Towards Harmonization of Industrial Investment Policies in Africa

Published on 13th July 2009

The Global Financial Crisis has begun to affect the inflow of investment resources to African industries. As a result, the continent has suffered dramatic decline in the inflow of foreign direct investment and trade finance in many industrial sectors. African extractive industries, which have experienced a boom in foreign investment in the past decades, have also suffered a decline due to the crisis. In addition, foreign bank lending and trade financing to African Small and Medium-size Enterprises (SMEs) is being reduced as a result of the current risk aversion policies of banks.

 

In the current crisis, Africa is the least recipient of global investment resources as compared with other regions of the world. The cumulative effect of the crisis on Africa’s trade and industrial investment is a decline in economic growth and increase in the rate of unemployment and poverty levels. Therefore, it is now time for Africa to re-think its industrial investment strategy and harmonize its policies so as to make the continent an attractive place for industrial investment.

 

Strong and conducive investment policies are a key driver of sustainable industrial growth and development in the continent. However, for decades, many African countries have received very little industrial investments due mainly to distorted and incoherent national industrial investment policies. The continent’s rich natural and mineral resources remain largely un-tapped due to inappropriate national policies, poor infrastructure and limited technology in the region. Africa has also been particularly vulnerable to external trade shocks due to its heavy reliance on the exports of unprocessed raw materials.

 

The key to minimizing this vulnerability is the diversification of national economies, the development of national and regional markets, the strengthening of South-South Cooperation, and building of capacities for the enhancement of industrial competitiveness and greater value addition to raw materials in the continent. In addition, strengthening of regional integration and the building of infrastructure, human capital and appropriate technology must be given high priority. For the people of Africa to enjoy a decent socio-economic living, our industries need to be robust and well developed in order to be competitive.

 

Despite the numerous constraints faced by many African industries over the years, a good number of African countries achieved remarkable economic growth, which can be attributed to the adoption of sound macroeconomic management as well as the boom in commodity prices in the international markets. The persistent industrial supply-side constraints faced by the continent is due to, among others, lack of industrial investment capacities, inadequate entrepreneurship, poor infrastructure and energy supply, limited industrial skills, and low income for the majority of the African population. In addressing this situation, the continent needs to put greater emphasis on creating a conducive and coherent policy environment that could generate skills, promote investment in the critical industrial sectors, stimulate industrial productivity, provide infrastructure and energy, reduce the cost of doing business and introduce appropriate standards to enable African industrial products to compete in international markets.   

 

It is extremely important for investment policies of all African countries to be streamlined and aligned with national development goals and priorities so that they can respond positively to the specific challenges posed by their economies. One key policy task is to create a friendly institutional environment that enables Member States to address their industrial investment challenges.  

 

In recognition of the importance of industries to the continent’s socio-economic development, the African leaders have renewed their determination and commitment to Africa’s industrialization process. This is evidenced by their dedication of the theme: “The Industrialization of Africa” to the 10th Ordinary Session of the African Union Assembly of Heads of State and Government, which was held in Addis Ababa, Ethiopia, in February 2008. During the Summit, the Heads of State and Governments unanimously adopted and endorsed the “Plan of Action for the accelerated industrial development of Africa,” which has formed the basis for the continent’s Industrialization drive. In addition, the Commission of the African Union is also fast tracking the establishment of the African regional financial institutions such as the African Investment Bank, the African Central Bank and the African Monetary Fund to address some of the difficulties faced by the continent’s industrial sector.

 

By H.E. Erastus Mwencha,

Deputy Chairperson, AU Commission

 


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