Public Lecture at Lee Kuan Yew School of
Public Policy

30 August 2010, Singapore

Industrial Policy in Africa
What and How East Asia Can Teach

ZambiaUgandaKenichi Ohno
National Graduate Institute for Policy Studies (GRIPS)Tokyo, August 2010

Topics Reviewing industrial policy debate Middle income traps and proactive

industrial policy Japanese approach and entry points to
African development
 Policy dialogue with Ethiopia

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Public Lecture at Lee Kuan Yew School of
Public Policy

30 August 2010, Singapore

Industrial Policy Debate
Washington Consensus (IMF, WB)
I. Liberalization, privatization, integration+macroeconomic stability
II. Good governance, “doing business” approach(investment climate)
Opponents
 Globalization favors early achievers andprevents catching up of latecomers
 Markets (esp. uncontrolled financial markets)
are often de-stabilizing
 Government has an important role to play insupporting private sector

Promoters of Policy Activism
Ha-Joon Chang (2002)
 Past latecomers (US, Germany, Japan, etc) all
used infant industry promotion for catching up.
 Import protection, export subsidies, etc.
should be permitted to today’s latecomers to
upgrade industries.
Justin Lin (2009, 2010)
 Industrial diversification and upgrading, indynamic steps, is crucial. Government shouldplay an active, facilitating role.
 Industrial policy should follow a country’s
comparative advantage, not go against it.

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Public Lecture at Lee Kuan Yew School of
Public Policy

30 August 2010, Singapore

Promoters (cont.)
Dani Rodrik (2007)
 Remove most binding constraints for kickstarting growth (“growth diagnostics”).
 Institution-building for sustaining growth.
 Help innovators only, not copycats.
Cimoli, Dosi, Stiglitz (2009)
 Accumulation of knowledge and organizational
capabilities is key.
 Markets do not automatically achieve this;policy space should be expanded to promote it.

Many Countries Willing to Learn
 East Asia generally accepts government’s role inindustrialization. No allergy to “industrial policy.” In Africa: Ethiopia, Zambia, Rwanda, Uganda,
Tanzania, Egypt, Tunisia, Namibia, African
Union" are seriously interested in industrial
policy or implementing it.
 Ethiopian senior economic advisor: “We wantaction-oriented advice, not academic theories.” Vietnamese economists: “WB’s policy proposals
are too mechanical and not concrete enough for
Vietnam.”3

Public Lecture at Lee Kuan Yew School of
Public Policy

30 August 2010, Singapore

Theory vs. Practical Guidance Validity of industrial policy argument depends on

actual successes on the ground.
 For industrial policy “converts,” pragmatic anddetailed guidance is needed, not theoreticaljustification of industrial policy.
 Japan, Asian Tigers, ASEAN, and China
industrialized through self-study, learning fromneighbors, and trial-and-error.
 Today’s latecomers also face random andfragmented advice. No systematic instruction
exists for policy design and implementation.

Systematic Instruction on Industrial
Policy Making is Needed
Featuring: Strong country ownership A policy package tailored to each country Policy learning and gradual expansion of policyspace
 A comprehensive policy menu to choose from,based on international comparison of concrete
policy measures Policy dialogue with advanced country experts(coaching and tutoring)
Ethiopia: “Please show us how East Asian countries
draft industrial master plans and action plans.”

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Public Lecture at Lee Kuan Yew School of
Public Policy

30 August 2010, Singapore

How Much Is Real Debate?
 While some reject “industrial policy” emotionally,

many of its components are already widely
accepted and practiced.
 PSD, TVET, HRD, PPP, capacity development,
marketing, investment climate policies" largely
overlap with “industrial policy.” Theoretical differences melt away at operational
level:
 Follow or defy comparative advantage?
(eg. Finland’s Nokia, Korea’s Pohang Steel) General support vs. targeting sectors(“selective” industrial policy)

Speed of Catching Up: East Asia
Per capita real income relative to US(Measured by the 1990 international Geary-Khamis dollars)
100%
Japan

90%

Singapore

80%

Hong Kong
TaiwanTaiwanS. Korea
S. Korea

70%
60%
50%

Malaysia
Malaysia

40%

ThailandThailandIndonesia
Indonesia

30%

Philippines
Philippines
20%

Vietnam

10%

China

2010

2005

2000

1995

1990

1985

1980

1975

1970

1965

1960

1955

1950

0%

Sources: Angus Maddison, The World Economy: Historical Statistics, OECD Development Centre, 2003; theCentral Bank of the Republic of China; and IMF, World Economic Outlook Database, April 2010 (for updating).

