Towards a continental industrial policy?

Abstract

A key objective of the AfCFTA is to promote industrialization through the creation of regional value chains (RVCs). While there is broad agreement on the need for African economies to industrialize, capture greater added value domestically, and diversify from exporting raw materials, there is less clarity on how to do so. Though the AfCFTA may offer new opportunities, it may also face the same political economy challenges that have undermined previous endeavours. After briefly reviewing recent industrial performance in Africa and the logic of the AfCFTA, a second section discusses past regional industrialization strategies in that light, including those of the regional economic communities, and the AU Accelerated Industrial Development for Africa (AIDA) Action Plan. It examines their objectives and how they have been implemented. Based on this discussion, a third section draws lessons and possible inputs to a new continental African industrialization framework that avoids the pitfalls of past industrialization strategies, while offering a way for countries to use the AfCFTA as a tool for promoting industrialization.

Introduction

The importance of Africa’s industrial ambitions has only increased with the COVID-19 pandemic and the conviction that “Increased intra-African trade is what will drive economic development post-COVID-19” (Mene 2021). More broadly, it reflects the ‘return of industrial policy’ globally, signalled already in 2010 (Rodrik 2010) but with increasingly explicit adoption by its erstwhile critics such as the IMF (Cherif and Hasanov 2019) and by the EU and US in their bid to secure access to inputs for the green transition (e.g., Wolf 2023). The 2022 AU theme “Industrializing Africa: renewed commitment towards Inclusive and Sustainable Industrialization and Economic Diversification”, (AU 2022a) and the extraordinary AU summit on Industrialisation in Africa in November 2022 further reinforced the idea that the AfCFTA’s success depends on industrialization and vice versa.

Although recent data suggests both rising industrial production, coupled with a higher share of manufactured and thus value-added in intra-African trade, there is nonetheless broad agreement on the need for African economies to further industrialize, diversify away from exporting raw materials, and retain greater added value. But while the ambitions of using the AfCFTA to promote intra-African trade and thus facilitate a change in economic model for the continent and promote industrialization are clear, there is less clarity on what this means in practice. As the AfCFTA SG Mene stated in 2022, there may be a need “to craft a continental industrialisation strategy, to be embraced by national authorities, to facilitate the attainment of the AfCFTA industrialisation and sustainability objectives” (Mene 2022). With regards sustainability in particular, there are growing calls for industrialization efforts to be ‘green’, in spite of Africa’s historically low contribution to carbon emissions. Even if some African leaders espouse a ‘development first’ narrative, the ‘green industrialization’ agenda will nonetheless affect global trade and thus shape the opportunities and constraints for African industrialization efforts (Byiers et al. 2023a).

Given past attempts to promote industrialization through Africa’s regional organizations, this chapter draws on those experiences to discuss the implications for promoting industrialization at a continental level. It does so using the framework proposed by Mkandawire (2014) of political factors for successful regional integration. His approach aligns with more recent discussions of ‘development bargains’ as necessary for policy implementation and change to take place (Dercon 2022), thus helping identify an approach that might support movement towards continental industrial policy that can overcome or align with national interests.

 

The AfCFTA Logic and Framework for Analysis

The case for using the AfCFTA to promote industrialization in Africa is highlighted by a recent news article (Hill 2022) titled: “The Metals for Your [Electric Vehicle] Are Stuck in a 30-Mile Traffic Jam”. As it infers, external markets do and will rely on Africa’s minerals for the global ‘green transition’, thus underlining the potential for a functioning AfCFTA to help move from extraction to processing of raw materials such as cobalt and copper. But at the same time, the 30-mile traffic jam for minerals to exit DRC reflects the challenge facing intra-African trade on the ground, where a mix of physical, bureaucratic and political barriers limit trade flows across borders, in spite of DRC and its neighbours’ membership in the SADC and the free trade area it offers (DRC does not implement the SADC FTA). These reflect key issues to be addressed for promoting industrialization through the AfCFTA.

