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African leaders can transform Africa through industrial policy

When political leaders embrace a pro-active industrial policy in a market-led way as their core economic framework, much of what is realistically possible to achieve for their people is actually achieved
2073

“Singapore is going down the drain, it is a poor little market in a dark corner of Asia,” wrote Albert Winsemius, a Dutch economist, in his post-trip report for the United Nations after visiting the newly independent country in 1960. Fortunately, Albert did not only write such defeatist statements in his report; he also provided a number of constructive recommendations to Singapore’s first incoming Prime Minister, Lee Kwan Yew. As great leaders often do with constructive criticism, Lee Kwan Yew listened and adopted most of Albert’s recommendations. A year later, he made Albert his chief economic advisor, a role the Dutch economist played for 23 years. This unusual story highlights the crucial role of leaders in transforming their countries through industrial policy.

During his tenure as prime minister, Lee Kwan Yew transformed Singapore from a mere post-colonial transhipment port with a GDP per capita in 1960 of $426 and high unemployment to one of the world’s most advanced economies today, with a GDP per capita of $72,300 and the world’s 12th ranked country on the Human Development Index.

Lee Kwan Yew believed that any nation, regardless of its size, could be great and that the will, cohesion, stamina, discipline of its people, and the quality of its leaders could ensure it an honourable place in history. He said “The task of the leaders must be to provide or create for [the people] a strong framework within which they can learn, work hard, be productive, and be rewarded accordingly. And this is not easy to achieve.”

So how did he achieve this for his country?

What Lee Kwan Yew used to provide such a framework was industrial policy: a deliberate government policy to alter the sectoral structure of the economy in order to drive broadbased economic growth and other public goals.This is what his chief economist advisor was recommending. In 1960, Albert proposed a 10-year plan for Singapore to become a centre of manufacturing and industrialisation. It targeted job-creating industries, such as textiles and garments, and had a strong and pragmatic focus on attracting investment.

In the 1970s Kwan Yew’s and Albert’s focus, as well as that of other key members of the leadership such as Ministers of Finance Goh Keng Swee and later Hon Sui Sen, shifted to sectors like electronics, air travel and international shipping. Like textiles at the time, these sectors count among Singapore’s world-renowned successes.

Like Lee Kwan Yew, many global leaders who have embraced pro-active industrial policy as the policy framework for bringing to life their economic and social development vision for their country, have delivered. Alexander Hamilton in the US, Park Chung Hee in South Korea, Carlos Lleras Restrepo in Colombia, Ben Gurion in Israel, Deng Xiaoping in China, and Narasimha Rao in India are all examples of leaders who prioritised a visionary industrial policy – and, as a result, their names have gone down in history for unlocking the transformation and economic and social advancement of their nations. Their economic agendas centred on the development of key industries that would allow the tax base to widen, net exports to improve, household incomes to improve, and jobs to be created. In turn, this allowed for increased public investment in areas like health, education, infrastructure and housing.

Africa also boasts such examples. Seretse Khama in Botswana, Seewoosagur Ramgoolam in Mauritius, and more recently, Aziz Akhannouch in Morocco, have all seen similar success. It should be no surprise that Botswana, Mauritius and Morocco represent three of Africa’s most positive stories of economic, social and human development in recent times. So, what does this tell us?

Well, when political leaders embrace a pro-active industrial policy in a market-led way as their core economic framework, much of what is realistically possible to achieve for their people is actually achieved.

There are three reasons why a well-designed and well-executed industrial policy gives leaders the tools they need to succeed. No other economic policy has these traits.

First, industrial policy helps political leaders to set a plausible yet ambitious direction for growth and progress through healthy dialogue and collaboration with job-creating, innovating, and dynamic private actor entrepreneurship. This helps governments to be market-led, realistic, strategic and able to seize opportunities while devising their economic policies. It helps them identify sectors that, with the right type of facilitative support by the public sector, are most likely to flourish and most likely to pull the rest of the economy along.

Second, industrial policy offers leaders a viable strategy to reconcile their economic and social agenda with their political strategy of securing the support of both the masses and powerful businesses and other elite groups. The political economies of most African economies are dominated by politically powerful extractive and rent-seeking private sectors, many of whom stifle productivity and dynamism. A sensible industrial strategy can help identify pathways to create an elite bargain to shift local resources and vested interests away from a winner-takes-all fight over a small local economy, toward a win-win, export-oriented political economy in which competition drives innovation and reduces barriers to entry for SMEs and new actors, while all the while creating jobs, raising household incomes, facilitating access to foreign exchange and widening the tax base.

Third, industrial policy allows leaders to coordinate public sector actors around the needs of high-potential sectors, so that these actors can follow through on investor needs. Governments, let alone the public sector writ large – which includes the multitude of development partners and non-governmental public organisations – are typically highly disjointed and uncoordinated. Each ministry, public agency, donor, and NGO has its own agenda, mandate, politics, bureaucratic features and inefficiencies. Multiply this by the many sectors involved, such as energy, transport, skills, finance, trade, agriculture, labour and so on, and it’s like herding cats. Coordinating these for the benefit of job-creating and value-adding investors can be awfully difficult, particularly when leaders and their teams have constrained political, managerial, temporal, organisational and financial bandwidth – as most political leaders do.

These constraints usually lead to policy incoherence and a highly unfavourable environment for investors. Industrial policy allows government leaders to know where to start and to pick off bite-size problems to address and opportunities to exploit. It allows them to get their main economic ministries aligned and working together, such that other public sector actors, including the international community, can fall in line behind one homegrown nation-building project. And it allows them to follow up on key actions necessary to deliver the public investment needed to unlock private sector investment, innovation and dynamism.

There are many leaders around the world – think of Joe Biden’s industrial policy via his Chips and Science Act and his Inflation Reduction Act – that are embracing industrial policy as their primary economic and social development policy anchor. And they are doing so for a good reason – because it’s the key to impact. There are also an increasing number of leaders in Africa – such as Macky Sall in Senegal, Nana Akufo-Addo in Ghana, Faure Gnassingbe in Togo, Patrice Talon in Benin and Samia Suluhu Hassan in Tanzania – who are making headway in exploring what a workable industrial policy might be for their countries.

There is no single recipe for a successful industrial policy. As Deng Xiaopeng said, one must “cross the river by feeling the stones”. The important thing is to start somewhere, to engage in job-creating and dynamic private sector, to try to facilitate them, to make mistakes, to learn and to improve. And to keep trying to provide a pragmatic and focused framework within which people can learn, work hard, be productive and be rewarded accordingly, to use Lee Kwan Yew’s phrase.

The good news is more African leaders are beginning to prioritise the transformative power of industrial policy, both for their country and for their own vision and ambition. However, much more of this is needed for African people – all 4 billion of them come 2100 – to be empowered and to lead prosperous lives.

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