What Korea’s industrialization success means for Africa

By Pierre Guislain, Vice-President, Private Sector, Infrastructure and Industrialization, of the African Development Bank.

Despite a decade’s worth of headline-grabbing economic growth, Africa’s experience with industrialization remains disappointing. Sixty-two percent of the continent’s total export products (link is external) are in primary form, signaling the limited role of manufacturing in driving development. Sub-Saharan Africa’s average share of manufacturing value added to GDP,

at around 10 percent, is unchanged from the 1970s.

A popular prescription is that Africa should follow the path set by East Asian countries like Japan and South Korea, which used industrialization to lift themselves permanently out of poverty and onto the track of economic transformation. But in today’s economic climate, is the East Asian miracle still relevant for Africa?

Korea’s economic miracle

Let’s look at Korea. Its gross domestic product per capita grew from a modest $900 in 1960 to over $25,000 in 2016. The country has also seen an incredible rise in heavy industries such as tech giant Samsung, car maker Hyundai and steel manufacturer POSCO, now among the world’s top five in terms of steel output. Key to Korea’s success were flexible and adaptable industrial and trade policies, backed by strong political leadership and economic discipline. Through these policies, the state participated directly and indirectly in basic economic activities and coordinated private sector activities.

Essentials of African development: what experience from Korea?

Times have changed. Today, globalisation has opened the world market to intense competition, making trade restrictions and protectionist policies difficult to justify or sustain. Rwanda’s president Paul Kagame (link is external) is of the view that Africa has missed its ‘Asian moment’ because the continent ‘waited too long to act’. But perhaps what Africa really needs is an ‘Africa moment’ – and that moment is now.

A first step will be to ensure effective implementation of the African Continental Free Trade Area adopted in Kigali in March 2018: 44 African states have signed, 10 still have to do so (among them Nigeria and South Africa), and all will need to ratify this agreement before it can be implemented. The opportunity is real and critical for the success of any large scale industrialization drive. Indeed, in today’s hyperconnected and competitive global economy, investing in one of Africa’s 54 mostly small and poor national markets is simply not attractive. Effective regional integration and the removal of the multiple legal and behavioral stumbling blocks that hold back intra-African trade will be key to the successful implementation of most countries’ industrial policy.

The collapse of industries in many African countries is partly attributed to a toxic combination of trade and industrial policies that promoted import-substitution with little focus on export expansion. Korea’s outward orientation did not mean complete liberalization of trade, but rather a cautious and gradual trade liberalization policy. African countries must set clear targets for increased intra-African trade and exposure to global competition. The efforts must focus on the continent’s competitive advantages, particularly in value chains linked to agriculture and mining and in fast growing domestic markets.

Opportunities abound for greater local value addition in agricultural value chains. Agriculture’s share in employment was about 55% in 2010-2012, in contrast with its contribution to GDP of only 15%. There is a window of opportunity for Africa to drive agro-industries, with the potential of reducing the continent’s food import bill, which is expected to increase from USD$39 billion in 2016 to over USD$110 billion by 2025 (link is external). Blue Skies, an agricultural processing company based in Ghana, makes a strong case here. With only about 35 workers in 1999, the Ghanaian-based company is one of the largest suppliers of cut fresh fruit to European markets, employing over 3,000 people, the majority being women. These potentials exist, but need to be scaled up.

Successful industrial policies require strong economic governance and governments that are able to initiate policies that are time-bound, performance-driven and iterative in nature. Political leadership is also needed to commit to investing in infrastructure and education, which are preconditions for industrialization. Korea devoted itself to building the physical and human capital infrastructure that served as the basis for subsequent industrial development.

Indeed, Africa cannot industrialize without power, road, rail and information and communication networks. Infrastructure is needed to reduce production costs for downstream industries. Equally important is political leadership that can mediate the government–firm relationship to reduce the temptation of rent-seeking, which drains public finances and dampens entrepreneurship.

The experience of Korea shows that there is no quick-fix, magic formula for industrializing. But it also shows that it is possible for any economy to turn its fortunes around with a dedicated and disciplined government, good industrial policy, effective public-private dialogue and real commitment to infrastructure investment.

This being said, the real value and relevance of the Korean development experience for Africa should be sought in the methodology of policy formulation and the development of supportive ecosystems, rather than in specific policy measures.

African countries need to claim their seat at the table of global economic production and pursue policies that will harness their vast natural resources to spur local value addition in the production of goods and services. This in turn will require more collaboration and integration between African countries at regional and continental level as well as more effective dialogue and partnership between governments and the private sector.