As Figure 1 illustrates, the AfCFTA’s functioning is linked to a range of complementary and mutually dependent processes, wherein investment and industrial development are central. Ratification and implementation of the AfCFTA are hoped to reduce tariffs and NTBs, thereby creating larger markets, encouraging greater investment, industrial development and diversification, and consequently creating more and better jobs, thus further enlarging the market. But as Figure 1 also shows, each step in the logic depends on a range of ‘policy enablers.’ Each of these policy enablers is subject to a range of interests and incentives around which there must be coalitions of interested and influential actors for them to be implemented, and thus for the AfCFTA logic to flow.

Figure 1: Industrialization at the Core of the AfCFTA Logic

Source: Apiko et al. 2020

The renewed emphasis on industrialization through intra-African trade builds on recent positive trends. UNECA work (Songwe 2019) has shown that intra- African trade has a higher share of manufactures than non-African trade, while the past deindustrialization trend since African independence appears to have slowly been reversed, albeit building on informal manufacturing firms (Kruse et al. 2022). Luke et al. (2023) provide evidence that, outside Southern Africa, manufacturing employment has been growing in Africa as a percentage of total employment from 1991 to 2021. Mold (2022) also provides evidence that regional trade agreements have boosted intra-African exports by 27 to 32 percent on average, further underlining the potential for continental trade and industrialization to be mutually supportive.

These gains could arguably have been even higher. Tariff preference utilization rates by firms engaged in trade through existing FTAs vary widely and are lower for intra-African regional trade than in trade agreements beyond Africa (UNECA 2021). Byiers et al. (2023b) cite Mozambican government data showing that only 36% of eligible imports from SADC and a mere 7.2% of eligible exports to the region used the FTA in 2013-2017. The vast majority of Mozambican trade with its region is therefore treated the same as trade beyond the region, undermining the benefits of the FTA in place. Although a result of a combination of factors - from limited tariff preferences above MFN rates, complicated ROOs, and time-consuming bureaucratic procedures - the outcome reflects the challenge of trading even with an FTA in place. Private sector surveys of CEOs across the continent confirm the challenges for traders in terms of “access to trade information, trade-enabling infrastructure and trade finance” (Utomi 2022). These will be key for promoting regional and continental value chains and industrialization through the AfCFTA.

Part of the challenge for using regional agreements for industrialization is the political economy dynamics that shape which policies are implemented and how, at the national level. As Dercon puts it, “why the rhetoric was followed by action in some places and not in others is at the centre of understanding how development works” (Dercon, 2021). Looking more closely at regional integration and industrialization, Thandike Mkandawire offers the following hypothesis:

“If regional integration is not perceived by Member States as a solution to their national ambitions, then regional integration as an argument for industrialization makes no sense. So, we have to go back to the politics of industrialization at a national level and the policies of development at national level to understand why Member States may want to have regional integration” (Mkandawire 2014).

Beyond formal agreements, policies and strategies, he therefore suggests seven aspects that must align for regional integration to take place (Mkandawire 2014). These seven ‘I’s are:

1. Initial conditions
2. Ideas
3. Interests
4. Individuals, who play a very important role in African politics
5. Institutions, formal and informal
6. Industrialization conditions
7. International context

Aligning these seven ‘I’s is akin to a regional version of Dercon’s (2021) ‘development bargain’: “a commitment by those with the power to shape politics, the economy, and society, to striving for growth and development”.

The next section discusses past regional industrialization strategy experiences in this light, seeking to highlight the role of Initial conditions, International context, and the Industrial base in helping explain “why are things the way they are’, as well as the interaction of Interests and Individuals with the main beneficiaries from the AfCFTA between and within countries, the combination of which is likely to shape the way in which the AfCFTA can be used to promote greater industrialization. These will then interact with Ideas to help determine how continental industrialization bargains might emerge.

