URBANIZATION AND INDUSTRIALIZATION

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200 ECONOMIC REPORT ON AFRICA 2017 SUBSECTOR TARGETING IN INDUSTRIAL POLICIES Investments and public resources will have more impact if they lift certain industrial subsectors and their value chains to achieve the development goals in the national development plan. PRIORITIZE LABOUR-INTENSIVE MANUFACTURING Labour-intensive manufacturing should be a key component because of the jobs it can generate (see chapter 3). Conversely, policies that primarily support high-growth subsectors but generate few jobs—directly or through their multiplier effect— will not contribute to structural transformation and will fail to exploit the demographic dividend or end poverty. This is a particular challenge for countries reliant on natural resources. They should use income from natural resources to invest in wellfunctioning urban systems as a foundation for stable long-term economic growth, as well as lay emphasis on policies and investments for value added and labour-intensive linkages. FOCUS ON EXISTING COMPARATIVE ADVANTAGES BASED ON RESOURCE ENDOWMENTS <strong>AND</strong> GEOGRAPHY Targeting specific subsectors for industrialization and managing the trade-offs between investment strategies should consider the comparative advantages of these subsectors. Countries may have these advantages due to a mix of their natural endowments, growth trajectory, geographical location and regional dynamics. It is important to consider the industrial subsectors where an economy can compete based on the resources available, although there may be benefits in entering higher-productivity subsectors where it lacks comparative advantage, which may be acquired gradually (Redding, 1999). Broadening and deepening value chains linked to natural resource endowments is central to industrial policy in Africa. The importance of commoditybased industrialization as a means of diversifying African economies over the long term while building competitive advantages in resource-rich countries has been underscored in previous reports (ERA 2014). Industrial policy should target subsectors that can respond to growing and shifting patterns of Investments and public resources will have more impact if they lift certain industrial subsectors and their value chains to achieve the development goals in the national development plan. urban consumption, taking into account a country’s agricultural potential, natural resource endowments and related value chains. Geographical comparative advantages may have been shaped by proximity and connectedness to continental and non-African markets, such as Tangier’s automotive industry, which thrives in part on its proximity to European markets. Africa’s trade presents major opportunities, with intra-African exports representing a more diversified range of goods and services than exports outside the continent. Geographical advantages at subregional level within Africa should be strengthened by Africa’s regional economic communities and the proposed Continental Free Trade Area. For example, although Rwanda is a landlocked country with a small domestic market, it is a leader in tradeable services that could be better linked to subregional industries, and its agro-industry could better serve subregional markets if logistics and ports were better. Based on natural resource endowments, spatial targeting of industrial subsectors should be coordinated with urban development. Subsectors most dependent on natural resources or on relatively immobile factors of production are likely to concentrate on locations endowed with them. These preferences can be guided and supported, linked to the vision for urbanization and the national urban system. SUPPORT EXISTING SUBSECTORS Existing manufacturing subsectors should not be ignored, particularly those that emerged organically in response to demand. Such subsectors can often grow in employment and global competitiveness with the right policy support, particularly in informal manufacturing where small enterprises are held back
y their inability to access key factors of production (land, electricity, finance or skills). Drawing on industry-wide and firm-level data, it will be vital to identify leading, lagging, emerging and declining subsectors for targeting. Policymakers may also consider the country’s position within product spaces 2 to steer it more to a set of manufactured goods that builds skills, capacities and linkages with other similar goods, opening opportunities for diversifying into similar products. RESPOND TO URBAN DEM<strong>AND</strong> THROUGH DOMESTIC INDUSTRY Africa’s growing demand and consumer class signal market opportunities for industrial development generally and some subsectors more specifically, including the following four. Urban housing. African cities face severe housing backlogs. Governments can leverage marketbased and social housing to develop the domestic construction and building material industries, including through procurement and local content policies that support the development of firms and suppliers along the value chain. Procurement policies should be paired with support to firms and workers to meet the required standards. Programmes that focus on small and medium-size enterprises, women and youth are well placed to broaden the jobcreation benefits of the construction boom closely associated with urbanization across Africa.. Urban infrastructure. African cities face wide infrastructure gaps hurting the spatial structure of cities and undermining their competitiveness. Efficient services and infrastructure are urgently needed to support industrial productivity, but investment should be planned to meet industry Africa’s growing demand and consumer class signal market opportunities for general industrial development and for some specific urban subsectors, including housing, infrastructure, food and agricultural value chains and business services. needs, generate jobs and develop local construction capacity. Infrastructure investment should also be tied to domestic industry, in some cases through procurement policies favouring local sourcing. However, domestic supply chains will no doubt need support to meet infrastructure needs and standards. Low-tech, labour-intensive infrastructure projects have favourable impacts on local job creation, as seen in Ethiopia’s cobblestone road-paving projects. Urban areas also offer opportunities to green Africa’s infrastructure and related industries. Urban energy consumption, construction, transport and waste management are all areas with potential for greening and for employment creation (UNECA, 2016). Urban food and agricultural value chains. Spurred by rapid urbanization, urban food demand is rising and shifting to processed food. This presents