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Essentials of Common Industrial Policy

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Abstract

A set of sixteen principles of modern industrial policy is derived from the literature for application to entire regions. Such policy strives to create industrial commons and to rectify market failures which cannot reasonably be expected to self-correct over time. This chapter creates a workable typology of genuine regional industries, distinguishing two main types: Type I is the outcome of targeted selection and Type II of broad investment promotion. A ‘dual core’ of both types is appropriate to most African industrial ecosystems. The chapter goes on to clarify the distinction between regional production networks and stand-alone ‘lighthouses’. The incentive system for regional industries is examined, and the distinction between national and regional incentives is elaborated. Practical conflict between allocative efficiency, which most often favours existing industrial hubs in the African regions, and distributive equity is examined. Cross-border policy dialogue has to identify the most binding constraints for new industries at both regional and national levels. This ideal-type policy is juxtaposed against the current practice of ‘buy national’ campaigns in East Africa.

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Notes

  1. 1.

    See inter alia: (Altenburg and Lütkenhorst 2015; Chang 2002; Cimoli et al. 2009; Lall 2000, 2003, 2004, 2006; Page and Tarp 2017; Rodrik 2004, 2007; Weiss 2011; Whitfield, Therkildsen, Buur et al. 2015), building on the classical analyses of the East Asian ‘tiger’ experience in (Amsden 1989; 2001; Wade 1990, 2006). For the ensuing range of policy options, see Szirmai, Naudé and Alcorta (2013), and for a summary of where the debate currently stands, see Asche and Grimm (2017). For work on a taxonomy of industrial policies in Africa, including the attempts at CIP see African Union Commission and OECD Development Centre (2019).

  2. 2.

    To give one example, sunset clauses (Principle No. 12) are built on forecasts when infant industry stages end and established industries have emerged (to avoid the term ‘mature’ industries, used differently). However, the definition of an established industry—an industry that does not need targeted policy support anymore—is not straightforward. Take the example of the flower industry in Ethiopia, which crucially relied on both industrial policy of the government of Ethiopia and targeted support from the Netherlands. With the whole value chain from packaging industry to competitive air transport now in place, has it now become an established industry even though profitability still hinges on wages near the international poverty line?

  3. 3.

    My expression, reflecting the empirical analyses of the four country cases Mozambique, Tanzania, Ghana and Uganda in Whitfield, Therkildsen et al. (2015).

  4. 4.

    Upon closer look, real or alleged historical failures do not provide sufficient theoretical arguments to abandon such sequenced or balanced growth altogether.

  5. 5.

    For comparison’s sake, the first two layers can be found in the 2010 EC industrial policy communication, although the EU has no superseding CIP (European Commission 2010a: 4).

  6. 6.

    Such tensions currently act as pull factors for Chinese investment among EU member states, with little overarching guidance from the regional institutions (Schüler-Zhou, Brod and Schüller 2011).

  7. 7.

    South Africa—without using the designation ‘dual core’—has tried to implement such a bipolar policy in the framework of its IPAP 2. As South African officials have stressed, supporting relatively labour-intensive sectors at least in the short to medium term—especially in the agricultural value chain, in basic services and in light manufacturing—requires a profound rethinking of the advanced industrial policy approach, which otherwise focuses on raising productivity as the basis for non-traditional exports of manufactures. Mauritius, both as an individual country and as an industrial investor across the south African region, constitutes another model: public and private leaders here steered sequencing from sugar cane farming (with a politically negotiated market in Europe) to textile industries and high-end consumer electronics. Today all three pillars can be found in parallel on the island. Parts have been relocated within the wider region. We also find this kind of dual strategy on Africa’s largest testing ground for industrial policies, Ethiopia—again without being designated as such (Oqubay 2015).

  8. 8.

    As Dangote’s cement production in Nigeria is often mentioned in this respect (not least by Aliko Dangote himself), it would be an interesting research topic whether this example indeed represents a good case in point for protection of local monopolies beyond their break-even point in a free trade environment. This is not obvious in the distorted global market for cement. See also the discussion of the EPA sensitive product lists in Part III.

  9. 9.

    The planned Ugandan oil refinery will have access capacity beyond the size of Uganda’s domestic market. The government has consequently offered Kenya and Rwanda a participation in capital. The oil pipeline from Uganda to the coast has also been conceived as a regional project. Its re-routing from the initially foreseen terminal at Lamu port to Tanga has, however, rather created tension in the EAC, similar to disputes over the region-wide standard-gauge railway.

  10. 10.

    The World Bank and IMF generally argue against discretionary economic policy, in particular against discretionary spending in a country configuration of mineral resource richness and bi-partisan ‘factional’ democracy such as Nigeria or Ghana. Admittedly, discretionary tax exemptions and spending sprees are used in such cases to generate political support. Yet, exactly these countries face the specific challenges from the so-called resource curse and Dutch disease which require discretionary support for disadvantaged agriculture and manufacturing (Asche 2018a: 41).

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Correspondence to Helmut Asche .

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Asche, H. (2021). Essentials of Common Industrial Policy. In: Regional Integration, Trade and Industry in Africa. Advances in African Economic, Social and Political Development. Springer, Cham. https://doi.org/10.1007/978-3-030-75366-5_8

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