Introduction
Increasing numbers of people live in poverty in Africa (Beegle et al. 2016). This is, in part, a result of the continent’s continuing deindustrialisation (UNCTAD 2012). However, there is a largely unexplored paradox in African development: there are many examples of successful manufacturing and service firms, and some successful industrial policies on the continent. The most successful industrial policy in recent years on the continent has been that of Ethiopia, which will be explored in more detail below.
How do successful, internationally competitive firms and foreign investments emerge in Africa and what lessons can be learnt from their experiences? Now is an important time to examine this question given the end of commodity super-cycle, and generally improved governance and business environments on the continent (Rotberg 2013). These, combined with dramatic changes in the structure of global trade relations, particularly the increased importance of global value chains and associated ‘network’ trade in tasks, such as assembly, rather than in complete products (Kaplinsky and Morris 2016), offer potential for African industrial development. Countries such as China, Malaysia and Thailand are increasingly concentrating on medium- and high-tech manufactured exports (Newman et al. 2016), potentially opening up product space for Africa. By way of example, 13% of apparel chief procurement officers interviewed recently ranked Ethiopia as a top three sourcing destination over the next five years (Berg, Hedrich, and Russo 2015). Phillips-Van Heusen, the owner of the Tommy Hilfiger and Calvin Klein brands, has begun producing clothing, at scale, in a major new industrial park in Hawassa, a few hundred kilometres from the Ethiopian capital of Addis Ababa, which is meant to employ 60,000 people when it is fully operational. However, if endogenous, or internally propelled, industrialisation is to take hold, African companies need to meet Asian competition, create ties to international markets with high import propensities, such as China, and overcome other challenges to growth and innovation, such as infrastructure and access to finance.
The central problematic of Africa’s development is rooted in its economic structure, with not a single African country having a manufactured product in its top three exports, according to the United Nations Comtrade data (Cramer 2016). For some, the recent commodities boom seemed to preclude the need for more active industrial strategies on the continent (Thakkar 2015). However, despite rhetoric about the continent ‘rising’ or as a ‘global powerhouse’ (Bright and Hruby 2015), a large part of Africa’s continuing developmental impasse is the general absence of territorial innovation systems, where new higher-value products and processes are developed, and consequently its continued dependence on primary commodity exports.
Primary commodity production tends to be of relatively low productivity and generates fewer technological breakthroughs, linkages and consequently multipliers than manufacturing and some services. Furthermore, primary commodities are notoriously volatile in terms of their prices and, the recent super-cycle or boom notwithstanding, the long-term trend since the 1930s for primary commodity prices continues downwards (Moseley 2014), with the exception of oil. This trend gives added impetus to the imperative to move beyond dependence on them.
The theoretical and development policy challenge
Given the intense competition in the global economy between industrial regions and pervasive economies of scale, which often make bigger plants more efficient, and positive externalities, where knowledge spills over between co-located firms for example, and other handicaps such as the underfunding of universities in Africa, the establishment of territorial innovation systems has proven very difficult there. However, while Africa as a whole performs poorly on traditional measures of innovation such as patents or numbers of scientific and technical publications (Oluwatobi et al. 2015), there are nonetheless successful manufacturing and service firms on the continent. While previous quantitative research has shown a relationship between production innovation and growth amongst small firms on the continent (cf. Goedhuys and Sleuwaegen 2010), such approaches tend to treat firms as ontologically separate units of analysis, thereby often ignoring how networks and social relations may have contributed to firm growth and development. Rather than conceptualising firms in this way, they can also be conceived of as nodes within networks, such as those of global production, trade or national political economy (Ouma 2015). Territorially embedded development processes can be thought of as outcomes of transnational and transnationalising assemblages of artefacts and actors who have different skills, capabilities, subjectivities and interests which are shaped by their shifting positionalities in networks. Consequently, examining the role of networks is vitally important. How and why do such successful firm-networks emerge and what policy lessons can be drawn from their experience more broadly for Africa and beyond?
The positive relationship between industrialisation and development is well established, however there are a variety of definitions of what constitutes industrialisation in the literature. For the purposes of this paper it entails the sustained raising of productivity across sectors. This is often an inherently difficult process given the established competitive advantages, such as capabilities and economies of scale, already developed by regional production complexes in other parts of the world. However, in recent years there has been a substantial resurgence of interest in industrial policy as a mechanism through which to achieve ‘late development’ (Stiglitz, Lin, and Patel 2013; Noman and Stiglitz 2015; Clark, Lima, and Sawyer 2016).