opportunities for agricultural modernization through agro-processing and for a range of manufacturing and associated enterprises along the food value chain—from farming to transport and logistics, to retail. Agro-industrialization is critical in Africa where subsistence agriculture remains the backbone of most economies. Identifying valueadding opportunities along the chain has a strong spatial element, however: clusters and locations of comparative advantage have to be spatially mapped and supported with hard and soft infrastructure. Cities and other locations along the supply chain have to be connected to ensure efficient flows of production factors, intermediate inputs and final products to the market. The role of intermediate towns in linking urban demand with agroindustrialization is particularly important. Large food retailers tend to have the most power in processed food value chains, presenting an opportunity to draw on their power for developing supply chains. South Africa’s Massmart Supplier Development Fund is an example. Urban-based business services. Business services tend to cluster in cities, where they can access pools of skilled labour and knowledge and provide a better business environment and capacity if linked to industrial needs. Urban-based tradeable services, such as finance, insurance, real estate, accounting, information and communications technology (ICT) and other business services, have a dual role in linking urbanization and economic growth. They are vital to the productivity of industry, particularly URBANIZING TO INDUSTRIALIZE: POLICY RESPONSES 201
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URBANIZATION AND INDUSTRIALIZATION
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CCONTENTS LIST OF BOXES, FIGURES &
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chapter 5 URBANIZATION AND INDUSTRI
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CHAPTER 1 (CONT) Figure 1.11 Growth
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CHAPTER 4 BOXES Box 4.1 Drivers, en
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LIST OF ABBREVIATIONS USED AEO AfDB
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UN-Habitat UNICEF US USAID WDI WTO
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The lead consultant, Mr. Gulelat Ke
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FFOREWORD Urbanization is a mega-tr
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articulated. Yet, industrial target
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harnessing opportunities from rapid
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A diverse urban system can offer in
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Cities and urban agglomerations sho
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Figure 1.1 Economic growth in Afric
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In 2016, the generally weak world e
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Box 1.2 SOME POLICY RESPONSES OF AF
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year, driven by slower growth in Al
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associated with a decline in the va
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Figure 1.7 Productivity growth by A
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AFRICA’S CURRENT ACCOUNT DEFICIT
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lower global prices of oil and food
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about 4 and 5.5 percentage points,
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Box 1.3 THE CONTINENTAL FREE TRADE
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Figure 1.15 Gross domestic savings,
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are seeking to finance public inves
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Figure 1.19 Africa’s growth prosp
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Box 1.4 CHINA’S ENGAGEMENT IN AFR
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REFERENCES AfDB-OECD-UNDP 2016. Afr
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58 ECONOMIC REPORT ON AFRICA 2017 2
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66 ECONOMIC REPORT ON AFRICA 2017 P
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68 Table 2.5 Total fertility rate p
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72 Table 2.7 Change in gender gap i
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74 ECONOMIC REPORT ON AFRICA 2017 T
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78 Table 2.8 African countries cate
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Figure 4.1 The urbanization-industr
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4.1 DRIVERS: URBAN DEMAND AND SHIFT
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FOOD VALUE CHAIN AND RURAL-URBAN LI
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But for the construction sector to
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The link between GDP and formal hou
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Figure 4.7 Employment in constructi
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More recent theories of industrial
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Table 4.3 Results of selected econo
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expensive interventions to support
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Figure 4.9 Top two ranked countries
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study 16 —makes the following con
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Table 4.4 Industrial sector charact
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Box 4.5 A PATH TO FORMALIZATION Suc
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Arusha, Tanzania Beira, Mozambique
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lengthening travel times and creati
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Page 157 and 158: ENDNOTES 1 The link between urbaniz
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Page 161 and 162: Figure 5.1 50,000 Four basic countr
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Page 175 and 176: REPUBLIC OF CONGO A functional urba
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Page 181 and 182: Even non-BRT systems can improve tr
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Page 187 and 188: To foster industrialization, polici
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Page 191 and 192: REFERENCES Ackah, C., C. Adjasi and
Page 193 and 194: NISR (National Institute of Statist
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Page 202 and 203: 202 Table 6.1 Costs and benefits of
Page 214: Despite the recent slowdown of the
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