The Integration of Africa: Commodity Based Industrialization Examined

Abstract

The 2013 Economic Report on Africa, ERA, boldly suggests a commodity-based strategy for creating jobs, for increasing growth and for transforming African economies (UNECA, 2013). This is not the first time African countries have flirted with development strategies ranging from export led growth through import substitution to outright macroeconomic liberalization. The paper examines this latest policy and principle statement from the United Nations Economic Commission for Africa, the continent’s apex institution for economic modeling and economic policy making. By adding value to their soft and hard commodities, “African countries have an opportunity to transform their economies through a commodity-based industrialization strategy that leverages on the continent’s abundant resources, current high commodity prices and changing organization of global production process” (UNECA, 2013).

First, we show that in and on itself, commodity based industrialization does not guarantee success in job creation or in attaining economic growth any more than the pathways Africa adopted before it. After all, East Asia practiced import substitution strategy about the same time as the Africans. The former was hugely successful while the latter recorded a disappointing failure. Second, we argue that the kind of posture or capstone policy statement implied by a bold choice of a rather narrow pathway to development in Africa contained in the report is largely unnecessary. We make this claim, partly because, UNECA report implies that commodity based industrialization will guarantee for Africa a comparative advantage and a much improved revenue from trading with the outside world.

Sure, there are merits to primary commodity valuation within the countries that produce them, but modern models of trade suggest that countries may, in fact, be exporting and importing the same commodities, which, in current global contexts are, differentiated. As a follow up to this claim, we computed intra industry trade indexes for ECOWAS countries and fit the gravity equation to trade data from the region. This allows us to evaluate, ab initio, the possible success expected of this newly couched approach, by UNECA, of industrialization based on commodity processing.

The paper suggests that in a world of increasing returns to scale, understanding what drives trade and the pathway to creating jobs, fight poverty and transform African societies may very well be found in efforts that place trade within regional economic blocs as already developed by the African Union. We see the importance of commodity processing in transforming African economies only if the anticipated trade flows are directed at regional trade within the continent. Any possible comparative advantages coming out of efforts to add value to African commodities are likely to come to naught, when, in fact, UNECA itself knows that the critical access factors determining the flow of exports to middle and high income countries are beyond the reach of very many African countries.

Appendix

See Fig. 9 and Table 3.

Fig. 9

Gravity equation estimates

Table 3 Grades for African leaders