- Interview by
- Sakiko Fukuda-Parr
African economies remain highly dependent on primary commodity exports, vulnerable to the vagaries of world market prices. Diversification into manufacturing and other sectors has been a post-colonial priority but is even more essential now in the crisis-prone world. Climate, the pandemic, the Ukraine war have all exposed the need for greater resilience. In this interview I discuss with Carlos Lopes what African policy makers can learn from the lessons of East Asia’s development models of the 1950s to the 1980s. Developmental states of South Korea, Malaysia, Singapore, and others used industrial policy to spearhead industrialization, growth, human investment, and poverty reduction. These experiences offer an alternative source of knowledge to the mainstream economic policy prescriptions and research of dominant international institutions.
Most people think that the Asian development experience of the 1950s to ‘70’s cannot be replicated because of the shifts in the global economic environment. So I’m particularly interested in knowing why you, as head of ECA [Economic Commission on Africa], pioneered a revival of interest in learning from Asia as a source of development policy frameworks, one that aims at structural change. The 2016 flagship report on transformative industrial policy for Africa lays out a strategy for diversification that draws heavily on the experiences and thinking of East Asian economics. You invited Ha-Joon Chang to contribute. And that was not in 1980, nor even in 2000, but in 2016. Can you explain what motivated you to look East?
The motivation is shared by a lot of African actors and leaders that look to Asia with admiration and want to learn from the experience. The theoretical justification comes from Kaname Akamatsu and his flying geese theory, in which you’re looking to the country that is ahead. You have to adjust your flight to take advantage of opportunities that appear, but also be continuously ready to play a different role.
It’s important to underline first that industrialization is not only manufacturing. That’s what makes the experience in Asia so attractive: it’s about institutions. It’s about formalizing economic exchanges, and about important structural changes in relation to the pre-industrial era. You have instruments like fiscal and monetary policy that can be applied in a completely different way from a more informal type of economic arrangements that still prevail in most of Africa. So, it’s extremely important to see how these institutions grew, how they were capacitated, what the key policy strategies were. One of the ingredients was the countries’ ambition. Another is that they had focus. And the third ingredient is that they had alignment. If you basically look into these three, you have lots of lessons to learn from Asia, and that are still relevant.
What has become very different is the way you insert new economies into global value chains. That has changed because the rules of trade have changed, intellectual property regimes have changed, the technological dimensions have brought more challenges to the labor cost of production. So lots of things have changed, but the elements that I have just mentioned to you which are more institutional dimensions of industrial policy, are extremely relevant still, and that was the motivation for us.
Ambition, focus, and alignment. Can you explain these a bit more?
Yes. Ambition is related to being aware of the megatrends and being able to use as many opportunities to make them work to your benefit as possible. For instance, currently the three megatrends are demographic, climatic, and technological. From the demographic point of view, ambition in Africa would signify that you don’t strategize and plan for the short term because the changes in the demographic configuration are so immense and so tectonic that you really have to take them on board from the very beginning of your planning, particularly issues such as the growth of the middle class, the youth, and urbanization. Then on the climatic front, it’s radically changing the way we organize the systems of production, and it’s going to have major implications in terms of costs, trade … And again, latecomers have a certain number of shortcomings, but also some advantages because they can leapfrog into renewable energies and so on. Then on technology, it’s again opportunities, provided you make sure that technology is going to be a propeller for some leapfrogging opportunities. Institutions are fragile and research and development is weak in Africa but you can invest selectively. For instance mobile banking, but also look into what is happening in the health sector. A lot of countries have introduced universal health coverage during the pandemic, just digital, with apps, and so on. These are many examples of technology working in your favor as a latecomer. So those are the sort of ambitions you need to have in your policy mix.
Focus is essential because global value chains have become so complex that the export-oriented model is going to be prohibitive for latecomers to enter. What you can do is to take advantage of certain characteristics. For instance, focus on commodities—those you control—and develop commodity-based industrialization. You can look into African markets and use the opportunities of the continental free trade area and so on. But because the examples of Asia tell us you cannot spread yourself too thin on many fronts, you have to choose one or two value chains that you are going to say to yourself, that is going to be where we focus.
