According to former United Nations Secretary-General Kofi Annan, “good governance is perhaps the single most important factor in eradicating poverty and promoting development.” Indeed, as Africa Growth Initiative Nonresident Senior Fellow John Mukum Mbaku discussed in his Foresight Africa 2020 piece “Good and inclusive governance is imperative for Africa’s future,” without good and inclusive governance, Africa will not achieve its social and economic targets.

Though Africa has made progress toward democracy and good governance (Figure 1), many challenges persist, and reforms are still needed in many countries, argues Mbaku.

Figure 1. Spread of democracy in sub-Saharan Africa has stagnated since the mid-2000s

Source: Ordu, A., & Golubski, C. (Eds). (2020). Foresight Africa: Top priorities for the continent in 2020-2030. Washington, D.C.: Brookings Institution.

Importantly, as Mbaku explores, a lack of democratic reforms and good governance damage a state’s ability to ensure peace and security as well as the economic growth needed to tackle poverty. In other words, he writes, the absence of good governance too often hinders African countries from creating and sustaining peaceful coexistence thus hindering economic growth given that wealth creation and growth are intimately intertwined with peace and security.

He ends with recommendations to successfully bolster good and inclusive governance. More specifically, he states that countries should strive for a governance structure that addresses peaceful coexistence and economic development, inequality, climate change, pandemics, and regional cooperation. To do so, he offers five recommendations:

1. Countries in or recovering from crisis must engage in process-driven constitution-making and produce constitutional principles to inform and guide the drafters while safeguarding against abuses of power.
2. Countries that have a progressive and inclusive constitution undergirded by the separation of powers should engage in national dialogue to help citizens understand and appreciated the importance of the constitution to governance and human rights.
3. With the aid of civil society, all countries should develop and implement education programs that help citizens understand and appreciate the constitution and recognize the law as a tool to resolve conflicts.
4. All administrations should engage in regular dialogue to revisit important governance issues and ensure that governance is inclusive of women and youth.
5. Citizens should be involved in shaping the institutional and legal environments for the transformation of Africa’s governance architecture over the next decade.

      

In an attempt to deepen financial inclusion, microfinance organizations are introducing digital solutions to serve low-income households and small- and medium-sized enterprises. Mobile financial services and fintech solutions are particularly promising in Africa where financial inclusion is only 43 percent, whereas mobile phone penetration is almost 90 percent. Such solutions show promise: In Kenya, for example, mobile financial services—specifically mobile money—contributed to increasing financial inclusion from 26.7 percent to 82.9 percent between 2006 and 2019.

Microfinance organizations have two goals: One is to increase financial inclusion, the other to be financially profitable—or at least financially sustainable. Balancing those goals is not easy, as leadership must choose between prioritizing social impact versus financial performance, and must consider changes that come with time, investments, environmental fluctuations, innovations, and the like. Thus, as is common when pursuing dual, often conflicting aims, optimizing both is hard.

Still, the rewards are worth it, and innovations are making this goal more achievable every day. Indeed, mobile money, fintech services, and online banking have the potential to transform the microfinance industry in Africa, given their enabling capabilities to increase both financial performance and social impact.

Benefits and costs associated with mobile financial services implementation

A recent research project at Oxford University shows that mobile financial services bring benefits to organizations implementing such tools. In fact, microfinance organizations see benefits most prominently in the organization’s capabilities to: (1) serve more clients; (2) more successfully meet client demands; and (3) increase their financial strength.

At the same time, the research further reveals that, while the benefits from mobile financial services are many, microfinance organizations contemplating investing in various fintech solutions must consider potentially high costs. The most daunting expenses include: (1) investment in the back end of mobile technology; (2) digital literacy training of current staff; and (3) digital literacy training of clients (Figure 1).

Figure 1. Costs associated with implementing mobile financial services

Source: Varendh, Cecilia. (2021). ”Mobile-mission: Technology’s impact on social enterprises logics prioritisations.” Academy of Management Proceedings. 2021.

Mobile financial service uptake by microfinance organizations in sub-Saharan Africa

The Oxford research also found that microfinance organizations’ investment in mobile financial services has the deepest penetration in eastern and southern Africa, especially in Kenya, Zambia, and Tanzania, followed by Uganda and South Africa (Figure 2).

Figure 2. Mobile financial services adoption by microfinance organizations

Source: Varendh, Cecilia. (2021). ”Mobile-mission: Technology’s impact on social enterprises logics prioritisations.” Academy of Management Proceedings. 2021.

Beyond geography, the type of mobile financial services and fintech solutions implemented by microfinance organizations differs, as 83 percent of the surveyed microfinance organizations offer mobile money transfers between accounts, 74 percent offer saving and deposit opportunities, and 55 percent offer their clients mobile loan application (Figure 3).

Figure 3. Type of mobile financial services offered

Source: Varendh, Cecilia. (2021). ”Mobile-mission: Technology’s impact on social enterprises logics prioritisations.” Academy of Management Proceedings. 2021.

Partnerships are central for successful microfinance projects using mobile financial services and fintech

The study further shows that the majority of organizations investing in mobile financial services partner with other stakeholders, institutions, or startups. In fact, 69 percent of the surveyed microfinance organizations partner with mobile network operators; 53 percent partner with a bank; and 43 percent partner with third-party agencies, predominately fintechs (Figure 4).

Figure 4. Microfinance organizations’ various approaches when implementing mobile financial services

Source: Varendh, Cecilia. (2021). ”Mobile-mission: Technology’s impact on social enterprises logics prioritisations.” Academy of Management Proceedings. 2021.

What is the real impact of mobile financial services for microfinance organizations?

The Oxford research modeled (using regression techniques, controlling for country and company specifical heterogeneity as well as for unobserved heterogeneity between years) how mobile financial services investment impacts microfinance organizations’ two goals discussed above: depth of social outreach and profitability.

Overall, the models show that mobile financial services investment decreases microfinance organizations’ social outreach intensity (proxied as microfinance organizations’ average loan size per borrower) by 41.7 percent. The models further illustrate that the decrease in social outreach intensity is different between microfinance organizations depending on their legal status as for- versus not-for-profit. More specifically, the research finds that not-for-profit organizations decrease their social outreach intensity (again, proxied as an organization’s average loan size per borrower) by 36 percent after implementing mobile financial services. Furthermore, not-for-profit organizations experience weaker financial performance (i.e., profit) associated with mobile technology investment—with an average financial loss of 3 percent. On the other hand, for-profit microfinance organizations decrease their social outreach intensity by 44 percent, while increasing their average financial performance by 20.4 percent.