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Public Lecture at Lee Kuan Yew School of
Public Policy

30 August 2010, Singapore

Latin America
Per capita real income relative to US(Measured by the 1990 international Geary-Khamis dollars)
100%
90%
Argentina

80%

Brazil
70%
Chile
60%

Colombia

50%

Mexico

40%

Peru

30%

Urguay20%

Venezuela

10%

2010

2005

2000

1995

1990

1985

1980

1975

1970

1965

1960

1955

1950

0%

Sources: Angus Maddison, The World Economy: Historical Statistics, OECD Development Centre, 2003; theCentral Bank of the Republic of China; and IMF, World Economic Outlook Database, April 2010 (for updating).

AfricaPer capita real income relative to US(Measured by the 1990 international Geary-Khamis dollars)
100%
Botswana

90%

Cote d'Ivoire
80%
Egypt
70%

Ghana

60%

Kenya

50%

Madagascar

40%

Nigeria30%

South Africa
Tanzania

20%

Tunisia
10%
Uganda
2010

2005

2000

1995

1990

1985

1980

1975

1970

1965

1960

1955

1950

0%

ZambiaSources: Angus Maddison, The World Economy: Historical Statistics, OECD Development Centre, 2003; theCentral Bank of the Republic of China; and IMF, World Economic Outlook Database, April 2010 (for updating).

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Public Lecture at Lee Kuan Yew School of
Public Policy

30 August 2010, Singapore

Russia & Eastern Europe
Per capita real income relative to US(Measured by the 1990 international Geary-Khamis dollars)
100%
90%
80%

USSR

70%

Czeco'kia

60%
Hungary
50%
Poland40%
Romania30%
Yugoslavia
20%
10%

2010

2005

2000

1995

1990

1985

1980

1975

1970

1965

1960

1955

1950

0%

Sources: Angus Maddison, The World Economy: Historical Statistics, OECD Development Centre, 2003; theCentral Bank of the Republic of China; and IMF, World Economic Outlook Database, April 2010 (for updating).

Overcoming Developmental Traps
 A certain income level can be reached by liberalpolicies, but higher income requires strong policy
effort to enhance private dynamism.
 Growth based on FDI, ODA, big projects, natural
resources, and other given advantages will
eventually end.
 The true source of development is value creation
by humans (knowledge, skills, technology).
 A national mechanism must be established topromote human capital formation. This ispossible even under globalization, but method
must differ from past policies. I call it “proactive
industrial policy.”

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Public Lecture at Lee Kuan Yew School of
Public Policy

30 August 2010, Singapore

Proactive Industrial Policy:
Seven Required Features
1. Strong commitment to global integration andprivate sector driven growth
2. A wise and strong government guiding private
sector
3. Securing sufficient policy tools for latecomerindustrialization
4. Constant policy learning through concrete
projects and programs
5. Internalization of knowledge, skills andtechnology as a national goal
6. Effective public-private partnership7. Collection and sharing of sufficient industrial
information between government andbusinesses

Standard Policy Menu forEnhancing Industrial Capability
Policy content & policy organization
Framework

Vision-Plan-Action

Ministries & agencies

Enhancing industrial human andenterprise capability
Software

Policy framework
Finance
Human capital
FDI/cluster policy
Enterprise support
Business linkage
Innovation

Hardware

Infrastructure (power, transport/logistics)

Application(hard+soft)

Comprehensive regional development

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Public Lecture at Lee Kuan Yew School of
Public Policy

30 August 2010, Singapore

Enhancing Industrial Human and Enterprise
Capability: Standard Menu for Latecomers
Main objectives(1) Legal and policy frameworks(2) Local capacity building(industrial human resource andlocal enterprises)

