D+C Development and Cooperation (No. 1, January/february
2002, p. 15-17)
Africas Aborted Industrialisation
Modernisation Strategies Impede Organic Industrial Growth
Why has the industrialisation of Africa failed? The strategies of
the donors in the North and the African power elites were and still
are more interested in setting up capital-intensive large concerns than
promoting the growth of existing small-scale and micro-enterprises.
But since modern big businesses fail to find the environment they need
for their operations they are not capable of surviving and contribute
hardly anything to the development of the African economy and society.
The industrial development policy pursued in most African countries after
their decolonisation was billed as catch-up industrialisation.
By that they did not mean catching up on the industrialised nations
route to development, but rather emulating their level of development.
The long and laborious path that had led to this level was to be leapfrogged
at one bound. This strategy has failed. What follows is aimed at explaining
why it was bound to do so.
Starting point: indigenous
Like everywhere else in the world, there are also traditional indigenous
industrial activities in African societies. During the colonial era
these were impeded and suppressed in order to secure the markets of
the colonial powers companies or those of the white settlers.
Despite the restrictions and bans placed on them, the autochthonous
(small) business activities always carried on. They also gained in dynamism
initially during the Second World War, when the companies of
the colonial powers were placed in the service of the war economy and
could no longer supply overseas markets regularly. The local businesses
then really got going when the African colonies were granted independence.
If the governments of the young countries and their development policy
advisors and financiers had wanted to ensure that African industry could
catch up on the development that Europe and North America had once gone
through, they should have begun with what already existed and built
up and expanded the industrial sector from the ground up and internally
in pace with the development of the other sectors. Aside from a few
medium-sized businesses stemming from the colonial era which
were mainly in non-African hands the business sector in most
of the African countries that became independent around the 1960s consisted
of local crafts and trades people and small-scale entrepreneurs.
With minimal capital and maximum labour input, limited and mostly handed-down
commercial and technical knowledge, without experience in company management
and marketing, using easily procurable tools and locally available raw
materials, and adapting to the low educational level of their workers
as well as patchy infrastructures, these businesses produced goods and
provided services for the local people in town and country. However,
most of the new governments did not recognise and promote these activities
as the starting point for development. Instead, they saw them as being
backward and subjected them to discrimination and marginalisation.
Industrialisation from outside
The governments, their advisors and financiers pursued a different
strategy. In the expectation that leapfrogging development by introducing
state-of-the-art technology would have greater impacts than replicating
the European path to it, they ensured that the most up-to-date production
technologies were transferred to Africa from the industrialised nations.
At the same time, the African governments created rules and regulations
and promotion instruments which favoured and subsidised the import of
everything new while discriminating, criminalising, and persecuting
the existing autochthonous activities and pushing them into informality.
(The use of the term autochthonous should not lead to the
conclusion that these businesses use only traditional techniques and
forms of organisation. Over the decades many of them, especially in
the technical sector, have adjusted to new developments and implemented
the beginnings of modernisation.)
The expectations connected with the modernisation strategy, however,
were disappointed. Importing state-of-the-art production plants merely
created islands of modernity in a sea of handed-down imperfection.
Modern installations depend on the reliable provision of power, communications
and other infrastructure services, and in an African environment they
often come to a standstill due to supply bottlenecks. Their technology
is so sensitive that it can tolerate only raw materials, fuels, spare
parts and maintenance and repair services that meet the highest technical
demands, which are seldom to be found in-country. The installations
are so complex that local staff are seldom deployed in managerial positions
or to handle central technological tasks. Mostly, they are replaced
by foreigners. Such plants are capital-intensive and hardly provide
jobs for low-skilled people. Their capacity often has no relationship
to the buying power of the domestic market. Exports to neighbouring
countries are also seldom successful because they too have similar production
plants that are protected from competition.
No impetus to development
The modern production plants therefore are integrated in local economies
to a minuscule degree, having no bearing on the job market in terms
of employment and qualification nor in relation to preliminary work.
So there are rarely positive impacts on other sectors. Since the plants
capacities are mostly not fully utilised, they deliver no profits unless
the prices of their products protected by state intervention
are excessively high.
The modern plants benefit from a number of privileges in investment
codes and tax laws that national governments grant investors who commit
a certain minimum of capital. These privileges include simplified and
low-cost access to commercial land, additional infrastructure investment
financed by the local municipality, exemption from corporate and income
tax and import duties, guaranteed provision of foreign exchange for
importing raw materials and spare parts, permission to transfer salaries,
fees and profits (if applicable) abroad, and protection from imports.
The plants also benefited from the usual overvaluation of their national
currencies from the time of state exchange rate controls, which made
imports of machinery, tools, raw materials and fuels cheaper, and exports,
particularly of agricultural products, more expensive.
The result was that the fiscal privileges, the plants production
on or below the profit margin, and their great demand for foreign exchange
prevented increases in state revenues and relief of their countries
foreign exchange balances. On the contrary, the latter were additionally
burdened. In most cases the privileges mounted up to huge state subsidies.
This industrialisation policy, which was pursued right up to the 1980s,
cost African societies dearly. They were burdened directly in the form
of the subsidies, and indirectly due to urban bias and its
ensuing worsening of internal terms of trade. That meant it cost ever
more units of domestic agricultural products to buy the same number
of units of industrial goods. In addition, autochthonous small-scale
and micro-enterprises with similar product ranges were displaced, and
benefits were lost in terms of the impetus to development which a burgeoning
industrial sector would have given to others in national economies.
