Industrialisation

Industrialisation and Competitiveness

Industrialisation and competitiveness - covers institutions, policies and factors that determine the productivity of a country/economy through diversification and expansion of productive sectors in the  region.

Key focus areas

(i) Ratification of the SADC Protocol on Industry
(ii) Coordinate the implementation of the SADC Industrialisation Strategy and Roadmap (SISR) 2015-2063
(iii) Establishment of the Common Market for Eastern and Southern Africa (COMESA)-East African Community (EAC)-Southern African Development Community (SADC) Tripartite Free Trade Agreement (TFTA) (Industrial Pillar)
(iv) Development in the UNIDO (United Nations Industrial Development Organisation)

Some projects and programmes being implemented include Project on Industrialisation GIZ-CESARE (Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH) - Cooperation for the Enhancement of SADC Regional Economic Integration. 

Partners and agencies include the SADC Member States, COMESA-EAC-SADC Tripartite Member/Partner States and ECA (United Nations Economic Commission for Africa)

Some statistics on  vital issues

(i) SADC's regional Gross Domestic Product growth contracted by 4.6 per cent in 2020, from a growth of 2.1 per cent in 2019. This is a far cry from a minimum of 7% per year (SISR target). 

(ii) SADC's relatively stagnant structural transformation with high dominance of service sector and manufacturing sector still having a stable and low share of around 12% against a target of 30% by 2030

(iii) SADC's relatively stagnant structural transformation with high dominance of service sector and agriculture sector employment across all SADC Member States, with most 'countries' share of industry employment of less than 15% a far cry of the targeted 30% by 2030. 

(iv) SADC intra-trade still around 20% is far less than other regions such as Asia (30 per cent) and EU (60 per cent). Low intra-trade is associated with a low share of manufactured exports to total exports of around 3%, a far cry from the target of 50 per cent of total exports by 2030.

List of documents - Protocol, Strategies, Frameworks
(i) SADC Protocol on Industry (2019) 
(ii) SADC Industrialisation Strategy and Roadmap (SISR 2015-2063)
(iii) Industrial Upgrading Modernisation Programme (IUMP)
(iv) COMESA-EAC-SADC Tripartite Free Trade Area Agreement, 
(v)  African Continental Free Trade Area (AfCFTA)
(vi) Capacity building programme 
(vii) RISDP 2020-2030
(viii) SADC Vision 2050

The SADC Regional Indicative Strategic Development Plan (RISDP 2020-2030) Industrial Development and Market Integration pillar comprises efforts to realise an industrialised regional economy utilises its natural resources sustainably. 
Thus, industrial development focusing on the priority sectors of agro-processing, mineral beneficiation, and pharmaceuticals is prioritised, alongside enhancing regional technological capability and capacity through science, technology and innovation. 

Related to this, the agricultural sector transformation is positioned to promote sustainable management of the environment and natural resources while ensuring productivity and improved market access for agro-products. Particular attention is further placed on the sustainable development of integrated Green and Blue Economies expected to generate revenue and employment. 

The RISDP 2020-2030 will also continue deepening efforts towards the free movement of goods, services, and skills, increasing attention to strengthening cooperation and coordination among the Member States in the tourism sector. A key priority under this pillar is ensuring macroeconomic convergence, increased financial Integration, monetary cooperation, and investment. 

Interventions will focus on further deepening financial Integration and financial inclusion, together with increased monetary cooperation, which will undoubtedly see increased domestic and intra-regional foreign direct investment. The economic transformation of the SADC Region will require adequate and functioning infrastructure that will guide the region towards front-loading industrialisation in the context of evolving technologies.

A Compact for Industrialisation - The Role of the State and Engaging the Private Sector 

A. The Role of the State 

According to the SISR (2015-2063), adopted by the SADC Summit in Harare in April 2015, ' 'government's central role is the creation of an enabling policy and regulatory environment for accelerated industrialisation with a particular focus on tackling the binding constraints of infrastructure, skills development and financing. 