Regional Industrialization Strategies

Regional Ambitions

Although industrialization has long been at the heart of continental and regional cooperation agendas, the outcomes of these have often been limited. The following list shows some of the key policy frameworks that have been agreed at the regional and continental levels to promote industrialization in Africa:

• AIDA - 2008 - Accelerate Industrial Development for Africa (AU 2008)

• ECOWAS West Africa Common Industrial Policy 2010-30 (ECOWAS 2010)

• EAC Industrialisation Policy 2012-2032 (EAC 2012)

• SADC Industrialization Strategy and Roadmap 2015-2063 (SADC 2015)

• COMESA Industrialization Policy 2015-2030 (COMESA 2015)

In Mkandawire’s framework, these strategies represent Ideas, and to some extent provide the Institutions for regional industrialization to take place, building on Initial conditions. However, they largely fail to take account of the wider context, and particularly Interests and Individuals, something that emerges from examining their progress so far.

To take the case of AIDA, at the extraordinary AU Summit on Industrialisation held in Niamey in November 2022, Heads of State noted “with concern the slow progress recorded so far on the implementation of these continental [industrialization] strategies and programmes” and their “limited impact on industrialization, structural transformation and overall development towards the achievement of the ultimate goals of the African Union Agenda 2063” (AU 2022b). Byiers et al. (2018) similarly find that the studied regional industrialization strategies “largely ignore the competition dynamics between states in specific sectors. Moreover, their implementation is complicated by the fact that mechanisms used to pursue national industrial objectives often contradict regional commitments”. These challenges are discussed below.

Each of the above regional industrialization strategies assumed a shared or common regional goal that could be met by adopting the priority sectors of Member States at a regional level. However, precisely because they are national priorities, those same sectors are often the target of trade bans between regional partners. Figure 2 summarizes the priority sectors defined by the EAC and the related trade bans.

Figure 2: EAC Priority Sectors and Trade Relations

EAC Priority Sector	Trade relations
Iron-ore and other mineral processing	Iron-ore subject to a Ugandan export ban since 2011 to promote Uganda’s own smelting industry, (though smelters import ore), with a Kenyan ban being discussed (See (Odyek 2019) on the ban, its effects (NPA 2017) and (Kamau 2021) on the Kenyan retaliation)
Petro- chemicals and gas processing	Subject to a Kenyan ban on Tanzanian gas exports in 2017, though subsequently lifted and 2021 has seen discussions of a gas pipeline (Mwakyusa 2017)
Agro-processing	Subject to multiple bans between EAC members including a Tanzanian ban on Kenyan milk products, a Kenyan ban on Ugandan dairy products (Wakabi 2020) and Kenyan maize import restrictions (Kibii 2021, Omondi 2021, Okoth 2021)
Fertilizers and agrochemicals	Imports subject to standards ‘crackdown’ in Kenya in 2019 (Mutai 2019)
Pharmaceuticals	Subject to trade disputes between Kenya and Uganda in 2020 (Anyanzwa 2019)

Source: Byiers et al. 2021

To take one example, Kenya banned all imports of dairy from Uganda in 2019 due to concerns over aflatoxins (Blanshe 2021). At the same time, this was an effective way of keeping out competition from the fast-emerging Ugandan dairy sector and protecting the domestic Kenyan industry, which has been the traditional dairy giant (Ndii 2020) (Average costs of production in this country are substantially lower thanks to extensive farming (grazing) compared to that of Kenya (Van Campenhout et al. 2021)). The ban led Ugandan processors to scale down their dairy operations (Nakaweesi 2021).

Further, Rauschendorfer and Twum (2020) show how the EAC countries use sector-wide Stays of Application and firm-level Duty Remission Schemes to deviate from the agreed upon CET in order to protect specific industries, shown by country in Figure 3. While this is arguably a means to use industrial policy tools to develop local industries, they also find evidence of “favouritism of individual firms”, where EAC states increased tariffs at the sectoral level through Stays of Applications while at the same time granting access to the same product to specific firms through the Duty Remission System.