Policy recommendations

The insights of this research should not be taken lightly: In short, it finds that it is far more complex and multifaceted for microfinance organizations to use mobile financial services and fintech solutions to increase their social outreach and financial strength than proposed by global think tanks and other consultancies.

These findings, however, do not necessarily negate those institutions’ conclusions: Mobile technology does have the technical capability to aid microfinance organizations to increase financial inclusion. However, the complications faced by organizations in Africa when implementing mobile technology or fintech solutions are many. Such complications and difficulties include a need for substantial capital investments, lack of trust from low-income clients to use mobile technology for financial means, the necessity for microfinance organizations to invest in financial and digital literacy programs, and low Wi-Fi penetration in remote areas. Policymakers, fintech, and edtech entrepreneurs should take those implications into account to aid microfinance organizations to utilize mobile technology to increase both their financial strength and social outreach intensity.

The Oxford study further highlights the importance of policy changes: To aid microfinance organizations to successfully take full advantage of mobile financial services implementation, policies should promote digital financial training; facilitate and/or fund fintech solutions that are easily and financially accessible for microfinance organizations; strengthen and implement fraud prevention mechanisms and laws; and implement digital banking identification numbers.

      

Experts predict uneven economic growth across sub-Saharan Africa

On Wednesday, the International Monetary Fund (IMF) announced that the Democratic Republic of the Congo (DRC) is expected to grow 5.4 percent in 2021 and 6.4 percent in 2022. In a news conference announcing the new estimates, IMF Managing Director Kristalina Georgieva praised the DRC for its economic performance during the pandemic: The world’s top cobalt producer “benefits from higher commodity prices,” Georgieva said, “but above all benefits from the reforms that the president and the government have been pursuing.” The DRC’s growth figures outpace estimates for sub-Saharan Africa more broadly, which are 3.7 percent and 3.8 percent for 2021 and 2022, respectively.

On the other hand, South Africa risks missing its forecasted growth of approximately 5 percent, according to economists at PricewaterhouseCoopers (PwC). Data from Statistics South Africa reveals that Africa’s second-largest economy grew at 5.8 percent over the first three quarters of the year, but the emergence of a new COVID-19 variant and corresponding travel bans imposed by more than 90 countries have experts worried that growth will slow in the final quarter. In fact, PwC estimates that the travel restrictions alone might cost the country as much as $406 million in foreign-derived revenue. Cascading effects could “pull down the full-year average to below 5 percent,” said Cape Town-based PwC Economist Christie Viljoen.

Meanwhile, this week, Briter Bridges Intelligence, an Africa-focused business analytics firm, reported that African startups are expected to raise $5 billion in funding in 2021. Notably, this amount is greater than the sum of the previous three years combined. According to the firm, this investment uptick is partially due to the appeal of financial technology (or “fintech”) businesses on the continent, which has helped give rise to four “unicorns” (privately held companies valued over $1 billion) in the fintech sector: Flutterwave, Interswitch, Fawry, and Jumia.

The Gambia votes, and Burkina Faso’s prime minister resigns

On Sunday, the Independent Election Commission of the Gambia announced incumbent President Adama Barrow won re-election with nearly 53 percent of the vote—a significant margin over his main challenger, Ousainou Darboe from the United Democratic Party, who received approximately 28 percent. Citing polling station irregularities among other issues, some opposition leaders are contesting the credibility of the election, and protests by supporters of the opposition have been met with tear gas dispersed by police. However, African Union election observers stated that “the election was conducted in line with international standards” and observers from the European Union “praised the transparency of the voting and counting process.” Notably, this presidential election marks the first election in decades that long-time president, Yahya Jammeh, now living in exile in Equatorial Guinea, did not participate, following his loss of the 2016 election and his refusal to accept those election results.

In other political news, Burkina Faso’s president, Roch Marc Christian Kabore, accepted the resignation of Prime Minister Christophe Dabire, amid escalating national security instability marked by recurring al-Qaida- and ISIS-linked insurgent attacks since 2016. These attacks have killed roughly 2,000 people and displaced over 1 million. Notably, the removal of the prime minister, according to the laws of Burkina Faso, “requires the entire Cabinet to step down.” Prior to their official departure, the outgoing government will “remain in a caretaker capacity until a new one is formed.”

Tanzania plans to lift media bans as the number of jailed reporters are at a global high

On December 7, authorities in Tanzania stated they plan to lift bans and suspensions on media organizations who had been forced to stop operating under former president, John Magufuli. Elaborating on the new policy, Deputy Permanent Secretary in the Ministry of Constitution and Legal Affairs Amon Mpanju relayed that the Tanzanian government is working with media owners and the Tanzania Human Rights Defenders’ Coalition with hopes to resolve freedom challenges within the country.

On the other hand, in a report released on Thursday, the Committee to Protect Journalists shows that, no sub-Saharan African country ranked among the top-five worst jailers, though Egypt ranked third. Within sub-Saharan Africa, the Committee to Protect Journalists ranks Ethiopia “as the second-worst jailer of journalists in sub-Saharan Africa, after Eritrea” noting that, during its ongoing internal conflicts,  Ethiopia experienced the biggest setback for media freedom in the region. The report also decries Benin’s charging of two journalists with cybercrimes under the country’s digital code, which allows criminal prosecution for anything published or distributed online.

      

Africa relies heavily on imported pharmaceutical goods to support the region’s health care needs: As of 2019, as much as 70 to 90 percent of the drugs consumed in sub-Saharan Africa’s estimated $14 billion pharmaceutical market were imported. Moreover, Africa represents nearly 25 percent of global demand for vaccines but produces only 0.1 percent of the world’s vaccines. Within Africa, 99 percent of vaccine doses are imported, and, of the 1 percent (12 million doses) produced domestically, most are relegated to the final fill-and-finish steps.

As of 2019, the continent possessed roughly 375 pharmaceutical manufacturers, as compared to about 5,000 and 10,500, respectively, in China and India. Africa sources more than 75 percent of its pharmaceutical imports from the European Union, India, and China (Figure 1). Although the United States is the world’s third-largest exporter of pharmaceuticals by value, the U.S. represents only 4.4 percent of drug imports to Africa.

When it comes to exports, Africa’s pharmaceuticals tend to stay within the region. As shown in Figure 1, more than half of exported pharmaceutical goods are destined for East and southern Africa. A small share of African pharmaceuticals is exported outside the region, mostly to the European Union, Yemen, and the United States.

Figure 1. Africa’s trade in pharmaceuticals (2017-2019)

Source: “Foresight Africa: Top Priorities for the Continent in 2021, Chapter 5: Continental Integration: Uniting a revitalized Africa,” The Brookings Institution, 2021.

