Introduction
The theme “trade, finance, and new industries” is relevant to Africa,1Souleymane Coulibaly, Woubet Kassa, and Albert G. Zeufack, ‘Africa in the new trade environment: Market access in troubled times,’ World Bank Publications, 2022, https://openknowledge.worldbank.org/handle/10986/36884. given the structure of the economies, which is dominated by the primary sector with little added value. In the context of US-Africa cooperation, it provides an opportunity to discuss the endogenous difficulties and constraints that African countries face in modernizing and industrializing their economies. This essay raises a fundamental question about economic development: how can industrialization contribute towards transforming the structure of the African economy by increasing productivity and competitiveness? This question is relevant given the structure of world trade,2Jim Huangnan Shen, Zhiming Long, Chien-Chang Lee, and Jun Zhang, ‘Comparative advantage, endowment structure, and trade imbalances,’ Structural Change and Economic Dynamics, 60: 365-375 (2022), https://doi.org/10.1016/j.strueco.2021.12.012. which is dominated by highly industrialized countries in a global system that has assigned the role of exporting raw materials to African countries. This essay argues that African marginalization as an exporter of raw materials should be changed in favor of trade on more equitable terms. In this regard, certain improvements in “US-Africa Cooperation” will make a huge contribution to the industrialization of African economies.
The Structure of African Economies
The structure of African economies shows that agriculture is the dominant activity, employing more than 80 percent of the population depending on the country, with a huge potential that is never attained. Of note is the situation in which 40 of the 55 African economies are net food importers.3Greg Mills, Jeffrey Herbst, Dickie Davis, and Olusegun Obasanjo, ‘Making Africa Work, a Handbook’ (Hurst Publishers, 2017). Among the reasons for African stagnation in the agrarian sector is the lack of investment, while on the other hand, a lot of investment is going into the mining sector. However, this sector contributes little to real growth, including a marginal contribution to job creation. Coming to the processing industry and its participation in world trade, the situation for African economies remains bleak. For example, in Sub-Saharan Africa, the processing industry accounts for only 14 percent of GDP, one of the lowest rates in the world. As for manufacturing in Africa as a whole, it accounts for only 1.5 percent of global manufacturing. In relation to trade, on average it takes 25.8 days to start a business in Sub-Saharan Africa, compared to the world average of 20.4 days. In addition, raw materials account for over 60 percent of the continent’s merchandise exports.4Ibid. In this context, it is clear that the challenge of investment and industrialization remains a major one for a real economic take-off in Africa.
Two key problems stand out, which need to be resolved urgently. The first is the low market share of African economies in world trade and the deterioration of the terms of trade for raw materials. The second is related to the excessive interest of African leaders in discovering and exploiting new mines to increase the export of raw materials and their incomes. In order to reverse this situation, it is necessary to create added value by transforming local manufacturing and redirecting investments towards more productive sectors.5Romanus Osabohien, Badar Alam Iqbal, Evans S. Osabuohien, Muhammad Kaleem Khan, and Dong Phong Nguyen, ‘Agricultural trade, foreign direct investment and inclusive growth in developing countries: evidence from West Africa,’ Transnational Corporations Review vol. 14, no. 3 (2022): 244-255.
Misdirected Investment
Given the example of Foreign Direct Investments (FDI) in Africa, it is easy to explain how investments are mainly directed toward less-productive sectors which are contributing little toward real growth and job creation. FDI is concentrated in the mining, banking, and telecommunication sectors. Only 2 percent of FDI is directed to the agricultural sector. However, about 80 percent of the African population operates in this sector, which contributes 23 percent of GDP. In this context, it seems plausible to support the hypothesis that investment and industrialization in Africa should be reoriented towards the agricultural sector, storage, transport, and processing infrastructures to boost economic and social development. This could solve the problem of value addition, but also help change the structure of the economy and trade, which has so far been dominated by mining and commodity exports.
Internally, there is a lack of development strategy and planning. In the rare cases where they seem to exist, we realize that they are only focused on the short term. Also, in many cases, what is called strategy and planning is a compilation of documents. There is no real orientation and coordination between the sectors of the economy. But in the few cases where they exist, these strategies and plans do not seem to focus on national priorities.
Conclusion
African economies are facing many challenges. The continent’s priority should be to transform the structure of Africa’s participation in global trade through value-adding export policies. This will include investments in industrialization strategies for encouraging local processing, productivity, skills development, and employment. Such policies should prioritize consistent investment in agricultural productive capacities, storage, transport, and processing infrastructures. It is in this regard that US-Africa cooperation could play a key role if African leaders take time to focus on national priorities. To do this, a reliable and operational medium- and long-term strategy and planning based on endogenous specificities is essential. Specifically, US-Africa engagements should prioritize the following: i) put in place economic development strategies based on agricultural and agro-business; ii) encourage US investments towards Africa’s agricultural sector and processing industry by creating free zones for the first period and promote transfer of technology from the US; iii) develop bilateral Africa-US trade by creating mutually-beneficial preferential trade agreements, reducing tariffs and facilitating pro-developmental trade regulations.
