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UN industrial chief calls for natural resource economy in Africa

17 May 2011

South of the revolution

The changes unfolding in the Arab north have the potential to usher in an Africa-wide industrial revolution, according to the Director General of the United Nations (UN) Industrial Development Organization Kandeh Yumkella and South Africa’s Minister of Trade and Industry Rob Davies.

Over dinner in Algiers recently, we asked each other whether the youth-led revolutions unfolding in northern Africa presage the awakening of economic lions throughout the continent, writes Yumkella. Could the changes unfolding in the Arab north usher in an Africa-wide industrial revolution?

If so, it would mean shifting from production of commodities to higher-value manufactured products. It would also mean looking objectively at the concept and aims of international development cooperation beyond the lifespan of the UN’s Millennium Development Goals (MDG).

Manufacturing is undoubtedly the principal propellant in transforming human and natural resources into economic value – beneficiation, as we call it in southern Africa. It is here that Africa’s natural resources come into play.

According to the US Geological Survey, Africa holds 90 per cent of the world’s deposits of cobalt, 90 per cent of its platinum, 50 per cent of its gold, 98 per cent of its chromium, 64 per cent of its manganese, 33 per cent of its uranium, and 80 per cent of its columbite-tantalite. The continent also ranks first or second in world reserves of bauxite, industrial diamonds, phosphate rock, vermiculite, and zirconium. Hydrocarbon reserves in Africa are estimated at 80 to 200 billion barrels. The current value of sub-Saharan Africa’s mineral reserves is conservatively put at $1.2tn.

The benefits of such natural capital should provide greater income and investment in structural change. But Africa’s export trade is still dominated by primary commodities. Nowadays, a ton of African titanium sand brings about $100 in export revenues, whereas a ton of titanium alloy brings $100,000 – but to countries outside Africa.

There are less than four years to go before we reach the MDG finish line. Much progress has been made. But have we really confronted the fact that to achieve the targets – especially on eradicating extreme poverty and hunger – we need decent jobs for the rapidly growing, urbanised, and youthful populations of Africa? And that this in turn requires annual gross domestic product growth rates in excess of seven per cent.

Growth of this type requires a paradigm shift in economic development policy, as well as international cooperation beyond 2015. We need to think more broadly and deeply. We must embrace structural change and push for the diversification of Africa’s productive base away from over-dependence on raw materials and mining.

Structural change means constantly improving existing activities and generating new ones, moving from one sector to another and absorbing surplus labor, increasing the contribution of individual workers, and promoting the integration of productive sectors within the domestic economy.

Investment, technological progress, and innovation are the key determinants of economic success. Old products and industries are replaced by new or better ones, thanks to novel technologies, fresh marketing approaches, or new organizational structures. Local entrepreneurs adopt technologies from established producers abroad and adapt them to domestic conditions.

Structural change in Malaysia, for example, has been driven by strong political commitment. For three decades, successive governments have consistently and rigorously applied an economic model based on agriculture-led industrialisation.

Malaysian governments’ determination to experiment and craft comprehensive reform packages, rather than single, sequentially implemented policies, has been critically important. Targeted policies have promoted the emergence of a diversified economy based on processed natural resources, high-value manufacturing industries – such as consumer electronics, industrial automation, and heavy industries – and services.

Likewise, Mauritius has made admirable progress in intra-industry structural change – upgrading within the same industry and improving the industry’s domestic and international position. Other countries have also been trailblazers in building on what they have and moving up the value chain – for example, the difference between simple, low-value textiles and Egyptian organic cotton fibre is immense.

What Africa needs now is targeted support and investment in four main areas: down-stream processing of mineral resources, agro-industrial and agribusiness supply-chain development, pharmaceuticals, and infrastructure and energy. But that, in turn, requires lowering the cost of doing business, fighting corruption, promoting transparency in mining deals, and channelling natural-resource revenues in ways that enhance economic diversification and competitiveness.

This must take place within a more holistic concept of development. Access to education is essential, but Africa requires a curriculum that emphasises skill formation and nurtures entrepreneurship. We should bring food security to the starving without ignoring commercialisation, agribusiness development, and the consumption and trade of higher-value food products – particularly because 60 per cent of available uncultivated agricultural land is in Africa.

Indonesia, Malaysia, Thailand, and Vietnam are good examples of countries that have ensured food security through agricultural commercialisation, while also increasing wealth in rural communities and expanding foreign-exchange earnings and investment capacity.

Africa’s demographic profile makes the call for structural change even more urgent. The continent’s population is projected to increase to 1.4 billion by 2030 and 1.9 billion by 2050, with 50 per cent of people living in capital cities and urban conurbations. Today, more than 60 per cent of Africa’s urban population lives in slums.

The Arab Spring could become Africa’s nightmare unless we forge a new plan for development and economic opportunity for all of its people.

Kandeh Yumkella is Director General of the UN Industrial Development Organization. Rob Davies is South Africa’s Minister of Trade and Industry.

This article originally appeared in Project Syndicate.

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