Sub items
Laws and regulations
Ministries/agencies for promoting SMEs, FDI, etc. with sufficient capability and authority
Inter-ministerial coordination mechanisms
Effective public private partnership (PPP)
Mechanism for business-government-academia linkage
Policy system consisting of visions, roadmaps, action plans, and monitoring
Standards for quality, safety, skills, environment, etc.
Mechanisms for protecting and utilizing Intellectual property rights
Strengthening of industrial statistics
Strategic mobilization of international cooperation
Universities of technology and engineering, industrial colleges
Short-term courses for enterpreneurs
Technical support on specialized skills for engineers
Technical and vocational training for new or current workers
Skill certification, competition, and awards
Subsidies and incentives for targeted activities (worker training, technology transfer, die andmold, marketing, ITC, etc)
Management or technical advisory service (by visiting consultants, short-term)Enterprise evaluation and advice system (institutionalized shindan system or technicalextension services) - also related to SME finance
Local enterprise networks(Cont.)(3) Finance

Development financial institutions
Subsidized commercial bank loans for targeted firms (two-step loans)
Credit guarantee system
Equipment leasing
Venture capitalEnterprise credit information system
Enterprise evaluation and advice system (same as in (2))(4) FDI marketing
List of priority products and activities and a system of investment incentives
Investment promotion seminars and missions
Effective investor information package and website
Investment promotion offices abroad
One-stop services and enteprise support (before and after investment)
Upgrading infrastructure service quality (power, transport, water, etc)
Environmental control and facilities (incl. waste water treatment)
Industrial estates with sufficient infrastructure services and administrative services (incl.
specialized industrial parks)
Labor support (training, recruiting & matching, housing/domitories, commuting, health care,etc.)
Prioritized and targeted FDI marketing
Inviting individual target company ("anchor firm") and provision of required conditions(5) Linkage (learning by working Trade fairs and reverse trade fairs
with global standard firms; market Enterprise databases (SMEs, supporting industries, sectoral)
development)
Official intermediation/promotion of subcontracting
Incentives/subsidies for FDI-local firm linkage
Domestic and export market development support
Establishment and enhancement of industry associations

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Public Lecture at Lee Kuan Yew School of
Public Policy

30 August 2010, Singapore

Learning from East Asia
 NOT copying some specific policies adopted insome East Asian country to Africa.
 Learning mindset and methodology of designingand implementing industrial strategies.
 There is a standard industrial policy menu, but
selectivity and adjustment are needed to adapt tounique conditions of each country.
 The Eastern approach should be complementary
to the Western approach.

Features of Japanese Approach to
Development
Pragmatism and concern with specific industries: Target orientation—striving for concrete vision,

targets, roadmaps, and actions instead of generalcapability improvements.
 Field (gemba) orientation—working on factory
floor or crop field to solve concrete problems.
 Joint work—transferring skills and knowledge todeveloping countries by working together (OJT);
no parallel mechanisms.
 Dynamic capacity development—policy
learning and expectation of graduation from aid.

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Public Lecture at Lee Kuan Yew School of
Public Policy

30 August 2010, Singapore

Entry Points for Japan’s Industrial
Cooperation in Africa
Japan, a small investor and donor in Africa, butwith East Asian experience, can offer the following:
1.

2.
3.

4.

For a country with reasonable visions and plans,
standard policy tools (training, quality control,
kaizen, SME promotion, etc.) can be provided.
Policy dialogue for making and strengthening
visions and strategies.
Comprehensive regional development with core
infrastructure, supported by HRD, regional
planning, industrial support, rural development,
etc.
Creating enabling environment for Japanese
investment under the principle of open access andnon-excludability.

Initiation of Bilateral Policy Dialogue
with Ethiopia
 May 2008: the 4th Tokyo International

Conference on African Development (TICAD IV):
Japanese commitment to increase cooperation in
Africa.
 July 2008: PM Meles’ request for two-partcooperation: (i) kaizen (factory improvement) by
JICA; and (ii) policy dialogue with GRIPS. Actually,
two components are implemented jointly by
GRIPS and JICA.
 July 2008-: Preparation
 June 2009: Official launch of the 2-year project.