Figure 3: EAC Member State Use of Duty Remission Deviations

Source: Rauschendorfer and Twum 2020

This kind of favouritism clearly reflects the importance of understanding Interests and Individuals at a national level, and their implications for regional trade and industrialization efforts. Ruckteschler et al. (2021) find that politically connected manufacturing firms in Morocco received substantially higher non-tariff protection after tariffs were lowered to imports in the Association Agreement with the EU. Similarly, for Tunisia, Kruse et al. (2017) find that sectors with a higher share of firms with previous links to the Ben Ali family tended to have a higher number of technical barriers to trade in place, creating protective barriers to trade for those imports. Whether or not related to specific individuals, Karkare et al. (2022) similarly discuss the challenge facing Nigeria in promoting industrialization while adhering to regional trade commitments, where its 2019 unilateral border closure with Benin undermines any cross-border value chain development in a bid to allay domestic tensions from key industrial players.

Further underlining the role of between-country competition, Odije (2018) cites the case of Côte d’Ivoire poultry. During the negotiation of the regional common external tariff and the Economic Partnership Agreement (EPA) with the EU, both Côte d’Ivoire and Nigeria managed to have chicken agreed for protection as a regional sensitive product. While that allowed Côte d’Ivoire to serve the regional market and revitalize its poultry sector, within less than a month of signing the final EPA document, eight regional ECOWAS countries instituted similar chicken-development schemes and introduced both formal and informal protection against Côte d’Ivoire and other regional chicken producers (Odije 2018). In the 1990s, Hyundai invested in a car manufacturing plant in Botswana to serve the regional market. South African and regional consumers might have benefited from new access to Hyundai cars, but the South African auto industry pulled weight to limit imports from Botswana and the Hyundai investment closed (Mguni 2019).

Examples of industrial policy ‘successes’ also highlight the challenge of promoting national firms and sectors and maintaining regional trade commitments. Whitfield et al. (2015) show how the success of the sugar sector renaissance in Mozambique was dependent on an alignment of various domestic political factors - including provincial voting allegiances - but also on a surcharge on sugar imports, including from partner SADC FTA countries.

These examples then highlight the importance of recognising and taking account of Interests and Individuals in terms of the firms and sectors that are likely to be affected by taking a common regional approach to any one sector. As they also show, between-country Interests and competition for investment can also undermine regional industrial initiatives.

Beyond this, the international context clearly also plays a role in shaping regional industrialization efforts in practice, interacting with the individual concerns of producers and farmers. In some sectors, there is a question of why an African producer would sell to another Africa producer if a greater price can be sought elsewhere?

Ghana is among the leading African producers and processors of cashews with a national strategy to promote the value chain, but like other countries in the region with processing ambitions, firms struggle to buy raw cashews from farmers at farmgate price, given competition from especially Indian buyers (Boafo and Lyons 2021). In Côte d’Ivoire, government measures to stimulate cashew processing - a priority sector - include a ban on exports of raw cashew nuts to its neighbours, and export taxes on those passing through the ports as it is easier to collect taxes at ports than at porous inland borders (van Seters and Konnon 2018). While this raises much-needed revenues, it also favours extra-regional exports to cashew processors in India and Vietnam over exports to neighbouring countries such as Ghana. Exporters are interested in favourable/highest prices, and the government in raising valuable revenues. From this perspective, it makes little difference whether the processing happens in Asia or in the neighbouring country, as long as it is not in Côte d’Ivoire (Byiers and van Seters 2018). The same holds true for other cashew producing countries. Large-scale smuggling on the other hand undermines the Ivorian objective if not that of the region (arguably leading to informal regional value chains; ibid.). These dynamics may help explain why, despite seemingly low tariffs within regions, for example the EAC customs union, African RECs engage more in non-regional GVCs than they do in RVCs (de Melo and Twum 2021).