As nations compete to procure COVID-19 vaccines, the pandemic is exposing the risks of the continent’s reliance on foreign sources of pharmaceutical products. But new developments may improve vaccine access on the continent. Leading vaccine manufacturers, such as Moderna and BioNTech, have signed deals and are in the planning stages to build facilities in Africa that will produce the drug substance for mRNA vaccines—for COVID-19 and other diseases—in addition to vial filling. The nascent shift toward producing vaccines in Africa aligns also with the African Union and African Centers for Disease Control and Prevention’s goal to produce 60 percent of Africa’s vaccine needs locally by 2040.

For more on vaccines and health care in Africa, read “Accelerating COVID-19 vaccinations in Africa,” ”Africa must produce its own vaccines,” and “Globalizing the COVID vaccine.”

      

Youth unemployment remain a significant problem across Africa, with the rising population adding new layers of complexity to the challenge. Indeed, across Africa, estimates are currently as high as 60 percent for youth unemployment, and, not surprisingly, COVID-19 has exacerbated the issue.

As businesses continue to recover from the economic disruption and devastation caused by the pandemic, many companies have paused their hiring due to limited resources to take on additional manpower. Some have suspended efforts to rehire those who were let go over the past year to reduce personnel costs as sales slowed. In addition to finding good-quality jobs harder to come by, African youths have also faced disruptions to education and training.

In response, governments must make a concerted effort to improve business opportunities to support employment, foster innovation, and improve economic performance. That way, they can begin to reap the demographic dividend offered by the continent’s growing young population. In other words, this challenge can become an opportunity.

One method that governments—at both the national and municipal levels—can explore is the development of job creation hubs.

What is a ‘job creation hub’?

A job creation hub is a structure in which businesses that offer the same or similar services can utilize common infrastructure to provide these services to different clients. This structure can help reduce startup costs, ease the challenges around launching a business, improve business efficiency, provide networking opportunities, foster knowledge exchange, and increase revenue—thereby improving employment opportunities for young people.

These hubs should be targeted at nano- and micro-businesses to stimulate productivity, improve inclusion for underserved businesses, and encourage informal-sector service providers to formalize their operations. It allows more microentrepreneurs access to startup infrastructure and incubation with mentoring along different value chains. The concept has the potential to reduce barriers to entry for decent jobs.

Brief case studies

Expanding and applying these and similar structures across various sectors and cities can help increase the supply of services with low barriers to entry. The growth in supply can reduce the cost to the end-user and increase patronage and savings. In fact, this structure already exists in different sectors in different forms around the world to increase efficiency and reduce costs. Co-working spaces for tech startups are an excellent example of the job creation hub structure in action.

China. In China, “Taobao Villages” are hubs that house at least 100 businesses involved in e-commerce in the same location. In 2009, roughly three villages met this status. A decade later, more than 4,000 such “villages” exist across China.

The government and private companies provide these villages with targeted programs to support entrepreneurship, enhance logistical connections, and improve learning outcomes. Some initiatives provided women with additional business development training and child care services. Notably, according to the World Bank, the creation of Taobao Villages has helped decrease urban migration across the country and lifted many rural areas out of poverty. It has also enhanced rural infrastructure, increased employment opportunities, and boosted productivity.

United States. In Washington, D.C., the Shared Kitchen Concept is a good example of a job creation hub. These kitchens come in different sizes and offer the infrastructure for budding caterers or food vendors, and they also provide training programs and jobs. The infrastructure is provided by private individuals or social entrepreneurs, and different caterers rent working or storage space to provide their services.

While the LA Kitchen shut its doors recently, its parent company the DC Central Kitchen, first launched in 1989, is expanding to a larger location.

Lighting Africa initiative. The United Nations Development Program (UNDP) has highlighted the Lighting Africa (LA) initiative as a strong example of an “inclusive business ecosystem” that provides appropriate information, incentives, investment, and implementation support.” This concept is very similar to the job creation hub concept.

First launched in 2005, this initiative, funded by the International Finance Corporation (IFC) and the World Bank, supported the development of a market for off-grid lighting systems in Africa. Member companies were able to access advice on product design, testing services, and training support. Over 2,500 companies were registered by 2012, and this targeted support helped to significantly expand the market for and supply of lighting products. The program is now in more than 20 African countries.

While a job creation hub involves a physical space, the Lighting Africa initiative shows how policy, funding, and knowledge sharing can facilitate the growth of inclusive businesses. UNDP also encourages dialogue between governments, institutions, and the private sector to create the most effective solutions to support inclusive business.

Nigeria. The Nigerian government has introduced a number of major investment strategies to generate employment, increase exports, and grow the industrial sector—with varied success. Nigeria’s free trade zones (FTZs)—particularly Lekki (Lagos) and Tinapa (Calabar), export-processing zones (EPZs), and the Agege Technology Incubation Centre (TIC)—have received a lot of targeted investment. However, many of these projects are not delivering on their potential.

The TIC was set up in 1993 by the federal government to promote entrepreneurship, based on a model that has been credited with strong business development in BRIC countries (Brazil, Russia, India, and China). However, it lacks the necessary infrastructure such as power, broadband, machines or equipment, and capacity development to support startup.

In contrast, structures like the Co-Creation Hub Nigeria (technology) and 360 Creative Hub (fashion) show the job creation hub initiative can be harnessed to create vast opportunities for young Africans. In fact, in 2016, over 55 early-stage ventures were supported by Co-Creation Hub through its incubation unit, leading to the creation of over 300 jobs. More recent data provided shows they have supported over 650+ startups and created over 7,300 jobs to date.  Similarly, 360 Creative Hub has expanded, trained, and provided infrastructure for over 300 creative entrepreneurs including designers, photographers, makeup artists, and hairstylists to further their understanding of the “fashion ecosystem.” As many as 30 unique designers from this initiative have been given platforms to showcase their products at international fashion shows.

Policies for supporting job creation hubs

As policymakers consider pursuing job creation hubs as part of their strategies to boost employment, they should ensure that the policies, especially those outlining public-private partnerships, carefully and clearly state the separate roles and responsibilities of the government and private player at the national and subnational levels.

Government’s role or support should include an economic needs assessment, tax breaks for startups, and low interest rates on loans to participants. Governments and relevant agencies must also create a friendly regulatory atmosphere to facilitate collaboration with private sector players. Private sector partners can provide expertise, particularly sector-specific knowledge or experience, to each job creation hub. Those partners can also create awareness of the hub more broadly in their networks and further develop other partnerships to make the hub successful.

Setting up a successful job creation hub requires strong investment and funding. Governments can provide incentives to partners such as information technology and telecoms firms, for example, to provide operational services for broadband and e-commerce platforms.