Tstate's role is to facilitate the establishment and growth of firms and industries that will exploit a ' 'country's comparative advantage. Modern industrial policy is predicated on an enhanced developmental role for the government. Industrial policy should be the central platform of national development strategy to this effect. 

The state should assume leadership functions in strategising for long-term inclusive and sustainable growthy by shaping economic structure, creating more jobs, reducing inequality, strengthening research and development, and enhancing the economy's overall productivity. 

The government should also take the lead in building industrial infrastructure such as industrial parks to support cluster development and invest in Research and Development for industrial development and innovation. 

The principal developmental role of the state in industrialisation include: 

(i) Creation of an enabling regulatory policy and political environment for industrial development within the context of the SISR (2015-2063). 
(ii) Adoption of trade and competition policies that  improving market access, restrain market power the , create conditions for the promotion, and create conditions for promoting employment and industrial capacity. 
(iii) It addresses the capability issues to deepen the local technological base and develop and sustain innovation capacities. This entails significant government intervention and encouragement, technical education, skills development, and productivity enhancers  with the highest priority. 
(iv) Facilitating the financing of industrial projects. 
(v) Strengthening the institutional capacity for industry and trade. Governments should have a fresh look at the policies and institutions fostering technological and organisational learning and adaptation as complementary processes. 
(vi) Establishment of industrial sites and supporting industrial and geographic clustering. 
(vii) Supporting Research and Development for industrial development and innovation 
(viii) Promoting environmental sustainability by incorporating environmental principles (ecosystem protection, climate change adaptation and mitigation, green and blue economy) in industrial development and innovation. 

B. The Role of the Private Sector 

The SISR (2015-2063) advocates that the private sector must be consulted and involved in implementing the Industrialisation Strategy. Public-Private Partnerships are crucial in discovering and easing constraints on business and employment growth and improving the climate for Doing Business and attracting investment. 

Given the multi-faceted challenges of industrialisation in the 21st century, a strong alliance between governments, the private sector, and civil society are essential. The engine of progress will be the productive sector driven by entrepreneurial dynamics within the context of a developmental state. 

(i) The private sector should be consulted and involved in implementing the SISR (2015-2063). Member States should adopt outreach programmes at 18 national and regional levels to ensure private sector awareness of and participation in implementing the Industrialisation Strategy. 

(ii) Governments should establish a platform for public-private dialogue on industrial policy and its implementation, whereby business leaders from the Member States could participate in regional policy-making. Such an organisation would not only have a vested interest in cross-border collaboration in infrastructure, skills development, value-addition and value-chain participation, but it would constitute a forum in which policy debates might translate into joint cross-border ventures. Government should also create incentives for inclusive business participation within a regional context. 

(iii) The private sector should be involved in helping the state to eliminate obstacles to doing business, advising policymakers of the main problems they encounter in their day-to-day operations. 

(iv) A deliberate, closely-monitored capacity-building programme should be developed for the private sector to enhance entrepreneurial and managerial skills, thereby boosting productivity and competitiveness. 

(v) Since private sector business associations in SADC are, for the most part, weak and under-resourced, there is a strong case for creating and strengthening business associations at the regional level. National think tanks with research capability to stimulate and inform the private-public dialogue on policy issues of all kinds are critical. The roles envisaged for such institutions include monitoring the progress of industrialisation across the SADC Region, providing research inputs and advice to policymakers and the public and private sectors in the Member States, thereby ensuring that transformation and economics modernisation are kept at the forefront of public awareness and debate. 

(vi) Most SADC economies score poorly on Ease of Doing Business and Competitiveness indicators. Member States should use the annual reports and league tables for these two indicators  to improve their rankings by implementing reforms that are seen to be successful in competitor countries around the world. Member States may wish to establish benchmarking systems to monitor industry competitiveness and efficiency. 

(vii) Undertake measures to ensure compliance with environmental principles, rules and regulations. 