In North Africa, Morocco has successfully promoted investment into the automobile sector, with connected ‘ecosystems’ that have been shaped by interactions between government, industry associations, training centres and investment and export promotion agencies (Hahn and Auktor 2018). But production is heavily oriented towards the European market rather than the African continent - Moroccan automobile industry is dominated by French companies with 90% of its exports going to Europe (Furlonger 2021). Current efforts by the African Association of Automotive Manufacturers (AAAM) seek a sub-agreement within the AfCFTA for the auto sector but limited actual tariff reductions (Cokayne 2021), restrictiveness of ROOs, and challenges related to standards beyond the AfCFTA may continue to be important barriers for RVC development unless explicitly addressed.

Beyond industrialization strategies per sé, West Africa’s ‘offensif riz’ to promote rice production and the EAC’s textiles and apparel strategy also suffer similar woes. National governments are more concerned with self-sufficiency or being the source of value-added, and hence adopt protective policies individually. The SADC Industrialization Strategy states that the key challenge for corporate and government policymakers is “to identify and prioritise entry points into value chains, which from a SADC perspective involves identifying tasks that can be undertaken competitively and how they might be shared within regional value chains in SADC” (SADC 2017). But a lack of coordination ultimately undermines this ambition and thus the goal of creating larger regional markets to encourage investment and ensure competitiveness (Odije 2019).

Broadly speaking, there is a political focus on national industrialization, and therefore little attention to RVCs to support transformative industrial and economic development (Ismail 2022). Further, some point to the tendency of industry to cluster in a few locations, leading to agglomeration benefits, meaning that smaller countries will find it hard to attract investment (Black et al. 2019). Overall, national policies and positions commonly result in competition between countries rather than complementarities, as Mkandawire suggested, and as manifested in the regular trade wars and policies that undermine regional customs unions and FTAs.

To further illustrate, Oqubay (2018) cites a list of industrial policy instruments applied in Ethiopia, to some success. These include industrial parks targeted at export sectors, and broader export promotion through target setting, retention of foreign exchange earnings, and duty-drawbacks for exporters, combined with investment incentives and sectoral policies, for example in cement and horticulture. At the same time, import bans were used to protect domestic sectors, to further bolster the domestic cement sector, with protective tariffs to support domestic manufacturing (ibid.). While broadly seen as a success at a national level, and managing to link ideas, institutions and incentives, the challenge reflected here and by the example of Nigerian import bans and border closures cited above, is to link such approaches with a continental market integration approach. Notably, Ethiopian industrial policy was implemented without joining the COMESA FTA, despite being a member of the regional organization (Verhaeghe and Woolfrey 2017).

Nonetheless, an array of recent studies examines sectors with the potential to create continental RVCs. These include studies from the AU and OECD (2022), UNCTAD (2021), ITC (2022) and UNIDO (Hartwich and Hammer 2021). These all provide in-depth discussions on the structures and trade opportunities around key potential African RVCs, but take little explicit account of the Individuals and Interests, not to say power and politics, that the above discussions underline as being important both between and within states.

Instead, the challenges to RVC development can be broadly summarized as follows:

1. Ideas - or conceptual challenges, around the lack of understanding of what it entails to engage in RVCs and the resulting limited institutional arrangements in terms of industrial park development, or cluster development to make domestic firms into reliable suppliers.
2. Institutional challenges around incoherent trade and industrial policies, weak linkages between producers and processors, lack of context-specific strategies for industrial upgrading, underdeveloped innovation systems and local learning networks, untargeted skills development, lack of consultation with the private sector.
3. And Initial conditions in terms of, e.g., weak infrastructure, inconsistent quality, inappropriate technology, unreliable digital connectivity.

As such, the RVC studies broadly fall short of considering the interests and individuals, or to finding overall ‘development bargains’ around between and within countries that have shaped outcomes at a regional level.