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Public Lecture at Lee Kuan Yew School of
Public Policy

30 August 2010, Singapore

Purposes of
Policy Dialogue with Ethiopia
Transferring mindset and methodology of East Asianpolicy making through concrete issues and projects.
 Establishing linkage between policy dialogue andJapan’s industrial projects in Ethiopia.
 Cooperation and networking with other projects,
donors, and academic institutions.
 Create pilot projects which should be scaled up by
Ethiopian effort.
 Promoting industrial policy dialogue in the rest of
Africa (if successful).
 Providing specific information upon request(Japanese TVET system, kaizen, metals, rural life
improvement movement, etc).


GRIPS-JICA Industrial Policy Dialogue
with Ethiopia (2009-2011)
IPD conference
Jul.2008

Preparation

Official launch
Jun.2009

Industrial policy dialogue

Topics: development regime, kaizen, policy documents,
five-year plan, metal processing, import substitution, etc.

Interim
ReportSpring2011

Final
ReportNote: black squares indicate policy dialogue
in Addis Ababa with (i) Prime Minister, (ii)concerned Ministers, and (iii) operational
levels.

Kaizen (30 pilot firms)

Industrial support
projects

Basic metal & engineering industries study(With ECBP)

Institutionalization of kaizen
Other?

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Public Lecture at Lee Kuan Yew School of
Public Policy

30 August 2010, Singapore

Participants ofIndustrial Policy Dialogue
Ethiopian side (3 levels)
Prime Minister Meles Zenawi
High-level policy makers headed by Ato Newai (Senior
Economic Advisor to PM) and Ato Tadesse (State Ministerof Industry, MOTI) Operational levelsJapanese sideGRIPS researchers
JICA officials and experts
Supported by Japanese Embassy in Addis Ababa

Note: the Japanese team visits Ethiopia every three months forpolicy dialogue. Additional visits by Japanese experts andproject teams. Ethiopian visits to Japan and other countries
as needed.

Topics of Policy Dialogue in theFirst Year Democratic Developmentalism (DD) andAgricultural Development Led Industrialization(ADLI), with PM.
 Possibilities of agricultural breakthrough andrural life improvement movement, with PM.
 Desirable structure of policy documents andpolicy organization from East Asian perspective.
 Advice on the industrial chapter of PASDEP II.
 Pitfalls of import substitution.
 Differences and complementarity between kaizen
and benchmarking; institutionalization of kaizen.
 Basic metal and engineering industries frominternational perspective.

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Public Lecture at Lee Kuan Yew School of
Public Policy

30 August 2010, Singapore

Issues Discussed at High Level Forums
Japanese side
1st HLF(Jun. 2009)

(1)
(2)

2nd HLF(Sep. 2009)

(1)

(2)

(3)
3rd HLF(Nov. 2009)

(1)

(2)

4th HLF(Mar. 2010)

5th HLF(Jul. 2010)

(1)

(1)

“JICA’s plan to policy dialogue anddevelopment study” (Masafumi Kuroki)“ADLI and future directions for industrial
development” (Kenichi Ohno)“Cross-cutting issues on industrializationand policy menu under the age ofglobalization: examples from East Asia”(Kenichi Ohno)“Organizational arrangements for industrial
policy formulation and implementation:
examples from East Asia” (Izumi Ohno)“Planning and decision-making process for
SME policies in Japan” (Go Shimada)“Designing industrial master plans:international comparison of content andstructure” (Kenichi Ohno)“Industrial policy direction of Ethiopia:
suggestions for PASDEP II and the next
five years” (Izumi Ohno)“Basic metals and engineering industries:
international comparison of policy
framework and Ethiopia’s approach” (Toru
Homma)“Result of basic metal and engineering
industries firm-level study – parts
conducted by MPDC and JICA” (Toru
Homma)

Ethiopian side(1)

“Evaluation of current PASDEP focusing on
industrial development and related sectors”(HE Tadesse Haile)(1)“Comments and feedback by the Policy
Dialogue Steering Committee on thepresentations by GRIPS and JICA” (HETadesse Haile)(1)“Concept for the industrial chapter of
PASDEP II and the formulation plan” (HETadesse Haile)(1)“Draft plan of industry sector for PASDEP
II” (HE Tadesse Haile)“Overview, contents of PASDEP II draft ofchemical subsector” (Shimelis Wolde)“Report of kaizen training for capacity
building of Kaizen Unit and Pilot Projectcompanies in Japan, Osaka Team” (TolaBeyene)“Report of kaizen training for capacity
building of Kaizen Unit and Pilot Projectcompanies in Japan: Chubu Team” (Bekele
Mekuria)“Concept of kaizen institutionalization andestablishment of Ethiopian Kaizen Institute”(Getahun Tadesse)