Once built, job creation hubs can function as social enterprises that are self-sustaining, managed by the private sector and charging affordable rent for office spaces and rental, equipment leasing, or membership fees. Member benefits can then include technological and physical infrastructure, networking opportunities, business acceleration, capacity development, access to seed funding, and any licensing or registration requirements for each startup. Additional services or incentives to make the hub more attractive are key, such as links to enterprise development or training institutions that can provide coaching and educational support to aspiring and existing entrepreneurs.

Partners and experts involved in a job creation hub development must also be dedicated to fostering community development and knowledge sharing. By providing discounted memberships for young people and startups, job creation hubs can also provide an environment for learning and skills development.

Conclusion

There is no quick fix for generating employment opportunities for young people in Africa, for creating an environment for innovation or spurring economic growth. However, through targeted policies and investments—such as investing in job creation hubs—governments can certainly get on the right path. As we seek to build back better and stronger from the pandemic, government at all levels must embrace this opportunity for renewed investment into our economies and our young people.

      

The eighth Forum on China-Africa Cooperation (FOCAC) ministerial meeting that took place in Dakar, Senegal, concluded just last week. Like previous FOCAC meetings, China presented its vision for China-Africa relations for the next three years, this time under the theme “Deepen China-Africa Partnership and Promote Sustainable Development to Build a China-Africa Community with a Shared Future in the New Era.” A review of the content, however, illustrates significant shifts in China’s priorities, emphasis, and approaches from its earlier patterns. In fact, the Financial Times has lamented the quantitative reduction of China’s financial commitments from $60 billion in 2018 to $40 billion this year. However, it is the qualitative changes that raise bigger questions as to whether China is leaving Africa after two decades of robust and ever-growing engagement. Some of the shifts could be temporary and tactical. However, the impact of the others could be far-reaching and long-term.

A downgrade of the FOCAC meeting?

Unlike the past two FOCAC meetings—Johannesburg in 2015 and Beijing in 2018—that, respectively, garnered 13 and over 50 African heads of state or government, the Dakar FOCAC meeting this year was a ministerial-level meeting. Chinese President Xi Jinping delivered a speech virtually, which did boost the seniority level of the meeting, but such a change in attendance raises the question as to whether FOCAC has been downgraded.

The answer is negative. Since its inception in 2000, FOCAC was a ministerial-level event that alternates between Beijing and Africa every three years. The Chinese president has always attended the meetings in Beijing, but, before Xi, the premier attended FOCAC meetings in Africa (Ethiopia in 2003 and Egypt in 2009). It is under Xi that the two FOCAC meetings in 2015 and 2018 were upgraded to leadership summits. This most recent change creates the impression of the Dakar meeting being at a lower level. Though, admittedly, the COVID restrictions likely also played a role.

Scaling back activities

The most significant changes for FOCAC happened quantitatively and qualitatively. Quantity-wise, China is significantly scaling back its planned activities in Africa. For agricultural assistance, climate and environment, health, peace and security, and trade promotion, the number of committed projects for each category dropped from 50 projects in 2018 to 10 projects this year. For capacity building, the educational and training opportunities offered decreased from 50,000 government scholarships and 50,000 training opportunities three years ago to 10,000 training and seminar opportunities for high-end talents this time. These are drops of 80 and 90 percent, respectively.

Substance-wise, the content of each category also shrank. For example, under climate and environment, the 2018 commitment included items from maritime cooperation to wildlife protection, from policy dialogues to joint studies to professional training. However, this year, only two items were included: the “Africa Green Great Wall” and demo centers for low-carbon and climate change adaptation. The scope of public health support also was scaled back from a long list in 2018 covering the Africa Centers for Disease Control and Prevention (Africa CDC), disease control cooperation, information sharing, friendship hospitals, training of African doctors and medical teams, traveling clinics, and special projects for women and children, to a very brief action item of “dispatching 1500 medical staff and public health experts” this year. The rest of the actions are all related to COVID-19. Similar cutbacks are equally evident in the people-to-people exchanges and peace and security categories.

Shifting away from infrastructure

Perhaps the most striking element of China’s FOCAC commitment this year is the complete disappearance of infrastructure from the narrative. Indeed, throughout Xi’s keynote speech, the word “infrastructure” did not appear even once—a sharp contrast to the four direct references to infrastructure in his 2018 keynote. In China’s 2018 FOCAC commitment, connectivity infrastructure was listed as the No. 2 priority among the eight action plans, focused mostly on hard infrastructure projects on the ground.

Given China’s long history of infrastructure development in Africa, the omission of infrastructure in China’s new commitment is simply glaring. Despite China’s claim of altruistic intent, many of the projects are controversial. Especially with the debt sustainability issues since the COVID-19 crisis, Chinese loans used for such infrastructure development have put several governments in difficult spots, such as the potential Chinese takeover of Uganda’s Entebbe airport, the potential seizure of Kenya’s Mombasa port, and the recurring debt repayment issues Zambia struggles with. These controversies loomed large in the background of the FOCAC meeting this year.

The lack of reference to infrastructure in China’s FOCAC commitment does not suggest that China will exit the domain. After all, China has accumulated a large number of ongoing infrastructure projects with loan terms, especially after their debt renegotiation, extending far into the future. In addition, Chinese contractors still enjoy unique strengths on the market, such as in cost control and efficiency, which enable them to continue to play their role in the future of the African infrastructure development market. However, this shift away from infrastructure development in Africa, if sustained, could be the most significant change in China’s engagement with Africa in recent years.

Ensuing change in financing

One of the primary drivers of Chinese lending, especially in terms of loans and export credit (totaling $35 billion in the 2018 package) was to support this infrastructure development. Such lending has consistently facilitated the procurement of Chinese services and products. However, as China shifts away from infrastructure, the pattern of Chinese financing is bound to change.

The change is well-reflected in the $40 billion China committed in Dakar. China will continue to push Chinese companies to invest a much smaller $10 billion in Africa in the next three years—at the same level as in the 2018 commitment. The big change came in credit: Not only will China provide only half the previous amount, dropping from $20 billion to $10 billion, but it also will provide the credit only to African financial institutions for them to support the development of African companies. In the past, this line item was provided to African governments to fund Chinese projects. The introduction of African financial institutions as the middleman will free China from the decisionmaking, hence shielding it from being the direct culprit of the debt stress Africa has run into.