Finally, alignment is because the era where you have a series of sectoral policies and a macroeconomic framework to support them is basically over. Today, you have to have the entire government and economic actors working for the priority value chain you want to enter, and that’s the lesson of Asia again. If you then have this alignment then it works. But you need a completely different management style based on results, and that’s what has worked in Asia, and that’s what you have to use in Africa.
Yes. But don’t you think that this is exactly the problem, that government strategies like alignment and focus are much more difficult to implement in today’s economic environment? Instead of export-oriented industrialization, where you can do everything in your country, you’ve got the global value chain, which you do not control. Global value chains are controlled by “lead firms,” i.e. the brands. Upgrading from the low wage, low-skilled labor segment of the value chain up, graduating up, is really, really hard. The obstacles that African countries face today are very different from the obstacles that Taiwan, Hong Kong, for example, faced back in the ‘60s.
That’s where the 2016 ECA report comes in. It shows what’s possible with the right policy sequence. Sequencing is the word. You cannot try to do many things at the same time, you have to basically study very carefully the global chains and the opportunities. Countries are basically in a commodity trap: you export because you have a commodity. So to be smarter, use commodities as a propeller to insert yourself in value chains, but with a certain degree of modesty. Let’s say, if you are in cocoa, you have a controlling stake in the global production between Côte d’Ivoire and Ghana. But it would be pretentious to imitate the Toblerone or Godiva. What they can do is to produce cocoa paste, so it’s a 10% addition in the value chain. Right now, because you are not doing even that first level of value addition, you actually have a lot of loss. If you just export natural cocoa, if you don’t export it that very year it was produced, it’s over, and a lot will be just lost. Bargaining capacity is very low if you don’t have value addition, so you have to increase it a bit. But, in order to increase, you have to know how the prices are concocted, what are the key suppliers, you have to study the supply chains, you have to regulate in a way that is not going to frighten or create competition elsewhere—like happened for coffee.
I think the 2016 ECA report gave us some indications of how Africa still has a chance to even steal some of the parts of the value chain that have been quite prosperous in other countries in Asia. I’ll give you just one example, of textiles. One of the biggest producers of textiles right now is Bangladesh. You have a lot of pressure on Bangladesh about environmental and social rights. If you fix that—because you are a late comer, it’s easier for you to fix it—your product becomes very attractive. The cost of the price is not the only element the brands are after. They are also trying to protect against reputational damages. What does that imply? They have a checklist on how, for instance, the industrial parks will have to protect the workers’ rights —like the number of toilets per number of workers, how much daylight you have going into the factory zone, etc. On the environment you will have things like is the water recycled or not recycled? So, if you are building a brand new industrial zone, you can take care of all these things. It’s much more difficult to retrofit.
How do you see the impact that the ECA report has had in promoting more interest in learning from Asia generally?
When I was at the ECA, we produced seven major reports on industrialization, and I will say that this report is the one that gave us sort of the theoretical basis. A theoretical or conceptual foundation. It was very influential, because today you cannot see any policy document at the regional level, subregional level, or national level that doesn’t put industrialization up front in Africa. It has become absolutely consensual, and it has obliged our international partners to move in the direction of the African request, which is to put industrialization up front. This was not obvious, because industrialization has become a bit démodée, for a number of reasons. First, because of the climate situation. Second, because of privatization and automation. And third, because each time that you would approach the traditional funders led by the World Bank, they would replace industrialization with diversification of the economy. So it was like, let’s discuss diversification, not necessarily industrialization. The difference is quite colossal because industrialization requires concentrated policy interventions whereas diversification is more, “the market has the space,” so it’s a very different thing.
So you basically bucked the trend in the dominant neoliberal narrative about the development policy for Africa by calling for industrialization as a key strategy for growth and development, right?
