Upstream activities can include participation with foreign oil companies in exploration, development and production; downstream activities encompass transportation, refining, storage, production of feedstock, marketing and distribution.<sup>64</sup> The foreign companies are required to source 48 percent of the services used by the industry locally and the expectation is that direct and indirect employment (e.g. 15,000 jobs directly created in transport, catering and security) will exceed 150,000. All three countries will benefit from various services activities and in deeper integration with their GVCs – tourism is a prime example and others are emerging thanks to ICT. These are discussed in section 6. However, 70 percent of currently imported services are of an intermediate nature and linked to the production and import of goods. Before East African countries can make the leap into tradable services, they must engage in production of goods (of the agroprocessing variety) and build the infrastructures that undergirds services such as logistics, telecommunications and research.<sup>65</sup>

# **5. Industrial Development: Analysis and Options**

Malawi, Rwanda and Uganda are searching for the growth escalator provided by manufacturing under quite different circumstances from those confronting resource poor East Asian economies in the 1960s and 1970s. In those earlier decades, entering labor-intensive light-manufacturing activities was a less daunting process and Japan provided other East Asian economies with a model to emulate. Newly codified technologies advantaged countries with low wage costs, western markets were opening to imports from developing countries as a lowering of barriers to trade ushered in a second era of globalization, Western multinationals were transferring their labor and resource intensive operations overseas, and competition was less fierce. More recently, the role of manufacturing as a driver of growth has weakened (Rodrik 2015, Dadush 2015<sup>66</sup> ): labor abundance is less of an asset given the evolving capital and skill intensity of most manufacturing technologies and the automation of many manual operations – the World Bank (2016) estimates that between 65 percent and 85 percent of formal sector jobs in East African economies are susceptible to automation over the next two decades<sup>67</sup> ; trade in manufactures is increasing more slowly<sup>68</sup> ; late starters face formidable

> <u>africa/Uganda. Chemicals supply</u> chains in advanced countries have a relatively high share of domestic value added.

> 64 A 1,445 km electrically heated pipeline will transport the oil to a Tanzanian port. A small refinery – if it is constructed – will meet domestic requirements.

> 65 Cattaneo (2015) http://ycsg.yale.edu/sites/default/files/files/africa.pdf

> 66 <u>http://voxeu.org/article/deindustrialisation-and-development; One development that has contributed to this weakening is that manufacturing is becoming concentrated in fewer countries many in East Asia.</u>

> 67 Automation bolstered by machine learning and the diffusion of digital technologies could lead to the reshoring of some manufacturing back to the advanced countries and result in further telescoping of GVCs. <u>http://www.worldbank.org/en/publication/wdr2016. Some of the more recent</u> projections strike a cautious note regarding the degree of job displacement in currently laborintensive activities.

> 68 Constantinescu et al (2105) https://www.imf.org/external/pubs/ft/wp/2015/wp1506.pdf

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