A number of important theoretical innovations have also been made in recent years in understanding the nature of multi-scalar development in the context of deepening globalisation, such as product space (Hidalgo et al. 2007), political settlements (Khan 2013) and global production network (GPN) theories (Coe and Yeung 2015). In particular, GPN theories have focused on the importance of ‘strategic couplings’ between regional assets and so-called lead firms (transnational corporations) (Yeung 2016). These strategic couplings involve win–win outcomes for the actors involved, through capability development for example.
Africa has also seen an increasing growth of indigenous transnational corporations in recent years. While it is well known that there are many major corporations which have originated from South Africa, recent research has revealed that there are now a multitude of other Africa-originating companies operating transnationally on the continent (Rolfe, Perri, and Woodward 2015).1 This includes Africa’s only ‘unicorn’ technology company (a start-up valued at more than US$1 billion) – the Africa Internet Group from Nigeria. However, a somewhat disturbing trend is that ‘African MNCs [multinational corporations] have targeted their FDI [foreign direct investment] activities mainly at other African countries, including the conflict-affected and fragile states’ (Ibeh 2015, 135), creating regional rather than GPNs. These investments appear to be mostly market serving rather than efficiency seeking – a form of economic introversion, also visible in other sectors on the continent, such as business process outsourcing (Mann and Graham 2016). This inherently limits growth potential by militating against a ‘leap into global network trade',2 which is potentially important to the continent’s economic development.
The ‘inclusionary bias’ GPN theory, or the tendency to focus research on areas which are plugged into them, has recently been noted (Bair and Werner 2011). However, theoretically there is a need to explain alternative modes of globalisation of firms and regions, such as direct exporting to end consumers, currently largely excluded from the gaze of GPN research. Often small and medium-sized enterprises from Africa export directly to end consumers, or through intermediaries, rather than being embedded in GPNs with lead firms. For example, 40% of Kenyan manufacturers export (Newman n.d.), although this is often to regional markets. It is small and medium-sized enterprises which generate most jobs, globally and in Africa, and there is a need to focus on more ‘ordinary’ firms, rather than just high-tech ones or those connected into GPNs.
How do successful learning and exporting firms and investment-development pathways emerge and stabilise in Africa? Sometimes these are based on ‘frugal’ innovations and involve different forms of connection to the global economy than that posited or examined in the GPN literature. Examples of frugal innovation include using smartphones and cameras to manage production lines remotely in a furniture factory in South Africa (Carmody 2014), and designing and building an aircraft from scratch using locally available materials (Muchie, Gammeltoft, and Lundvall 2003).
Theoretically, while the specifics behind each firm and cluster experience vary, successful industrial development experiences in Africa are often a result of multiple strategic couplings, including those between firms and sometimes the state, described in more detail below, combined with locally innovative firm practices and technological adaptations, otherwise known as technology diffusion management. Such productive couplings or ‘institutional thickness’ (Amin and Thrift 1994) have been largely absent in Africa, or in some cases the couplings between state and firms have been unproductive or obstructive (Hampwaye and Jeppesen 2014; Urassa 2014).
Industrial systems as assemblage and the role of the state
What kinds of social relations promote industrial development? While there has been substantial academic work done on the role of the state in the promotion of successful industrial development, and its role remains central, as described in more detail below, new types of social relations and assemblages are emerging and emergent which may promote industrialisation. Ethiopian manufacturing has been growing at an exceptionally high rate of 15% a year over the last five years (Tomkinson 2016), and the reasons behind this will be discussed in more detail below.
Multiple and effective strategic couplings can be conceived of as an assemblage (see Figure 1). For example, one of the most recent successful industrial development experiences on the continent – the Huijan shoe company investment in the Bole Lemi special economic zone in Ethiopia (Staritz, Plank, and Morris 2016) – involves foreign investment and is an outcome of a transnational assemblage involving multi-axis strategic couplings between foreign investors, regional assets, government and a ‘third party state’ – China. As Brautigam, Weis, and Xiaoyang (2015) note, ‘Ethiopia has adopted an active, state driven industrial policy aimed at incentivising exports, attracting lead firms and foreign direct investment (FDI), supporting local firms, and creating local linkages to promote priority sectors such as apparel and textiles.’ Eighty per cent of leather used by Huijan in Ethiopia is locally sourced (Hauge 2016) and the company recently announced that it will be moving its headquarters there from China. The ‘endogeneity factor’, where better-performing economies attract more foreign investment, may also be operative in Ethiopia (Moghalu 2014). It is not yet a member of the World Trade Organization (a form of deliberate non-assemblage), which allows it to engage in strategic economic interventions to promote industrialisation. Productive assemblages are, in turn, composed of sub-assemblages of actors and artefacts, within firms for example; however, the role of the state remains central.