China is also allocating $10 billion from its share ($29.216 billion) of the International Monetary Fund’s (IMF) new allocation of $650 billion special drawing rights (SDR) to Africa. China is not unique in this respect: This transfer is in line with the IMF’s call for wealthy countries to channel their share to less-developed countries. For example, France has announced that it intends to transfer 20 percent of its new SDRs to African countries. Notably, the U.K. has advocated for the same, but is using its new SDRs as a device to cut its traditional foreign aid while appearing to maintain its commitment to foreign aid. China appears to share the U.K.’s aspiration: to maintain its financial commitment to Africa while reducing the cash it must spend directly from its pocket.

The one growing category in China’s financial commitment to Africa is trade finance, and the country correspondingly doubled its 2018 commitment of $5 billion. The funding will support African products and service exports, with the aim of enhancing their value added. The increase is due to the better-than-expected result of the trade funding in the past three years. Under the China Exim Bank, the amount distributed exceeded the original commitment and reached $6.2 billion due to popular demand.

Increased focus on trade facilitation

The fact that trade finance was the only growth point of China’s financial commitment to Africa suggests one thing: that China eyes growing trade with Africa as its priority. According to Xi’s statement, China aims to increase its imports from Africa to a total of $300 billion in the next three years. China’s imports from Africa in 2020 were $72.7 billion. At this rate, such imports will have to expand by 27.3 percent to hit the target, which is a fairly ambitious number.

The priority in promoting African exports to China is partially motivated by the Chinese desire to balance trade with Africa, as Beijing is sensitive about the large trade deficit Africa runs. At the pre-FOCAC press conference, the Chinese Ministry of Commerce went as far as to portray China-Africa trade as “mostly balanced” in the past two decades, with $1.2 trillion in imports from Africa and $1.27 trillion in exports to Africa. However, this numbers game conveniently disguises a large and growing trade imbalance. In 2019, China’s trade surplus against Africa was $17.7 billion ($113.2 billion in Chinese exports and $95.5 billion in Chinese imports). In 2020, the imbalance grew 243 percent, to an astounding $41.5 billion, with $114.2 billion in Chinese exports and $72.7 billion in Chinese imports. 

The worry about the trade imbalance and its optics are why trade promotion occupied a high priority in China’s action plans for the next three years. And Beijing appears ready to beef up the efforts with faster inspection and quarantine procedures, more products under zero-tariff, etc.

Conclusion

Observers have called China’s FOCAC commitment from the Dakar Meeting “underwhelming.” Indeed, with the vivid memories of the recent extravagant packages from 2015 and 2018, the Dakar meeting suggests a Chinese retrenchment from FOCAC—and from Africa. The amount of financial commitment, the number of promised projects and opportunities, and the relatively thin content of the action items together illustrate China’s cutback of activities on the African continent.

The cutback is in line with the shifting priorities and approaches of China in Africa. Beijing is visibly moving away from its infrastructure-centric and Chinese loan-heavy approach of recent years. The new focus, however, is less evident. Trade promotion, especially facilitation of African exports to China, appears to be the key. But it is hard to imagine that trade could fill the large space infrastructure development has occupied in China-Africa relations in any meaningful way.

The origin for this shift is multifaceted. Chinese loans to Africa have run into viability challenges and suffer from the social stigma as “debt traps.” Given all the loan repayment problems that have occurred so far, it is conceivable that both China and Africa would want to slow it down on this particular front. China’s own economic slowdown is another factor. No one expected China’s financial commitment to Africa to grow indefinitely. However, the impact of COVID-19 and travel restrictions on the Chinese economy, as well as the impact of the trade war, are all taking a heavy toll on China’s financial capability to sustain the spending the world witnessed in the earlier years.

While the shift is real, it remains to be seen as for whether it is a short-term tactical change or a long-term strategic reorientation. After all, COVID-19 is a black swan event that has deeply affected the modality of China-Africa relations, and the world is still gauging its impact and time horizon. Until those questions are answered, it is hard to predict which way the African economy will turn. So, there is no guarantee that China-Africa economic ties will not resume some of their old patterns in the future. However, at least for the time being, adjustments are well under way, and the Dakar FOCAC meeting is the most powerful and authoritative illustration of it.

      

South African President Cyril Ramaphosa visits West Africa

This week, South African President Cyril Ramaphosa visited Nigeria and Côte d’Ivoire as part of his seven-day tour of West Africa, a trip that will also include Ghana and Senegal next week. Before leaving Johannesburg, Ramaphosa stressed the importance of garnering investments in South Africa from West Africa. “We want to increase the confidence in our own companies operating in those countries,” Ramaphosa said. “We want to sign deals.” According to News24, at the same time, South African ministers have been discussing as many as five new agreements and memorandums of understanding (MOUs) with their Nigerian counterparts. Meanwhile, the president’s stop in Côte d’Ivoire on Thursday resulted in 10 MOUs covering trade and diplomatic relations between the two nations.

Omicron variant of coronavirus triggers travel ban against southern Africa; China pledges 1 billion additional vaccines to Africa; and J&J makes vaccine deal with South African manufacturer

Following the discovery of a new SARS-CoV-2 variant, omicron, in South Africa and its subsequent categorization as a “variant of concern” by the World Health Organization on November 26, up to 70 countries, including the United States, instituted travel bans and restrictions on several countries in southern Africa. While the travel ban was intended to limit the spread of the omicron variant, genomic sequencing has since revealed that the variant had been present in Europe days prior to South Africa’s detection of the variant. One such case in Belgium had no direct travel to southern Africa, but had just returned from a trip to Egypt.

Although some governments consider travel bans to be a vital public health measure to curb the spread of the new variant, many scientists assert that travel bans alone may only delay the spread of a pathogen. In response to the travel bans, South African President Cyril Ramaphosa expressed concern that such measures will exacerbate the economic damage of the pandemic in southern Africa—a sentiment shared by fellow leaders in the region, such as Malawi’s President Lazarus Chakwera. Moreover Salim Abdool Karim, professor for global health in epidemiology at Columbia University, considers the ban a “outrageous” overreaction, and Saad Omer, director of the Yale Institute of Global Health, warns that such strong measures could disincentivize scientific transparency given the political repercussions for being the first to announce a new variant or disease.

In related news, on Monday, Chinese President Xi Jinping, speaking at the Forum on China-Africa Cooperation (FOCAC), pledged to deliver an additional 1 billion doses of COVID-19 vaccines to the African region: More specifically, 600 million doses will be donated and 400 million doses will be produced jointly by Chinese companies and African countries. To date, China has supplied Africa with approximately 200 million doses. Xi also promised to “build 10 health projects in Africa and send 1,500 health experts” on the continent.