Yes, and we won that narrative and that policy priority across the continent, including at the national level.
Did the report change policy thinking in general?
Yes. When you discuss industrial policy, normally you come across—and this is in the report— three needs that are fundamental for things to work. One is to have stronger institutions, and that goes with also a regulatory capacity, but also the state being a bit more interventionist. Some would call it the developmental state, but you don’t need to enter into that sort of theoretical framework, just accept that the state has to be much stronger. The second element that is key is infrastructure, you need a lot of infrastructure, and the third is capabilities. The infrastructure bit was boosted by strong links with China in particular. So all of the sudden, you had not just a debate about how to learn industrial policy and its various characteristics from Asia, but also one of the pillars for it to be possible: being funded or being built in partnership with Asia.
Did it shift the political dynamic away from looking to the North?
I have no doubt about it. A demonstration of how far the pendulum has moved is the Ukraine war. For Africans this is a sort of proxy for the confrontation between the West and Russia, and they don’t want to enter into it. Africans have been quite consistent in remaining neutral because they no longer feel hostage to follow Western standards. They have now acquired policy space made possible by new relations with Asia.
In terms of finance, the Western countries still have the largest stock of foreign direct investment in Africa but they are investing less and less, and the others are coming in a big way. And during the pandemic, for instance, there were lots of promises made about special support for Africa, and in fact the only real additionality came from the IMF. It was substantial, but in global terms it was not. It was a record disbursement of $23 billion, but only 5% of what the IMF did in the world.
What about the climate crises and challenges?
I think we have to push the debate. Africans have carbon credits and others have carbon debits. That’s basically the way we can frame loss and damage. It’s the historical responsibility for where we are. This carbon credit needs to be translated into some new instruments and require a change in the way Bretton Woods and the global financial governance is regulated. It was mentioned as a request by Janet Yellen.
When, you mean like just now?
Yes, just now. Before the spring meeting, in a meeting with African finance ministers, she said, “It is time to have a new Bretton Woods.” That was quite amazing and unprecedented. So you have Janet Yellen calling for reform, and you have heads of both the IMF and the World Bank accepting the need for a reform, despite the fact that they are in charge of these solutions. Then you have this Bridgetown initiative led by the prime minister of Barbados that is trying to sail in the winds of this movement.
Now, what is interesting in all of this is that it’s basically a call for creating instruments that will resolve the issue of climate financing. And more broadly, if we really want to move in terms of energy transition, you will have to insert into the discussion not just energy security, but also energy access, which is the problem of the Africans; 600 million Africans are without electricity. And that’s not just for household consumption but a basis for industrialization. But it’s not that costly to solve this problem, let’s say, $200 billion.
I think it is very important that the climate discussions continue to push for a different narrative, a narrative of the need to have new tools for climate financing that are going to change our notion of risk. Because right now, when you talk about renewables and you talk about energy transitions, the debate is normally about de-risking investments. It doesn’t make sense to de-risk what is mother nature and what is an emergency for the planet. It should be the other way around. It should be a risk to continue with fossil fuels, which unfortunately continue business as usual and are making record profits. We have something wrong here. What we need to do is to address this major problem and not allow the fossil fuel industry to make record profits, not enjoy free access to capital and financing. This narrative change, like all narratives, is very difficult, but it is an absolute urgency and I think the moment we’ll get into that type of negotiation and discussion, Africans then have a lot in their favor. I will just mention one. According to the International Energy Agency, they have the largest potential for all renewables, including green hydrogen. 60% of the world’s production in the future will be Africa. It’s time to turn around the discussion and ask whether Africa is going to be used yet again as an exporter of commodities, despite new forms of hydrogen and strategic minerals, rare earths and so on. Or we are going to use this as an opportunity for transformation of the continent. And if you are going to do that, you need structural transformation, and structural transformation will only be if you have good industrial policy.
And as you’ve argued, the important point is that structural transformation is not just about the hard infrastructure, but in institutions.