How did an industrialisation strategy come about which proved to be
costly and developmentally ineffective for the economies of the young
The answer is that those involved in it got their moneys worth
from it. The beneficiaries in the industrialised nations were on the
one hand the suppliers of the plants, who often were also shareholders
and licensors of the companies, also supplied raw materials, and at
times sold the plants products. On the other hand, this type of
industrialisation created jobs for skilled workers in the North. Third,
financing modern plant enabled the development cooperation institutions
to implement a fast outflow of funds and point out to the public that
they were creating jobs in the North because that was where the plants
e African countries, the leadership elites in politics and administration
benefited from this kind of industrialisation. It enabled politicians
and senior officials to pocket rent income in the form of bribes, dividends
and directors fees for seats on company supervisory boards. The
plant suppliers, competing for orders, spread money around liberally
in a bid to outdo each other. The plants also gave many managers the
opportunity to provide jobs, orders and other kind of income for their
personal clientele. It is obvious that this cannot easily be done in
the case of industrialisation from the bottom up, as the
local small-scale and micro-enterprise sector demanded.
In theory, this industrialisation strategy was founded in the modernisation
strategy paradigm which then prevailed among all development cooperation
institutions worldwide. The African leadership elites in many
cases alienated from their own culture and origins simply could
not imagine industrial development based on local tinkers, craftsmen
In addition, at the beginning of national independence the African
elites were penniless because they had no economic basis. The import
of modern industrial plants and the kickbacks that went with them benefited
both the socialist-oriented elites and the politicians in countries
with market economies.
Systematic obstruction of
industrialisation from below
Unfortunately, while the elites did everything to drive ahead the industrialisation
of their countries by means of leaps in modernisation, they did very
little to at least at the same time promote the step-by-step and organic
development of the local small-scale and micro-enterprise sector. Almost
all measures which promoted the modern sector hurt the small people,
either because they raised the hurdles for their legal and formal existence
(expenditure of work and time, charges), or by distorting competition
and harming or depriving them of their livelihoods.
These hostile conditions compelled many of them to ignore regulations,
go underground and carry out their production secretly.
The authorities consider this behaviour to be illegal and try to track
down and prosecute the offenders. But they usually avoid that by bribing
market officials, municipal supervisors and the police. A cynical view
could conclude that promotion of modern industry is complemented by
suppression of the autochthonous sector. If politicians and officials
at the national level benefit from the former, the administration staff
at the local level benefit from the latter process.
The impacts in terms of unrealised development are fateful. Owners
of unregistered or non-licensed micro-enterprises, which therefore are
not legal entities, and who for lack of suitable business premises work
on a piece of land which they have neither leased nor rented have no
legal rights and thus are totally at the mercy of state organs and criminal
business partners and employees. This applies to the overwhelming majority
of the micro-enterprises and small-scale businesses in Africa. The people
in this category:
- do not advertise their goods and services because it could attract
the police as well as customers;
- invest very sparingly and buy only as many tools as they can carry
away with them when the bulldozers arrive to destroy illegally
- even if it means economic disadvantages, enter into business relationships
solely with partners whom they can put under social pressure (such
as relatives and persons of the same origins) because the latter cannot
take legal action against unlawful partners;
- for the same reason, prefer to hire these types of people even if
they are less skilled than strangers; and
- invest a great deal of their income in social relationships because
they are the only things which guarantee social security and legal
Businesses whose owners are forced to pursue such a strategy do not
grow, make no innovations, and thus have no growth impact on other businesses
and sectors. At best, they secure the survival of the owners and their
employees. Short-sighted development economists conclude from this that
these entrepreneurs actually want to achieve nothing more by their self-employed
activities, and therefore need no promotion. This conclusion is wrong.
The small businesses contribution to macroeconomic development
is also inhibited by the fact that they have no, or only overpriced,
access to finance institutions and other services. Capital comes from
private sources and therefore is scarce. To date, there have been practically
no further training and advisory services customised to the needs of
small businesses. Apart from a few exceptions, there have been no attempts
by either the state or private sector to stimulate, arrange and back
up cooperation between small businesses and modern medium-sized and
large companies. Cluster-forming, sub-contracting and franchising are
largely unknown terms and concepts in Africa.
These conditions still hinder the micro-enterprise and small-scale
business sector in developing and differentiating itself and integrating
in the national economy in division-of-labour terms, and thus prevent
it contributing to overall social and economic development. An ever
growing number of micro-enterprise providers is supplying a stagnating
and in part shrinking market of declining sales.
Regrettably, a consistent and determined reverse of the industrial
development policy in most African countries is not in sight. True,
as a result of structural adjustment programmes and other conditions
of donor organisations, ailing medium-sized and large businesses are
no longer subsidised and since about the mid-1980s many have been closed
or privatised. But in most African countries promotion of the small
business sector has not yet gone much beyond the publication of strategy
papers. At the same time, the small businesses are seeing themselves
exposed to tougher competition due to the progressive liberalisation
of foreign trade.
Dr Wolfgang Schneider-Barthold is on the staff of the ifo Institute
for Economic Research, Munich, and specialising in international consultancies.
D+C Development and Cooperation,
published by: Deutsche Stiftung für internationale Entwicklung (DSE)
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