Furthermore, on Tuesday, South African pharmaceutical company Aspen Pharmacare signed a nonbinding preliminary agreement with Johnson and Johnson (J&J) to package, price, and sell the J&J COVID-19 vaccine under its own brand name: Aspenovax. Currently, Aspen Pharmacare has been packaging (i.e., “fill and finish”) nearly 300 million doses a year of the vaccine at their facility in South Africa. Notably, the deal does not constitute a full technology transfer that allows Aspen Pharmacare to manufacture the vaccine outright, but, rather, gives it the right to distribute and price the vaccine.

Pro-democracy protests in Sudan and Eswatini continue

On November 21, Sudanese Prime Minister Hamdok and General Abdel Fattah al-Burhan signed an agreement reinstating Hamdok and issuing the release of political prisoners after the military coup on October 25. However, the deal was not accepted by protestors, and thousands took to the streets openly denouncing Hamdok following the announcement. In response, Hamdok vowed that the new government would be a “technocratic government” and that the new cabinet would focus on holding elections by June 2023 to complete the “transition to democracy.” So far, 43 people have been killed in clashes with security forces.

In other pro-democracy efforts, citizens in Eswatini have continued protests over the past six months, demanding democratization, civil liberties, and greater participation in the economic and political affairs of the kingdom. Protests began in May of this year, triggered by the death of law student Thabani Nkomonye while in police custody. In October, Eswatini stopped all city and town municipalities from issuing permits to hold protests due to increasing violence. In an attempt to encourage national dialogue, President Cyril Ramaphosa of South Africa traveled to Eswatini last month to engage directly with King Mswati III. The president’s trip resulted in the king agreeing that the Southern African Development Community (SADC) Secretariat and the government of Eswatini would work closely to draft the terms of reference for the national dialogue.

For more on protests and citizen dissatisfaction see, “Governance in Africa: Citizen dissatisfaction is growing, and COVID-19 is likely to reverse recent gains” from Foresight Africa 2021.

      

Vaccinations are essential to responding to epidemics, and the current COVID-19 pandemic is no exception. Yet, globally, many choose not to get vaccinated for reasons that have, only recently, gained attention among researchers, policymakers, and the wider public. Among the reasons cited is a general distrust in the government and health institutions in charge of vaccination. But where does this distrust come from? Some recent evidence links the distrust to negative past experiences with government institutions because of discrimination in the health care system and unethical medical trials, among other explanations.

In 1996, Nigeria experienced one of the worst meningitis epidemics in its history with 109,580 cases and 11,717 deaths. Bacterial meningitis is an infection of the lining of the brain that is especially virulent in children. Northern Nigeria is also a majority-Muslim region, with around 99 percent of residents in Kano state identifying as Muslim. At a hospital in Kano, Doctors Without Borders treated children with chloramphenicol, a well-known antibiotic endorsed by the World Health Organization (WHO) to treat bacterial meningitis.

Over the same period, Pfizer, a U.S. pharmaceutical company, tried to launch a new antibiotic drug, Trovan. While Pfizer had tested the drug on adults, it had not yet been tested on children. Additionally, early testing on adults had shown some serious side effects of the drug, including liver problems and cartilage abnormalities. After learning of the meningitis epidemic, Pfizer decided to use it as an opportunity to test the efficacy of Trovan in pediatric settings. Pfizer set up a site beside the Doctors Without Borders testing area and over two weeks, selected a sample of 200 children between 3 months and 18 years old to participate. A month later, 11 of the children that had participated were dead. Additionally, numerous parents of children involved in the trials reported disabilities among their children, including paralysis and liver failure.

In December 2000, The Washington Post published a series of exposés, alleging Pfizer’s fault in the deaths and disabilities of multiple children and accusing Pfizer of conducting unethical experimental trials without attaining informed consent from the participants. Parents alleged that they had not been informed of the experimental nature of the trials, with many reporting that they thought they were receiving the standard medication issued in the neighboring Doctors Without Borders area.

The reporting sparked a series of protests in Muslim states in northern Nigeria in 2001. Protesters, led by Muslim religious leaders, highlighted the deaths of Muslim children and the fact that the trials had been conducted in a Muslim state as evidence for the claim that Pfizer and its associated “Western” institutions were targeting and trying to kill Muslims with vaccines. Pfizer denied any wrongdoing, stating that the children died of meningitis rather than their drug. An investigation by a panel of experts hired by the Nigerian government found Pfizer at fault in the children’s deaths and guilty of conducting human trials without informed consent. In subsequent years, several lawsuits were filed against Pfizer by parents and the Kano state government. An out-of-court settlement was reached for, allegedly, $75 million to Kano state and $175,000 to four families of dead children in 2009.

The incident heightened distrust among Muslims toward vaccination campaigns led by Western nonprofits like the Global Polio Eradication Initiative (GPEI), a consortium including the WHO and the U.S. Centers for Disease Control and Prevention (CDC), aimed at eradicating polio worldwide (with a particular focus on Nigeria where more than 40 percent of the 677 new polio cases worldwide were recorded in 2002). Tensions culminated in a 2003 Muslim leader-led boycott of GPEI-led polio mass vaccination campaigns in five Muslim northern states in Nigeria. In interviews explaining support for the boycott, respondents explicitly cited the Pfizer drug trials. The boycotts continued for over a year and ended only after federal government officials worked with local religious leaders to demonstrate the safety of the vaccine. The boycott also led to a 30 percent increase in polio prevalence, setting back global polio eradication efforts by over a decade, with Nigeria becoming one of the last countries in the world to be declared polio-free in 2000. The Pfizer trials remain a point of tension among Muslims in Nigeria, with the specter of Muslim children’s deaths often referenced any time health authorities attempt to conduct mass vaccination campaigns in the country.

Effects of the trials on vaccine hesitancy and the role of education and trust

In a new working paper, we find that Muslim mothers significantly reduced their vaccinations of children born after 2000. The reduction (a magnitude of 11 percent to 27 percent relative to the pre-Washington Post news vaccination rate) included routine childhood vaccines for diseases such as tuberculosis, diphtheria, pertussis, and tetanus, polio, and measles—vaccines that have been known to be safe and effective for decades.

The reductions were concentrated among educated Muslim mothers who had access to more information, were literate, and hence were more likely to have read the news and be informed of health practices. The reduction effect was also stronger for Muslim mothers residing in Muslim-minority neighborhoods, where Muslims made up less than 50 percent of the neighborhood’s demographic. This pattern aligns with research showing that religious individuals may cleave more strongly to religious networks in areas where they are the minority. We find that Muslims residing in minority-Muslim neighborhoods tend to be more religious (i.e., attend mosque more frequently) and more trusting of their religious leaders, supporting the explanation that they would have been more exposed to and more receptive of their religious leaders’ anti-vaccine campaigns.