Lessons Learned and Inputs To A Continental Framework

The above discussion raises important issues for moving towards a new continental industrial policy, as the AfCFTA SG has suggested (Mene 2022). We draw the following key lessons.

First is the need to design any regional or continental industrial policy as a complement to, rather than aggregation of, existing national industrial policies and strategies. That is, rather than grouping national priority sectors at the regional level as has been done in the past, they must seek to provide regional public goods that can help support national interests and build up industrial capabilities. In this regard, Byiers et al. (2018) highlight the positive example of the COMESA regional leather initiative, now expanded continentally (ALLPI 2023), as a resource for countries seeking to develop their leather sectors. That is, rather than attempt to promote the leather value chain from a top-down perspective, it rather takes the form of a demand-led support programme, thus fitting the interest-criteria suggested by Mkandawire as quoted earlier, and allowing those countries in need of leather processing capabilities to apply for support. Such centres might be set up in other value chains in a similar way.

Another lesson is the need to see industrial policy, whether at the national, regional or continental level, as a process rather than a document. This aligns with the approach proposed by Hausmann et al. (2008) at the national level, where industrial policy is an iterative process of identifying and addressing missing public inputs, coordination failures of necessary complementary investments such as sectoral platforms, and minimising the potential risk to investors to overcome ‘self-discovery failures’, whereby firms are unwilling to invest due to the risk of free-riding. Complementary to this, Chang and Andreoni (2020) discuss the need for industrial policy to help address four things: reduce uncertainty for firms, encourage learning in production, provide a stable macroeconomic environment (including demand management), and allow for ways to address conflict or distributional issues. All of these provide useful points for thinking about the right level and form of support for promoting regional value chains and industrialization through the AfCFTA.

Aiginger and Rodrik (2020) point to four other ‘transformations’ that seem particularly relevant:

• As the world economy increasingly circulates around services, they propose that industrial policy must go beyond ‘industry’ or manufacturing to develop economic activities more broadly. The protocols on services and e-commerce offer opportunities to do this in the context of the AfCFTA.

• They advocate a move away from “top-down policymaking, targeting pre-selected sectors, and employing a standard list of subsidies and incentives” which has been the basis for the industrial policies presented above. Instead, “industrial policy is a search process; it requires embeddedness without allowing hostage-taking”, i.e., the state must seek to understand business needs and address challenges without succumbing to capture, while regional approaches should therefore arguably seek to focus on specific value chains.

• Thirdly, they state that “support of structural change and productivity growth can no longer serve as a policy goal without any consideration of the direction of technological change” (ibid). With increasing ‘green industrialization’ ambitions, this point goes beyond the impact of technology on employment patterns, but also on carbon-emissions (and potential external trade effects).

• Finally, “industrial policy can no longer be an isolated policy, developed on its own and competing with competition, regional, and other growth policies”.

The current discussion of the AfCFTA as a basis for industrial development itself responds to this final point that industrial policy cannot stand alone - but it also highlights the challenge of identifying complementarities between continental approaches that support industrialization, as well as those operating at different levels. While the AfCFTA can be seen as the continental industrial policy instrument, at a more legalistic level, it is in reality an FTA of FTAs, where existing regional FTAs are explicitly recognized as its institutional building blocks (AU, 2018). An AfCFTA-related industrialization strategy would therefore have to identify ways to complement and support inter-REC trade and value chains, while intra-African trade is likely to remain primarily intra-regional at least in the short term.

