“The Africa Growth Initiative”
SMEs/SMIs
SMEs/SMIs centered industrialization for inclusive andsustainable growth in Africa – How can Japan help?
J.D.N.ELUMBA
GDF

Presentation outline

Definitions and context
 Implementation outcome
 Winds of change SMEs centered industrialization
 How can Japan help?
1

Definitions and context
Small and Medium Scale Enterprises (SMEs)
Firms that employ between 10 and 100 persons.
Based on definition in 10 countries in Sub-Saharan Africa (SSA)(Nigeria, Sudan, the DRC, Kenya, Ethiopia, Ghana, Uganda, Cote d’Ivoire,Tanzania and Zimbabwe)

Industrialization
Transition form the primary sector of the economy (Agriculture, mining, etc.) to thetertiary sector (services and expand to knowledge economy), throughthe secondary (processing, manufacturing, etc.)

Economic growth
Economic growth is the increase in the value of goods and services produced by the
Economy; generally referred to as the increase in the gross domestic products.

Economic development (inclusive(inclusive growth)
growth)A measure (by various indicators) of improvement in the economic well being andquality of life of a set of people. In our context, a reduction and elimination of poverty
More restrictively, income poverty.

Definitions and context (cntd.)
Biased economic and political world order
geared to preserve the dominance of WesternCountries (UN/World Bank/IMF/WTO…
Bank/IMF/WTO…)
Post colonial governments recognized importance of industrializationindustrialization

Import substitution (60-70s)- Inexperienced leaders- Inherited enclave economies- Fragmented continent- Endowed with vast natural resources- Abundant (unskilled) cheap labor- Through state owned enterprises

SAPs

Externally engineeredto leapfrog at one boundthe long and laborious
path to industrialization.

- Macro-economic stability- Enormous negative legacies

Export-oriented industrializ.
- Globalization2

Implementation outcome
Over four decades, many industrialization
strategies have been tried, but most have failed.
failed.

Failure of governance
From independence

1. Weak institutional capacity
2. Weak regulatory framework
3. Inadequate/imported policies
4. Poor implementation
The causes interpenetrate

Repeated failures have createda selfself-confidence deficiency
syndrome
Need for new strategy to build
the industrial sector fromthe ground up to achievesustainable economic growth.
SMIs should become theprime agenda as they generatevalue adding activities basedon existing domestic resources

Policies should be complemented by effective and operational
policy implementation strategies (country specific)

Winds of change
Recent world trends offer a unique opportunity tochange Africa’
Africa’s predicament

1. Increased economic growth- Without much diversification (non-inclusive)- Fueled by high commodity prices andwindfall investments from India and China- Macro-economic reforms

2. New non-conditional donors- They understand Africa’s challenges- Big competitors at the same time

3. Renewed focus on growth (DAC)- Growth diagnostics- Infrastructure development

Leverage the new relationshipto diversify their economies
and convert their comparativeadvantage into competitiveness.
The goal being to reduce
vulnerability to fluctuations ofWorld commodity prices(e.g. extractive final stage processing
locally in Africa)

To realize the objectives of economic growth throughCompetitiveness on the one hand and employment generation andincome distribution on the other hand, SMEs assume a critical role3SMEs centered industrialization
SMEs represent the biggest share in business establishments
in practically all countries and play a key role in industrializationof developing countries

The case of Botswana
Botswana statistical report 2003

1. >50% of consumer goods imported>90% of export
primary products- Food / beverage / tobacco / etc.
- Textile / footwear- Wood / paper- Metal / metal products

During the same period

2. Large amount of hard currency used
- On goods that could be produced locally- Diverting uses of valuable funds

3. ~80% of dairy/milk products import- Though Botswana is famous for livestock- They export meat

This reflects
most of Africancountries

SMEs centered industrialization
IntraIntra-Africa trade has tremendous potential and is yet to be fully
exploited, for Africa this is a matter of survival

IntraIntra-Africa trade

1. Regional cooperation- To enlarge markets- To build complementarity- Attract investors

2. Intra-African trade (% export)- 2005  9.8%
- 2005  8.9%

- Comparative to otherregion’s internal trade
WTO 2006 data

3. >43% manufacture products- 20% annual growth- Great potential for SMEs

Trade is an importantleverage for growth as itincreases country’country’s incomeChallenges
 Structural deficiencies
 Economic performance Half hearted measures
 WTO accession

4SMEs centered industrialization
It is economic freedom,freedom, especially for those at thebottom of the economic ladder, that offers Africa hope.

Why SMEs for Africa?
Because1. Gradual industrialization- Better use of existing local capacity- Supporting for future high-tech develop- Invisible colleges (skills training)- Provide for structural change of ecie.

2. Labour intensive/create jobs
- Equitable distribution of income- Expand economic space

3. Mostly locally driven

Though mega-projects are still
welcomed, especially to provide
infrastructure. However, as long as
mega-project centeredindustrialization strategy’s causesof past failures still prevail,mega-project centeredindustrialization will not deliver.

- Increased measure of self-reliance- Easy to start with minimum financing- Focused on local and regional markets

How can Japan help?
In a changed international context, and an increasingly interinterdependent world, Africa has assumed new importance to Japan

During SAPs in the 1980s
1. Japan as late comer donor

1. Today major donor

2. No constructive participation

2. Influential DAC member- Content as a silent donor- Neither academia nor government wasintellectually or practically prepared- Self-help = ownership- Focus on growth drivers- Aid, trade and investment

3. TICAD process- A major donor to intellectually take theleadership in assistance to Africa

4. Past recipients mostly success- Understand the development challenges- Favorable circumstances

5. No historical baggage

5How can Japan help?
Arguably, there is in fact a good deal of common ground between
Japan’Japan’s sustained focus on economic growth, and the concentrated,crosscross-sectoral approaches of China in so many African countries.

JapanChina
China is still a difficult place to do business1. Integrated approaches to aid, trade and investment by Japan
Complementarity of initiatives

2. Substantial number of technical cooperation experts
3. TICAD and China’s Africa policy very similar- New strategic partnership for sustainable development based on the self-reliance- Almost no (World Bank/IMF type) conditionalities

4. Jap. Overseas Coop. Volunteer

4. Non-aligned movement years- >40 years experience- Not a donor but a partner- Win-win not poverty reduction

5. Schools/Hospitals

5. Range of activities

Can Japan and China learn from each other about how
Africa can move from poverty to growth.

How can Japan help?
Besides, (i) supporting infrastructure development, (ii) providing
market access to African products, (iii) supporting human capitaldevelopment - vocational and tertiary education

Areas to for assistance
1. Increasing the number and tenure of“Africa specialists”
2. Help reshape Africa’s image in Japan- Mapping out a detailed framework of risk in Africa- Promote transcultural education

3. Promote Japanese SMEs investment in Africa
4. Collaborate on green and bio-technologies
Increased involvement of Japan in Africa, at bilateral as well as
multi-lateral levels

6Conclusion
1. There is need to go beyond acknowledging historical injustices
to determining where Africa's self interests lie and steer theworld appropriately by establishing stronger economic blocs
within Africa and mutually beneficial partnerships outside
Africa.
2. Africa needs to determine an adequate framework for herself
a framework that is sensitive to international realities andopinions and which can get the buy-in from the rest of theWorld.
3. There is window of opportunity to redefine Africa’s role in
the global community and Africa is looking to partners fornot charity, to realize her full potential.

Thank You7