While Pfizer settled out of court for $75 million, how do these costs compare to the costs of reduced child vaccination in the country? Being unvaccinated increases an individual’s risk of infection from disease. The significant costs to treat these illnesses can incur large financial burdens on households. We conduct simple back-of-the-envelope calculations on the potential costs of treatment from an increased number of unvaccinated Muslim children as a result of the negative news about the Pfizer drug trials. Using our most conservative estimates of direct medical costs of treatment only, and without factoring in any potential deaths from disease, the reduced vaccination of Muslim children in the aftermath of the disclosure of the Pfizer drug trials incurred a total potential cost of treatment of over $94 million over the counterfactual scenario. This cost is more than $19 million higher than the Pfizer settlement to the Nigerian government of $75 million.

Researchers are increasingly recognizing the importance of public trust for the effectiveness of vaccination campaigns aimed at reducing the spread of disease during epidemics. The results from our paper show that negative news about vaccination can significantly increase vaccine hesitancy and local trust networks can be key drivers of vaccine hesitancy, especially among minority populations within regions with potentially stronger own-group cleavage. So, policymakers aiming to increase vaccination in the aftermath of epidemics must work to build and leverage trust within these local networks to enhance vaccine uptake. The findings also highlight the importance of careful, ethical, and transparent practices in vaccination efforts and institutional and local community network trust in vaccine compliance.

      

Mineral resources are a critical source of revenue for Africa. In 2019, minerals and fossil fuels accounted for more than a third of exports from at least 60 percent of African countries. The continent produces around 80 percent of the world’s platinum, two-thirds of its cobalt, half of its manganese, and a substantial amount of chromium, leaving it in a strong position to benefit from growing demand for these minerals. Moreover, Africa is believed to have some of the world’s largest untapped mineral reserves.

Unfortunately, a lack of systematic geological mapping and exploration means that the full scope of the continent’s resources remains unknown. To unlock mineral-rich African countries’ full potential, mining companies and African governments must embrace Fourth Industrial Revolution (4IR) technologies. Artificial intelligence (AI), automation, and big data can help mining firms limit damage to the environment, improve working conditions, reduce operating costs, and boost productivity.

Industry leaders and policymakers must work together to capitalize on the opportunities that digitalization brings.

The adoption of efficient renewable-energy systems already is helping the mining sector reduce its environmental impact. Autonomous 4IR technologies complement the clean-energy transition by cutting fuel consumption in processes such as loading, hauling, crushing, and drilling. According to one estimate, driverless technology could lead to a 10-15 percent decrease in fuel use on mine sites.

Better use of data and analytics can improve mine performance as well. Mining companies generate enormous amounts of data throughout their operations, but only a few use it in a way that provides real value. This represents a major missed opportunity, because advanced analytics can optimize mine planning, increase yields, and reduce equipment downtime. In South Africa, a 30-year-old mine boosted its mineral recovery by 2 percent by applying advanced analytics to its main processing steps.

The Syama mine in Mali is another example of a site that has benefited from digitalization. In 2015, Resolute Mining took over operations at Syama and transformed it into the world’s first purpose-built automated mine. Employees use a fiber-optic network connected to above-ground control centers to manage and monitor all activities, from the clearing of the drill point to extraction, loading, and hauling. Although the initial investment was steep, the changes are expected to cut mining costs by 30 percent and improve overall efficiency. The machines can operate 22 hours a day, and there is no time lost due to shift changes.

4IR technologies will define the future of mining. But while they represent tremendous opportunities for boosting productivity, improving safety, and mitigating the environmental impact of mining, they also raise legitimate concerns. Many of the new technology-enabled jobs require skilled workers that the labor market cannot supply, implying limited employment opportunities in the absence of educational and training programs to reskill workers.

As mines become more productive—and more profitable—national governments will have more revenue to spend on investment in infrastructure, like roads, schools, and health clinics.

One proposed solution is for mining companies to use the profits gained from the higher margins made possible by the introduction of new technologies to train relevant workers in AI and machine learning. And new curricula in schools can teach the tech skills the next generation will need for 4IR-enabled jobs—including with the mining companies.

Another possibility is for mining companies to encourage the development of other local industries to reduce communities’ dependence on the mine for employment. In Mauritania, mining companies finance a number of ventures that encourage local economic development, including a jewelry production facility, a brick-making plant, and an agricultural cooperative.

Industry leaders and policymakers must work together to capitalize on the opportunities that digitalization brings. Many mining companies are reluctant to invest in new operations that require a stable regulatory framework, because they do not trust African governments’ capacity to enforce compliance. As a first step, governments must change that perception. After all, the economic benefits of digitalization extend to governments and local communities. As mines become more productive—and more profitable—national governments will have more revenue to spend on investment in infrastructure, like roads, schools, and health clinics.

Mines that embrace the digital transformation will increase their production, run more efficiently and effectively, and be more environmentally sustainable. They will set new standards for workers’ health and safety, and they could contribute to reskilling through educational and training programs. In short, they will disrupt Africa’s mining sector; but the advantages of digitalization, if harnessed correctly, will far outweigh the risks.

      

Industrial policy is seeing a revival in Africa and beyond. In fact, governments across the continent are now explicitly using a variety of industrial policy tools to promote industrialization through agro-processing, labor-intensive light manufacturing, natural resource extraction and value addition, some knowledge-intensive manufacturing, and “industries without smokestacks” such as high-value agriculture and tradable services.

This revival is driven by three main trends:

• Policymakers have realized that four decades of Washington-Consensus economic policy have yielded—at best—jobless growth and premature deindustrialization.
• A gradually growing evidence base showing that effective industrial policy has been at the core of virtually every economic transformation success story around the world has emerged.
• Development finance available from non-Western sources—particularly China—now affords African governments increasing policy space because it funds infrastructure and productive sectors at a much greater scale and does not come with neoliberal policy conditionalities attached.

Notable examples of reinvigorated industrial policy in Africa

Across the continent, countries are utilizing industrial policy tools. For example, Uganda’s third National Development Plan, adopted in 2020, includes the key objective “strengthen the role of the state in guiding and facilitating development.” Ghana and Côte d’Ivoire, which together produce 65 percent of the world’s cocoa, are working together to implement industrial policy packages—including price controls, production caps, and public investments—toward upgrading their part in the global cocoa value chain. Senegal, Ethiopia, Nigeria, Gabon, and others are embracing agro-industrial parks to facilitate farm output aggregation and foster the growth of agro-processing clusters. Ethiopia’s light manufacturing industrial parks seek to leverage the country’s low labor costs to catalyze an industrial takeoff. New or revived public investment vehicles have begun to scale up concessional debt and equity to industrial pioneer firms across the continent, with at least 23 new national development banks created since 2010. Middle-income countries such as Morocco and South Africa have embraced industrial policies to upgrade their car manufacturing sectors into internationally competitive, technology-intensive, and high-value-added activities.

