green transition, poverty reduction, employment creation and closing the inequality gap.

Some examples in the IDR include the Industrial Policy and Strategic Plan for Mauritius, West African Common Industrial Policy, Zambia and the Democratic Republic of Congo (DRC) Cooperation Agreement on electric batteries, Industrial Policy and Strategic Plan for Mauritius 2020-2025, Kenya’s National Automotive Policy, Nigeria’s National Automotive Industry Development Plan and Ethiopia Industrial Parks Strategy with over 20 parks constructed between 2015-2021 among others. 

A resurgence of industrial policy has also been observed across Asia-Pacific in the past two decades with a transition from traditional sectors, such as textiles and garments to industries that leverage advanced technologies. 

China’s New Energy Vehicle (NEV) Industrial Development Plan, Saudi Arabia’s Neom Green Hydrogen Project, Indonesia’s Low Carbon Development Initiative and Thailand’s Industry 4.0 are examples of industrial policy.

Read: Post-Covid, China is back in Africa and doubling down on minerals

Initiatives such as India’s “Make in India” and Special Economic Zones Policies in several countries also aim to build a robust industrial base to sustain long-term economic growth. 

The IDR 2024 identifies three ingredients for the long-term success of industrial policy: wide societal consensus, government capability and proper financing.

First the success of any industrial policy is linked to its acceptance and support by the wider society which underscores the importance of building a broad societal consensus around the vision and goals of industrial development.

This ensures that the chosen policy direction resonates with the collective aspirations of the nation's people.

Recognizing that each country is unique, it is crucial for industrial policies to be tailored to the specific economic and social contexts by engaging in meaningful dialogue, ensuring that policies do not just serve the economy but nurture a society where everyone has the opportunity to thrive.

Wide societal consensus is also essential to ensure the continuity of industrial policy beyond political cycles. 

Secondly modern industrial policy demands robust government capability with increased complexity of modern industrial policy requiring stronger government capabilities and intergovernmental coordination to avoid implementation failures.

Agencies executing industrial policy must possess the requisite capabilities and technical autonomy to fulfil their mandates.

Governments should therefore transition from being reactive regulators to visionary architects of the future and proactive enablers by fostering environments where industry and innovation thrive.

Building such capability requires a forward-thinking civil service and the establishment of institutions that can act as pockets of effectiveness. 

Lastly, adequate financing is crucial for the success of industrial policy with the potential scope and ambition of industrial policy heavily dependent on a country’s fiscal capacity.

A common issue in transitioning from policy design to implementation is the mismatch between policy objectives and the financial resources required to achieve them.

Lack of funding can lead to implementation failures, particularly in countries with limited tax collection capabilities and constrained industrial policy budgets.

The current debt distress in developing countries reduces their fiscal space significantly impairing their ability to implement industrial policies. 

Addressing this critical bottleneck is urgent. Industrial policy implementation will require the reform of the global financial system, tackling the high cost of debt and the rising risks of debt distress, significantly increasing affordable long-term financing for development, and expanding contingency financing to countries in need.  

With these ingredients countries can set themselves on a path to industrial policy success in ensuring that policies do not only respond to immediate needs but pave the way for a sustainable, equitable and thriving future.   

Phyllis Wakiaga is Senior Adviser, Industry & Commerce at the Tony Blair Institute for Global Change.