The coexistence of an AfCFTA industrial ambition along with those of the RECs highlights the need for a continental strategy to seek to complement existing (functioning) policies and strategies rather than aggregating or seeking to coordinate those. Although the annual AfCFTA-REC meetings offer an opportunity to define the precise continental value-added of such a policy, the importance of national ambitions implies the need for a hybrid approach. Relatedly, the African Union Commission Department for Economic Development, Tourism, Trade, Industry, Mining (ETTIM) is undertaking various initiatives to help design continental policies and strategies to support RVC development, including through work with UNIDO, UNECA, and AUDA-NEPAD (AU 2022a). But seeking to coordinate these different efforts may itself be a distraction from the lessons above, about the need for a more ‘bottom-up’ approach to supporting specific sectors, value chains, and arguably corridors and other bottlenecks to trade and well- functioning RVCs.

This may already be somewhat underway as part of the AfCFTA Private Sector Strategy. That has prioritized an initial list of four value chains for interventions, based on high potential for meeting demand locally and the ability to produce the goods locally (AfCFTA 2022). The sectors are:

• agriculture and agro-processing
• automotive
• pharmaceuticals

• transportation and logistics

Through the AfCFTA Industrial Advisory Council, work is reportedly underway to engage with key actors in these value chains such as textiles, in order to understand the sector and propose joint ways forward, not least to end the deadlock to agreeing on AfCFTA ROOs. As presented at the AfCFTA Business Forum, that work seeks to i) understand the nature of the sector, ii) design a common vision for the sector, and iii) create working groups to turn that vision into practice (UCT 2023). Arguably, the AfCFTA Guided Trade Initiative might also serve to identify where interests align.

Such an approach would already address some of the past challenges of regional industrial policy approaches, if indeed it can explicitly identify and work with or around vested interests within key sectors. Promoting industrialization at a continental level will need to be targeted in specific sectors where Mkandawire’s seven ‘I’s align and thus ‘development bargains’ can be found between and within countries. That will require intelligence gathering beyond technical studies and an iterative process approach that can adapt to changing circumstances, rather than a document for Heads of State to sign.

With increasing concerns over climate and the need for a ‘green transition’, it will also be increasingly important to advance an industrialization path that is responsive to the need for climate change action, without jeopardizing African prospects for economic transformation (Said and Triki 2022). This may offer opportunities for ‘first mover’ countries (Byiers et al. 2023a). Finally, policies need to adequately take into account the large extent of informal cross-border trade that dominates trade flows in the continent, which are not only left out of official estimates but also underestimate the true magnitude of intra-Africa trade (e.g., see Mold 2022, Apiko and Byiers 2023).

Overall, referring back to Mkandawire’s seven ‘I’s, one can summarize a bottom-up, ‘problem-driven’ approach to build on the above as follows:

1. Initial conditions - Within sectors or value chains, seek to understand and take explicit account of these initial conditions by understanding how different sectors operate, in a technical sense, but also in terms of which firms dominate, the degree of competition, and where current production and markets exist. Within countries it is important to also understand their political salience in terms of their role in employment creation and growth trajectory, while between countries it will also be important to acknowledge where one or several countries are dominant. In some ways the existing RVC diagnostic reports mentioned above already do some of this. Finally, it is important to recognize that the challenges to trade within RECs and existing regional FTA implementation and utilization will remain important - requiring that a continental industrialization push, also build on and work with REC processes to facilitate trade and remove barriers to RVC creation.

2. Ideas - Build on the clear political momentum around the AfCFTA and growing pressure to create jobs and promote a green transition by framing any trade and industrial policy efforts in those terms. Even where blockages to regional trade are within-RECs, the political momentum around the AfCFTA and industrialization can be used to promote necessary reforms to lower the barriers to trade, and to encourage flexibility among policy-makers. Ideas will also arguably be important to show that the benefits of cooperation can outweigh those of competition, and that the ‘green transition’ may offer opportunities and not only threats.

3. Interests - For specific RVCs or sectors, what are the current interests of producers - e.g. what would it take for those currently exporting directly to sell to processors from neighbouring countries? What specific problems are faced by exporters and those who might be able to invest in processing? At a national level, seek to understand the degree to which these genuinely receive political prioritization and why - to what degree are firms currently protected and building on rents, or are they competitive to open up to wider markets. It will also be important to acknowledge and adapt to the potentially varying interests among Member States in the AU industrialization processes and the AfCFTA processes to avoid duplication, and inconsistencies.