Africa has the highest inter-firm productivity differentials of any world region (Newman et al. 2016) and this may partly reflect connections between large businesses and political elites, which may create certain advantages for some of these firms (Tvedten, Hansen, and Jeppesen 2014). State–firm relations and networks are then important, rather than simply assuming the state to be a barrier to enterprise development. In terms of developmental impact what is important is the scale, productivity growth, rent3 capture and local and national linkages and untraded interdependencies created, such as knowledge spillovers, as workers and managers move between firms (Storper 1997).
To date, explanations for the relative success or failure of industry, and technology policies, in Africa have concentrated on the impacts of economic liberalisation (Stein 1992) and/or political settlements (the balance of power between political elites, bureaucrats and private sector interests and the institutional arrangements put in place to reflect and stabilise these) (Whitfield et al. 2015). Political settlements are structured by the nature of economies and how these interact with past histories of conflict, identity and other contextual factors. They are also influenced by forces of ‘globalisation’, often originating from outside the national territory. However, the political settlements literature still has an incomplete methodologically nationalist focus and consequently needs to be complemented and expanded through its deployment and engagement with other theories, such as product cycle theories for example.4
The most poorly capacitated states, at least in terms of directing economic transformation, are often found in the poorest countries, where regime maintenance is often the overriding government priority. State capacities can however be developed (UNECA 2016) and developmental ambition may be an important spur to this (Cramer 2016), as the relatively successful case of Ethiopia has shown (Chandra 2013; Oqubay 2015).5 This in turn may develop into a recursive feedback loop as the realisation of profit through exchange feeds directly back to state power and capabilities. Profits from production augment state power through the taxes levied on labour and companies during the production and circulation processes, and through processes of learning by doing industrial policy. Thus, what is often seen to be a form of globalisation disconnected from the state; namely the global sale of commodities, in fact, represents a fused form of ‘commodity power’ which may benefit not only corporations, but also the states in which they are headquartered or where production takes place. Whether states prioritise development, however, depends on the nature of their social bases and issues such as whether or not they face a security threat which encourages prioritisation of national economic development.
The political opportunity structure facing states plays a critical role in determining whether or not they adopt a ‘nurture capitalism’ or anti-developmental, neopatrimonial, regime-maintenance stance (Van de Walle 2001). The World Bank (1997) argues that African states need to match capabilities and roles – providing basic infrastructure and macro-economic stability, for example, while otherwise allowing the ‘free’ operation of the market. Typically in World Bank studies, the African state is viewed as a constraint on enterprise development to be removed, rather than conceptualised as an institution which can actively guide and promote economic transformation. However, as described above, it is the nature of the state, the political settlement and the types of assemblages which are constructed and the way in which the political economy is articulated to global regimes, such as that of the World Trade Organization, which determine whether or not industrial policy will be successful.
The impact of global development and conclusion
Immanent,6 as opposed to imminent or more guided, development (Cowen and Shenton 1996), plays an important role in industrial development in Africa. For example the ‘Chinese dragon’ economy ‘inhales air’ (natural resources) and ‘breathes out fire’ – low-priced manufactures which displace producers in other world regions (Kragelund and Carmody 2016). Given the multifold advantages which Chinese firms often have, such as active state support and soft financing, a still booming domestic market etc., this makes it very difficult for firms without natural protection in Africa to compete. For example, in work on the determinants of differential inter-firm performance, it was found that while the textile and clothing industry in Zimbabwe suffered a massive contraction after economic liberalisation, mining boomed and some niche protective-clothing suppliers were able to benefit from this (Carmody 2001). The intensely competitive and highly uneven nature of the global economy makes the establishment and expansion of exporting African service and manufacturing firms vital to study, particularly as there may be important policy implications and lessons to be learnt for national governments, international development agencies and others involved in industrial development.
Successful, if to date niche, industrialisation in Africa is an outcome of capability development and multiple axes of strategic coupling, which themselves reduce information and other market failures in relation to regional assets, shape factor markets in more advantageous ways, and create incentives and institutions which, in turn, promote capability development, innovation and exports (Lall 1992). Understanding how and why these assemblages are constructed will be an important theoretical and policy challenge in African development studies in the years ahead.