Why does industrial policy have so many detractors? Why are they wrong?

Industrial policy is seen to fail more often than it succeeds. This is partly a misdiagnosis: In fact, failure is a necessary—and useful—part of the industrialization journey, which is impossible without experimentation and learning by doing. Whenever a government invests in a pioneering industrial venture, constructs an industrial park, disburses research and development grants, temporarily protects an infant industry from external competition, or trains specialized industrial engineers, it is essentially carrying the high risk involved in trying to break into higher-value-added economic activities. Out of 10 state-supported pioneer firms, perhaps seven will fail to achieve international competitiveness. This failure rate masks success on a larger level, though: With every failure, the market has learned valuable lessons on what works and what doesn’t, managers have obtained key skills and networks, firms have learned how to organize industrial production and distribution, and so on. Moreover, the minority of successful pioneer firms can spawn entire new industrial ecosystems through backward, forward, and horizontal linkages and positive externalities. In other words, failure is a necessary—and useful—part of the industrialization journey.

Nevertheless, industrial policy often fails even to facilitate this learning by doing: That is because it is uniquely difficult to do well. In 2010, Dani Rodrik outlined three conditions for its success: (i) a government that is “embedded in the private sector, but not in bed with it”; (ii) incentives that are temporary and based on performance; and (iii) transparent and accountable implementation. These conditions are—politically, managerially, and technically—extremely difficult to realize anywhere, let alone in a low-income country.

So, what are the major factors that drive the success or failure of industrial policy?

In a recent study for the Centre for Development Alternatives, we distilled the growing global evidence into four major factors that have driven industrial policy success or failure around the world. We then applied this framework to Uganda as a demonstrative case.

Figure 1. Factors of industrial policy success or failure

Source: Walter, M. et al. (2020). Industrial policy for economic transformation in Uganda. Centre for Development Alternatives & Konrad Adenauer Stiftung.

The first and most profound of these factors is the political settlement—the balance of power within and beyond a country’s ruling coalition. Industrial policy has the best chance of success when cohesive coalitions and conducive power dynamics exist between the political elite, the state bureaucracy, and private capital. As elegantly captured in Whitfield et al (2015), industrial policy can succeed if there exist some mutual interests (in industrialization) between parts of the private sector and the political elite, pockets of efficiency in the state bureaucracy, and industrial policymakers who are “embedded in but not in bed with” industry. In the absence of these conditions, industrial policy can easily become an extractive tool for patronage politics that stifles economic progress, thus doing more harm than good.

Figure 2. The political conditions for industrial policy success

Source: Ibid., adapted from Whitfield, L. et al. The Politics of African Industrial Policy. Cambridge: Cambridge University Press.

The second—and often glossed over—distinguishing factor between cases of industrial policy success and failure is the ability to implement it. Inducing and supporting industrial upgrading requires numerous government functions to work in concert: public works (to build roads and industrial parks), energy (to provide reliable electricity), trade policy (to manage the import tariff regime), investment promotion (to attract, select, facilitate, and monitor industrial investments), education (to train industrial managers and front-line workers), finance (to manage public investment vehicles), and so on. Such requirements not only present an immense cross-government coordination challenge, but also demand that the relevant government bodies overcome powerful vested interests in the public and private sectors. Though this task is difficult, it has often been achieved through a powerful specialized agency (such as Taiwan’s Industrial Development Bureau or Malaysia’s PEMANDU) reporting directly to the head of state, or a specially empowered “superministry” (such as Japan’s Ministry of International Trade and Investment) that is technically and financially empowered as well as politically insulated from vested interests. At the same time, a high-level council, committee, or board often builds broad-based consensus around the industrial policy agenda. In Africa, potential emerging examples include Rwanda Development Board, Kenya’s President’s Delivery Unit, and the Bureau Opérationnel de Suivi du Plan Senegal Emergent, among others.

Third, industrial policy outcomes are driven by the choice of economic sectors, actors, and activities to promote. Successful industrializers have tended to concentrate scarce resources on a narrow set of target industrial sectors or activities. Industrial policy targeting generally involves the analysis of a potential sector/activity’s attractiveness (the potential gain in employment, foreign exchange earnings, industrial spillovers, etc.) and feasibility (the likelihood of the country’s firms achieving international competitiveness in the activity—in the shorter or longer term)—as discussed here by UNIDO. The state does not need to pick all the winners: Effective incentive schemes and public-private dialogue mechanisms can foster the ”self-discovery” of industrial opportunities. Finally, political economy considerations should not be left out of the exercise: Instead, technocrats can propose the selection of a set of priority sectors or activities that make economic sense and where the political settlement is likely to support effective industrial policy implementation.

Fourth, industrial policy outcomes are shaped by the choice of the policy instrument mix, and how well the policy package is adapted based on success, failure, and changing contextual factors. Countries with successful economic transformation outcomes have deployed a rich “toolbox” of industrial policy instruments to shift the incentives and capabilities of economic actors toward higher-value-added activities. UNIDO and GIZ’s EQuIP project provides a detailed list of examples. Crucial to the success of these instruments is the combination of supporting and disciplining domestic and international investors (as argued by Alice Amsden and Joe Studwell) in a way that compels them to shift resources away from short-term rent seeking and toward continuous investment in new productive capabilities.

Table 1. Examples of industrial policy support and discipline

Source: Author’s own formulation. For examples and discussion, see e.g., Amsden (2001), Studwell (2013), and UNIDO & GIZ (2017).

For African governments the question is not whether to pursue industrial policy: It is, and has for a while now been, how to maximize its chances of driving inclusive and sustainable economic transformation.

The East Asian industrialization miracle was not built on ideal political and state capacity conditions—far from it. It was built by political leaders creating, protecting, and leveraging pockets of effectiveness and prioritizing rapid economic transformation over other goals. Across the African continent, the right conditions for effective industrial policy exist in pockets, however small and fragile these may be. Policy and international support should focus on identifying those pockets, bolstering them, and leveraging their success to create self-perpetuating economic transformation momentum. As competitive industries (with and without smokestacks) grow, they foster increased state revenues, technical capabilities (both public and private), and a growing constituency of actors pushing for broader state effectiveness. Industrial policy has been—at best—a scruffy, contested, perpetual battle to turn the vicious cycle of underdevelopment into a virtuous one of economic transformation. But without the battle, not much will change at all.