Getting Rich the Hard Way
"Rich countries got rich because their states and ruling elites set up subsidized and protected dynamic industries and services."
Adding value to a product – whether it is canning tomatoes, turning iron ore into steel or building cars – is difficult. But ultimately, it is what makes a country rich.
If you keep selling pineapples, you will end up with peanuts. "If you look throughout economic history, there is not a single [country] that has got rich without manufacturing, outside a few resource-rich countries in the Middle East – and even they will face an unemployment crisis," says Hinh Dinh, a senior economist at the World Bank.
A lot of these guys in banking and engineering who lost their jobs were despondent, but at the moment, opportunity started rearing its head here.
The continent's current economic boom, welcome though it is, depends largely on the export of raw materials. In 2010, two-thirds of Africa's total exports were oil and minerals. To which one can add soft commodities: coffee, tea, cocoa, sesame, peanuts, bananas, cashews, cotton, livestock and horticultural products. Manufacturing outside some honourable exceptions, is scarce in Africa. The total manufacturing output of the continent is just over $150bn, compared to the $2trn in total exports for China in 2012. Cars are made in Morocco and South Africa.
Tunisia and Egypt have some heavy industry, while Zimbabwe, Nigeria and Ghana have factories in various states of decay.
With Africa's daunting youth bulge about to unleash millions of people onto the job market, turning this situation around becomes an imperative. But how? Economist Erik Reinert explains: "Rich countries got rich because for decades, even centuries, their states and ruling elites set up, subsidised and protected dynamic industries and services."
Ironically, the World Bank, itself set up to help poor countries get rich, got caught up in a Cold War-fuelled denial of this historical fact.
In his book How Rich Countries Got Rich ... and Why Poor Countries Stay Poor, Reinert says: "If you want to understand the causes of American and European prosperity, study the policies of those who created it, not the advice of their forgetful successors".
A wayward colony, fed up with being cheated and forced to sell its raw materials to the United Kingdom (UK), rebelled to start a vigorous campaign to have its own industries.
Royal Brain Wave
Perhaps the world's first example of national industrial policy was set in motion by King Henry VII of England in 1485, when he realised that England should be a textile-exporting country rather than exporting raw materials. He placed tariffs on wool exports and gave tax breaks and monopolies to selected newly established wool manufacturers.
But enough of economi s t s and historians: a small band of industrialists and pol i t icians acros s Af r ica ar e ditching the ideological straightjackets inherited from the World Bank and the International Monetary Fund's 'Washington Consensus' and are adopting the policies and business strategies that have made Japan, South Korea, Taiwan and China rich, and the West before them too.
Daphne Mashile-Nkosi is one of them. Imprisoned by the apartheid regime, she became a political and women's right activists and is perhaps an unlikely candidate for African industrial heavyweight.
Her partners in the Kalagadi Manganese mining project in South Africa, ArcelorMittal, had their reservations. "They thought, here is a black woman, with no experience, saying she is going to build a sinter plant", Mashile-Nkosi told The Africa Report.
"Of course, you want to protect your investment, but mostly you don't believe in her." Nevertheless, in November 2013, Kalagadi's plant was officially opened. "Here is a heroine", said South Africa's President Jacob Zuma at the launch. Rather than exporting raw manganese ore, the manganese sinter project refines it to around 48% purity.
The R7bn ($633m) project in the Nor thern Cape wi l l eventual ly be accompanied by a smelter at the Coega Industrial Development Zone. It will produce 320,000tn of highcarbon ferro-manganese alloy annually, a key input for the steel industry. Proving the economics of the project have good fundamentals, Kalagadi has secured an off-take agreement with the Johannesburg Stock Exchange-listed Metmar.
The logic of beneficiation, or adding value to locally produced raw materials, is clear for Mashile-Nkosi: "It brings more jobs and more skills.
From trade to industry
Africa's richest and most successful businessman appears to agree. Aliko Dangote, who for many years contented himself with importing refined sugar and cement into Nigeria, has caught the beneficiation bug.
Dangote's cement factories now dot the landscape, and his Dansa Foods is building a $36m food-processing plant in Kano, northern Nigeria. It will turn part of Nigeria's tomato crop into tomato paste.
The country currently imports more than 300,000tn of tomato paste annually, costing $360m.
Not content with tomatoes, Dangote is also tackling Nigeria's number one commodity, oil. His company is building an oil refinery with a capacity of 400,000 barrels per day and a polypropylene plant that can produce 600,000tn per day.
With the project cost totalling $9bn, it is a weighty bet against free-market theorists who insist Nigeria's comparative advantage remains as a commodity exporter rather than as an industrial powerhouse.
The real money is in manufacturing goods.
Clustered around the heavy roller at the Mediterranean Industrial Group (MIG) engineers should to make themselves heard.
Machines bend a nearly two-inch thick sheet of steel relentlessly into a neat hoop. A shower of sparks engulfs the welding team. Slowly and surely, the mast that will eventually carry a wind turbine emerges from the work yard. From their base in Sfax, the longneglected industrial city at the gateway of Tunisia's greater southern region, MIG represents a manufacturing success story, building metal structures such as telecom masts and energy sector infrastructure.
Bassem Loukil, CEO of Groupe Loukil, which owns MIG, appreciates the 10- 15 years of breathing space the government gave to infant industries in Tunisia. "Imagine trying to set up a unit like this today without protection, with all the Turkish and Chinese dumping strategies you have in Africa today! We would not have survived."
More than 3,000km to the south in Nnewi, Nigeria, another workshop hums with life – grimy and less automated, it is a car factory owned by Innocent Chukwuma. "Yes, the government is helping me." The current tariff on imported cars is 10%, but this is going up to 35% in February," says Chukwuma. There is a culture of building in Nnewi that stretches back many decades.
A cluster of small workshops dot the town. Chukwuma's company, Innoson, is an echo of Loukil's and indeed Dangote's. All of them started off as traders and importers who went into manufacturing. All had foreign partners at a critical moment of their development. All are trying to climb their way up the technology tree to gain a competitive advantage.
"At the moment, we import the engine blocks from a specific factory in China, but we have ordered a die-casting machine which we should be getting at the end of the year," says Chukwuma. Thinking at the World Bank about supporting local companies is evolving. Its vice-president for Africa, Makhtar Diop, said: "This is a taboo subject, I know, but I would like to look at how to take the trader in Cocody [in Abidjan] and help him move towards manufacturing, investing in the productive sector.
From Jags to riches
There are other ways for governments to boost entrepreneurs, such as requiring local content in government contract tenders.
And though many laughed at Indian officials forced to drive around in the dowdy first iteration of locally made Tata cars, Tata Motors now owns Jaguar and Land Rover, two former flowers of the UK car industry.
"Anambra State government once ordered 1,000 vehicles," says Chukwuma. "And the government has announced that local manufacturers will be considered first choice for procurement [deals]." Factories first, roads after "Explosive wages in Asia are forcing manufacturers of all stripes to look for cheaper production sites"
Justin Lin dismisses another of the commonly held preconceptions against the drive to boost manufacturing in Africa: the lack of infrastructure. "I remember driving around the new factories in Shenzhen in the 1980s", says Lin, referring to the launch site of China's manufacturing miracle around the Pearl River Delta.
"The roads were nowhere near what you have in Ethiopia." And even in chronic laggards like Nigeria,
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