(2)
(1)

(2)

(3)

Features of
Ethiopian Industrial Strategy
 Unique development strategy based on DD and

ADLI: strong state guiding private sector, interest
in East Asia.
 Linkage between policy learning and expansion ofpolicy scope Around 2003-now: promoting a few export
sectors with incentives and donor support;
learning BPR, benchmarking, policy documents,
scaling up of pilots, twinning, public-private
dialogue, kaizen"
 PASDEP II: addition of import substitution,kaizen institutionalization, etc. as policy
capability has risen.

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Public Lecture at Lee Kuan Yew School of
Public Policy

30 August 2010, Singapore

Expanding Policy Scope
The need for broadening the policy scope was alsosuggested by Dani Rodrik (2008) and World Bank: Move from 1st to 2nd generation industrial policies.
 Support investors beyond current priority industries.
 Broaden the list of policy instruments.
 Our approach Emphasis on policy evolution—matching the speedof policy learning with policy expansion.
 Supporting policy expansion with concrete, handson information, studies, and technical cooperation to
avoid policy mistakes and political capture.


Recent Developments in Ethiopia
 National election in May 2010 – landslide victory

for the ruling party (EPRDF).
 PM Meles will stay for five more years.
 A new government will be appointed in Sep.2010.
 A new five-year plan (Growth & Transformation
Plan 2010/11-2014/15):
 Targeting double digit growth or even 15%
growth (doubling income in 5 years)
 Shifting from agro-based to industry-driven
growth Mobilizing kaizen, new SME policy, importsubstitution, and other policy measures

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Public Lecture at Lee Kuan Yew School of
Public Policy

30 August 2010, Singapore

Draft Interim Report (June 2010)
A collection of documents prepared by GRIPS Development
Forum for bilateral policy dialogue.

Ch.1 – Introduction
Ch.2 – Democratic Developmentalism (DD) andAgricultural Dev. Led Industrialization (ADLI)
Ch.3 – Broadening the policy scope: cross-cutting
issuesCh.4 – Broadening the policy scope: organizationalarrangements
Ch.5 – Policy direction for the next five years
Ch.6 – An international comparison of industrial
master plans

Ch.2 – DD and ADLI Review of Ethiopia’s steps toward a developmental

state since the 1990s, and early results.
 Democratic Developmentalism—definition, issues,comparison with East Asian developmental states.
 Agricultural Development Led Industrialization—
core ADLI, enhanced ADLI, further expansion ofpolicy scope and measures.

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Public Lecture at Lee Kuan Yew School of
Public Policy

30 August 2010, Singapore

Ch.3 – Cross-cutting Issues
Critical review of Ethiopian industrial policies: Policy framework and structure
 Past review and future evaluation
 Time dimension of industrial promotion
 Import substitution
 Industrial clusters and corridors
 SME promotion

Ch.4 – Organizational Arrangements
Introducing East Asian experiences on: Leadership and a technocrat team Mechanisms for inter-ministerial coordination andstakeholder involvement
 Mechanisms for executing high priority policies
 Implications for Ethiopia

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Public Lecture at Lee Kuan Yew School of
Public Policy

30 August 2010, Singapore

Ch.5 – Policy Direction for the Next
Five Years
Based on current PASDEP and discussion with
MOTI, advice was given on:
 Recent performance Proactive industrial policy Expansion of policy scope and measures
 Internalizing skills and technology
 Priority sectors
 Priority issues
 Numerical targets
 Policy documents and organization

Ch.6 – An International Comparison ofIndustrial Master Plans
Upon PM’s request, a quick study was conducted on
industrial policy documents in Asia:
 Master plan types
 Chapter components
 Required features
 Relative scope of government vs. market
 Concrete examples from Asian policy documents:
Thailand, Malaysia, etc.
 Recommendations for Ethiopia

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