4. Individuals - Related to the above, who genuinely wants to promote RVC participation within the sector or at a national level and why? How much power do they have politically and economically, and to what degree does this support or undermine the wider industrialization ambition of the sector, country and continent. This essentially implies seeking to move beyond an understanding of the economic viability of specific investment and RVC initiatives to their political viability, where cooperation benefits trump those from competition.

5. Institutions - Beyond examining the functionality of existing agreements and strategies to support and encourage investment and RVC participation, whether in terms of national laws or border processes, seek to understand the informal or unwritten rules that perhaps govern a sector or relations between VC actors, and that may therefore need to be considered for change to take place. That may relate to trade facilitation processes but also the way that existing regional agreements are used in practice, for example the EAC customs union exceptions discussed above. There is also a clear place for other continental frameworks to support industrialization, perhaps requiring a focus on how PIDA/SAATM/FMP can be leveraged to promote industrialization through the AfCFTA. This might also relate to the process of engaging around transport corridors, where the formal and informal institutional frameworks can have an important effect on how these contribute or not to RVC creation and regional industrialization. Other important informal institutions that may be important to clarify relate to those between the AfCFTA, AUC and RECs. Although there are regular formal meetings, steps may be required to define and improve their coordination based on informal relations and understandings. To paraphrase Andrews (2014), it is important to focus on functions, not institutional forms that may only be superficial, regardless of them being ‘best practice’.

6. Industrialization conditions - Be clear about where the current challenges, problems and blockages are to promoting investment and industrialization - where have previous policies failed and why; and similarly, to what factors can successes be owed and built upon through an AfCFTA framing.

7. International context - Although this chapter has not explored the international context beyond Africa, the changing international context around US-China-EU industrial policies and competition for access to raw materials also offers opportunities and risks, depending on how African states respond, and the degree to which they genuinely seek regional and continental cooperation. The recent passing of a Carbon Border Adjustment Mechanism and Critical Raw Materials Act among others in Europe (Byiers et al. 2023a) are all likely to have some impact on African industrialization, potentially limiting exports beyond the continent, but also offering opportunities where intra- African cooperation and common positions can take precedence (e.g. Luke et al. 2023).

 

Conclusion

Overall, this paper has discussed the issues involved in using the AfCFTA process to move towards a continental industrial policy. As the paper presents, in spite of positive signs of rising industrialization in intra-African trade, there remains a need to encourage further investment, job creation, and thus trigger further market demand. The AfCFTA offers a tool to do this, but nonetheless will rely on a wide array of parallel processes for industrialization processes to further emerge from it.

The paper takes as a starting point Mkandawire’s (2014) observation that states need to see a benefit to their industrialization to engage regionally. It further builds on the seven ‘I’s that he identified as being key for such regional cooperation to take place, applying this to past attempts at promoting industrialization at the regional level in Africa.

As the above discussion highlights, the AfCFTA offers a positive alignment of Institutions & Ideas, in the form of the ambitions laid out in the AfCFTA Agreement and adopted and ratified by a continuously rising number of African states. While that appears to offer a strong basis for adding industrialization to the agenda, the discussion of regional industrialization processes demands caution. Although there may be buy-in at heads of state level, past experiences also show the importance of the other ‘I’s of initial conditions, interests, individuals, the industrial basis, and international context. Very often, implementation gaps relate to interests and individuals who stand to lose, where combined with power or access to power can undermine the grand ideas that have been agreed on.

Although a common African market may be some way off, a likely precondition will be greater levels of industrialization across the continent, and greater engagement in RVCs. While the AfCFTA offers a framework to build these, any policy approach to do so would do well to heed the words of Mkandawire.

 

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