Official side event of TICAD VI in Nairobi
“Toward Reforming African Economic Structure through Industrialization and Development of the Private Sector”

August 2016

The 6th Tokyo International Conference on African Development (TICAD VI) was held in Nairobi, Kenya, for two days from August 27 to 28, marking the first time for the conference to be held in Africa. IDE-JETRO took advantage of the occasion to hold a side event under the title of “Reforming African Economic Structure through Industrialization and Development of the Private Sector.”

Reports on Africa’s economic growth

Held the Hotel Hilton Nairobi on August 28, the seminar was co-hosted by the African Economic Research Consortium (AERC) from Nairobi and the Overseas Development Institute (ODI) from the UK. The AERC is an international research consortium sponsored by the United Nations Development Program and World Bank, among other organizations, and specialized in studying Africa’s economy. The ODI is a renowned think tank on international development and humanitarian issues. By co-hosting the event with these prominent institutes in possession of broad international networks, IDE-JETRO aimed to provide a venue to effectively disseminate information to the various African governments and participants attending TICAD.

Speaking on growth of developing countries, Dr. Stephen Gelb, Senior Research Fellow at the Overseas Development Institute, where he leads the work related to private sector development, said that developing countries should select optimal combinations of policy instruments in consideration of two different types of growth strategies depending on country-specific circumstances – a course focused on natural resources or a course focused on unskilled labor, mainly in light manufacturing assembly. He also emphasized that industrial clusters play an important role in the sustainable cultivation of competitive middle-sized firms capable of driving the growth of the manufacturing industry. He continued that business associations based on these clusters help these firms grow through the provision of public goods which facilitate information sharing between companies and the coordination of joint actions.

While touching on the topic of past government policy failures, Professor Gerishon Ikiara of the University of Nairobi, acknowledged that while plans for structural adjustment, the Export Processing Zone (EPZ) and the African Growth and Opportunity Act (AGOA), all adopted in the 1980s with the aim of expanding exports, lacked significant impact on finances, they were actually effective to a certain extent in increasing export opportunities and improving access to foreign exchange by benefitting from economic liberalization, for instance.

Dr. Takahiro Fukunishi, Director of the African Study Group in the Area Studies Center at IDE-JETRO, illustrated the growth potential of African manufacturing. In a comparison between the garment industries of Madagascar and Kenya, he pointed out relatively lower wages in Madagascar as a factor which helped the garment industry of Madagascar to maintain its export competitiveness despite the elimination of the Multi-Fiber Arrangement (MFA) in 2004, while the growth in the Kenya garment industry was clearly slowed down by the elimination of the MFA. In addition, he pointed out manufacturing costs as a constraint on economic growth and specifically wage costs as having a significant impact on export competitiveness, especially in labor-intensive industries. When comparing average wages among countries of almost the same level in terms of GDP per capita, he found that wages in the formal sector of urban areas in Kenya were higher than those of Bangladesh and Cambodia. Finally, he brought up how Africa has experienced only a weak shift in its workforce from agriculture to industry and from rural to urban areas, trends which are highly noticeable for most countries which have gone through industrialization.

Three key points for growth of Africa’s economy

In summing up the information provided in these three presentations, Dr. Keijiro Otsuka, Chief Senior Researcher of Inter-disciplinary Studies Center at IDE-JETRO, emphasized the importance of the following three points for Africa’s economic growth:

  1. Efforts in response to the high level of wages in the formal sector of Africa, particularly of Kenya
  2. Cultivation of medium-sized firms
  3. Formation of industrial clusters and the roles of business associations

Concerning each key point, he commented as follows:

  1. Obvious imperfections are at work within Africa’s labor market, meaning that African firms are not able to compete with companies from Asia which have a comparative advantage in terms of wage levels.
  2. While medium-sized firms have been increasing in East Asia to a certain degree, there are very few firms which have grown to that scale in Africa. The main factor is inadequate support through industrial policies.
  3. Industrial clusters have positive effects on the growth of firms, such as in terms of inter-firm transactions and sourcing skilled workers. They constitute local “public goods” which benefits firms by offering easy access to market information, reliable suppliers and technological knowhow. Business associations formed to play a coordinating role in these industrial clusters are invaluable to their development, and enable firms to exchange of appropriate information with policymakers responsible for industrial policy.

Speech by Dr. Otsuka and panelists

Although TICAD VI has come to a close, IDE-JETRO will continue its efforts to deepen research exchange between Africa and Japan.