African nations are undergoing change, but the old politic rhetoric is still the dominating narrative in many parts of Africa. It’s been “Africa Rising” for some time now, and yet, so many countries remain impoverished and dependent on foreign assistance. What does this mean for African industries? Many African economies remain fragile and underdeveloped. While there are a variety of factors that contribute to this situation, one of the most significant is the role that government policies play in shaping the business environment. When the government creates the right conditions for development and growth in a country, industries can flourish. When the government is committed to these policies, governments and private investors are more likely to invest in African industries. Consequently, this investment leads to foreign direct investment (FDI), job creation, higher incomes for workers, and domestic savings.
In many African countries, the rhetoric from politicians is often geared towards alleviating poverty, improving health care and education systems, or combating corruption. However, rhetoric alone will not produce results. Instead, what is needed is a series of policies that directly support and stimulate development. To foster growth in African industries and encourage investment, the government needs to design public policies that address key needs: infrastructure and transportation (to facilitate access to markets, labor markets, ports, and borders), electricity (to lower production costs), modern communication infrastructure (to enhance productivity), education (to improve human capital) and security.
Beyond the Rhetoric explains how each of these areas could be enhanced if governments encouraged industries. Policies that promote industrial development will also have the added benefit of improving the overall growth of the African economy. By creating a wide range of incentives that drive private sector investment and performance, governments can help develop manufacturing and other industries. Ultimately, this would lead to higher incomes for Africa’s poorest citizens; a greater share of the continent’s natural resources could be used for domestic benefit; and African countries would become less dependent on foreign support.
All that this points out is that governments in Africa have a critical role to play in shaping the business environment, from creating a level playing field for all businesses to providing infrastructure and incentives that encourage investment. However, all too often, government policies are a hindrance rather than a help to businesses. Bureaucratic red tape, corruption, and inconsistent regulations can all create significant barriers to entry for new businesses and make it difficult for existing businesses to expand and succeed. In addition, the unpredictability of public policies can compel businesses to take short-term actions, such as laying off workers or reducing wages. This is especially true for small and medium-sized enterprises (SMEs), which often lack the resources to cope with sudden changes in government policy.
Furthermore, many African governments have been slow to adopt policies that would encourage sustainable economic growth, such as investing in education and technology and creating an environment that is conducive to innovation and entrepreneurship. This is all happening in the backdrop of a global environment in which free trade is reaching unprecedented levels. However, with this trend comes increasing pressure on African industries to be competitive in world markets. This has led to a situation where many African industries are struggling to compete on the global stage and are increasingly reliant on foreign investment to survive.
If governments continue to focus on rhetoric rather than the implementation of policies that directly affect industries the industrialization of Africa will continue to falter. Economic growth in Africa is strongly tied to the development and increased production of industries that lead to an improved life for all Africans. This will require governments to make a serious commitment to stimulate industrialization in Africa and ensure that all policies address the needs of industry and employment. If government policies are not reformed, African countries will remain impoverished and unable to compete on the international stage.
Recommendations for Sustaining African Industries
Considering the unique challenges and opportunities present in the continent, governments can adopt the following proposed policy strategies and recommendations for ensuring the long-term viability and success of industries in Africa while stimulating industrial development.
- Pro-Industry tax reforms: Governments must reduce and eliminate non-tariff barriers to trade and investments, such as taxes that undermine competitiveness. For example, eliminating the trade tax would help African countries become more competitive in the global market. This would benefit all industries by opening up markets and enabling producers to lower prices for consumers.
- Establishing Special Economic Zones: In addition to reducing non-tariff barriers, African governments can also establish special economic zones that offer attractive investment incentives and streamlined business procedures to encourage the growth of both heavy and light industries. For instance, the Dawa Industrial Zone in Ghana provides investors with a one-stop-shop for all their business needs, including land acquisition, construction permits, and tax exemptions, which have helped to attract a range of industries, including food processing, textiles, and pharmaceuticals, and create employment opportunities for the local population.
- Business-friendly regulatory systems: Many African governments have a variety of regulations and laws that make it difficult for businesses to operate. These include the labor market, land ownership, immigration status, and tax compliance. Governments should reduce the requirements for business formation and operation and create transparent and efficient administrative processes to eliminate delays, corruption, and red tape.
- Sector-Specific Development Strategies: The government should develop an industrial policy that promotes sector-specific development through regulations and incentives. For example, the government could establish a pollution control unit for power industries or create sector-specific taxes for manufacturing.
- Comprehensive Tax Reforms: Government policymakers should implement tax reform that fixes non-tariff barriers to trade, such as inconsistent regulations and inconsistent tax rates. Governments should avoid measures that target investment activities while ignoring consumption activities, such as taxes on dividends and interest income. In addition, governments should reduce the number of import duties and eliminate select subsidies to promote imports.
- Government Support: Governments must also provide support to industries in various ways. For example, governments could provide access to skills and human capital through training programs. This would help industries recruit additional workers and create more jobs. Another way to promote industry is by providing funding for research and development (R&D), which would spur innovation for new products. However, governments need to ensure that the funding goes toward specific objectives, such as science and technology, rather than toward general activities such as health and education. In addition, governments can provide loan guarantees and low-interest rate loans to help industries obtain additional funding. They should also invest in public infrastructure such as roads and energy, which would not only create jobs but also create an environment conducive to long-term economic growth.
- Regional integration: Governments should ensure that industries from all regions of the country benefit from trade policies and government support. For example, African governments can create ports that would help transport goods between different regions that are not well connected. This would reduce the cost of production and allow for an increase in business activities by creating a more favorable cost structure for all industries.
- Support Industry through Trade Policy: Governments should adopt trade policies that encourage imports of machinery and equipment, raw materials, and other intermediate goods that are essential for industrial production. This would help businesses reduce dependence on foreign producers of these goods. In recent years, there have been a number of initiatives aimed at promoting economic growth in Africa, such as the African Continental Free Trade Area (AfCFTA), which seeks to create a single market for goods and services across the continent. If implemented effectively, these initiatives could help to create a more favorable business environment for African industries and spur sustainable economic growth. The overall goal is to create a single market in which producers can benefit from an open-ended system of trade that would allow for the free flow of goods and services across borders. This would enable African industries to be more competitive, and thereby drive economic growth. For this to happen, governments must commit to implementing the AfCFTA with determination and dedication.
- Strategic Planning: African governments should create a strategic plan to identify specific industries they would want to develop. They should also determine the level of government support that will be required for each industry. This includes the amount of industrial infrastructure and skills needed to develop each sector. In addition, governments should set specific targets for industrialization with time frames for completion of the plan, so that industries have enough time to create capacity.
- Incentives: Governments can also provide incentives to encourage business development in specific sectors. For example, they can offer incentives to industries in critical sectors such as manufacturing, agriculture, and transportation.
- Social Aspects: Governments should ensure that all policies do not inflict social and environmental damage on the industries they affect. For example, they should ensure that there are no negative impacts of industrialization on the environmental, health, and social status of workers and communities.
It is also important that governments consider the impact policies have on neighboring countries and foreign investors who may be affected by policy changes. WTO rules require governments to provide evidence before introducing trade restrictive measures, such as tariffs, quotas, or subsidies with a potential impact to trade with other countries.
In sum, it is evident that government policies can have a profound impact on the success or failure of African industries. While there are many challenges that need to be addressed to promote sustainable economic growth, there is also cause for optimism. By working together to address these challenges, governments, businesses, and civil society organizations can help to create a brighter future for Africa.
The writer is an award-winning financial advisory, trade and transformation consulting professional with almost two decades of enterprise leadership experience across EMEA.