Mainstreaming Gender and Youth Issues 

SISR (2015-2063) says industrialisation should hold more promise for women and youth. Women and youth participation in industrialisation and structural transformation is an important strategy ingredient. 

(i) The long-term strategy should contain empowerment dimensions to widen the scope and quality of women and ' 'youth's participation in the industrialisation process, notably by improved access to finance, skills development and SME support programmes, and livelihood skills of women and youth, particularly in high value-adding industries in such areas as services, manufacturing, horticulture, transport, energy, agricultural and trade industries. 

(ii) Youth unemployment and underemployment are major challenges the are major challenges for SADC Member States, which could be addressed by developing a challenge for SADC Member States that youth economic empowerment and mentoring programmes. 

(iii) The public and private sectors must increase their efforts to support youth innovation and entrepreneurship and create quality job opportunities for school-leavers and unemployed youth, focusing ensuring that the education system is better tailored to meet the requirements of modern industry. 

Strengthening Small and Medium Scale Enterprises 

An integrated strategy for SME development focusing on increasing the small business survival rate via training programmes, access to information, financing, a favourable fiscal policy environment and assistance in accessing modern technology is essential. 

SMEs, a domain where  most women and youth are concentrated, make significant contributions to the growth and development of the SADC countries in terms of output, employment, and the supply of consumer products and services. 
Almost all Member States have SME support initiatives and programmes, primarily large, but are ineffective in sustaining and promoting the sector. The failure and exit rates are generally high. Additionally, existing laws, policies and practices in accessing finance are not sufficiently geared towards making credit more easily accessible for women and youth. 

An SME strategy should therefore alleviate these limitations. Given the challenges facing the SME sector - operational capacity; limited management and entrepreneurial skills; lack of initiative to engage in sophisticated business endeavours; lack of bankable collateral; poor quality of products and services; lack of trade and industry-related information; and poor planning – it is apparent unmistakable evidence that the SME sector requires substantial quantitative and qualitative interventions. 

SADC countries need to  implement an integrated policy framework that will help refocus activities and target them to the broader goal of industrialisation and transformation. 

The strategy should include the following: 

(i) Clear policy focusing on graduation and SMEs' greater sophistication allied to theirIntegration into the mainstream economy. 

(ii)  Addressing gender inequalities in access to credit, capital, land and other means of economic empowerment as specified in the SADC Gender Protocol and Policy. 
(iii)    A deliberate capacity development and upgrading programme, entrepreneurial and technical skills training, incubation and nurturing youth innovation, technological upgrading, study tours, skills development in such important areas as accounting, marketing and management. The formalised programme should establish accreditation levels that permit small business mobility across SADC countries. 
(iv) A procurement policy  prioritise local SMEs, especially those owned by women and youth, without compromising quality. 
(v) The measures to foster linkages between large firms and SMEs,, especially regarding inputs of goods and services. 
(vi)  Financing mechanisms are more responsive to the needs and scale of the SMEs, going beyond short-term commercial bank or micro finance lending to the provision of medium and long-term funding. 
(vii) particular, business support mechanisms should support new SMEs with better technological readiness and export potential through the timeous provision of information on market opportunities at home and abroad. 
(viii) Simplification of the fiscal and regulatory framework and tailoring specific incentives for SME development and growth. 
(ix) Establish a database of the size and structure of the SME sector, including output, product range, employment and exports and a competitiveness observatory for the development of SMEs as provided in the IUMP. 

Growth Scenarios and Timelines 

The Industrialisation Strategy is situated within a generational perspective straddling 2015 to 2063. During this period, SADC economies will overcome their binding development constraints and progressively move through the growth stages – from factor-driven to investment- and efficiency-driven and ultimately to the high growth trajectory driven by knowledge, innovation and business sophistication. 

SADC Region will thus be fully transformed and become an important player in the continental and global landscape. Given ' 'SADC's limiting initial development conditions, particularly in the realm of production and factor productivity and poor competitiveness rankings, a generational perspective, running from 2015 to 2063, would help the countries achieve their long development goals and regional convergence. 

The main thrust of the scenarios is to graduate SADC countries from factor-driven to investment-driven and ultimately innovation high development stage in line with competitiveness stages. 

The SADC Industrialisation Strategy and Roadmap 2015–2063 aims to promote industrialisation, enhance competitiveness, and deepen regional through structural transformation, leading to increased manufactured goods and exports. 

It is important to note that international experience has shown that the extent to which structural transformation takes place in a country is a key factor differentiating successful countries from unsuccessful peers.

Status of Industrialisation and Regional Integration 

The SADC Region has made significant inroads towards regional Integration. However, the region still falls short in terms of the leading regional integration indices of the Africa Regional Integration Report. These indices are: 
(i) Trade Integration, 
(ii) Regional Infrastructure, 
(iii) Productive Integration, 
(iv) Free Movement of People, and 
(v)  Financial and Macroeconomic Integration. 

In 2016, the average Regional Economic Community (REC) score in this regard was 0.470 on a scale of 0 (low) to 1 (high). SADC achieved an a -average score of 0.531 and did well in the areas of average score of 0.531 and did well in Regional Infrastructure, Free Movement of People, and Financial and Macroeconomic Integration. Still, it falls short in the dimensions of Trade Integration and Productive Integration. (The latter measurement is measured using three indicators: share of intra-regional intermediate goods exports, the percentage of intra-regional intermediate goods imports, and ranking on the Merchandise Trade Complementarity Index.) 

In line with the observed situation at the continental level,  most the SADC Member States are dependent on primary commodities as a source of export earnings. This state of affairs means that these countries remain vulnerable to the adverse terms-of-trade shocks usually associated with commodities such as oil, mineral resources, and primary agricultural products. 

This vulnerability was evident when oil prices plummeted to negative values due to the COVID-19 pandemic. Continued dependence on commodity exports has led the SADC Member States to seek the structural transformation of their economies through industrialisation. 

Using the manufacturing sector's performance as a proxy indicator of the status of industrialisation in SADC is revealing. The ' 'sector's performance during the period 2008–2018 has been weak. Measured in tenits relative contribution to GDP; the manufacturing sector industry has largely primarily been stagnant over the past 10 ten years. It remains below the levels achieved in 2008 and 2009. 

The share of the manufacturing sector with overall GDP has been declining marginally since 2009, when it stood at 13.1%, reaching its lowest point at 10.9% in 2013. The post-2013 period has shown a slight recovery, with the sector gradually increasing its share with GDP to 11.9% in 2018. 

In 2018, ' 'SADC's goods exports stood at $154 billion while goods imports totalled $149 billion. Intra-regionally, SADC exported $37.3 billion and imported $35.3 billion worth of goods. Intra-regional exports as a proportion of the total increased from 15.2% to 19.5% in the ten years between 2008 and 2018, while the share of intra-regional imports rose from 17.5% to 19.1% in the same period. 

This shows a consistent, albeit minuscule, increase in the share of intra-SADC trade in the ' 'region's overall trade. The , tripartite Free Trade Area (TFTA) negotiation and its alignment with the African Continental Free Trade Area (AfCFTA) are steps in the right direction. They will open up the potential for SADC to realise benefits in its own Free Trade Area (FTA), which was established in 2008. 

SADC has, however, made few inroads towards establishing a Customs Union, Single Market, and Economic and Monetary Union, and only seven countries have applied the Protocol on Free Movement of Persons. 

The steps required to deepen regional Integration in SADC include among other things: implementing strategies about concerning industrialisation; improving the supportive environment for industrialisation in terms of hard and soft infrastructure; removing non-tariff barriers (NTBs) to trade; improving the business environment in terms of policy and legal frameworks; consolidating the harmonisation of the financial sub-sectors; and ratifying the Protocol on Trade in Services.