Economic Transformation: Africa needs environment in which business can thrive- Osinbajo

Economic Transformation: Africa needs environment in which business can thrive-VP Osinbajo

Africa must take policy actions to create an environment in which businesses can thrive, and to start with, the continent must adopt the right type of macroeconomic and industrial policies, according Vice President Yemi Osinbajo

VP Osinbajo spoke on Thursday in Lagos, at the Manufacturers Association of Nigeria (MAN) Roundtable on Industrialisation in Africa Themed: Positioning African Industries for Economic Transformation and Continental Free Trade. The roundtable was organised to celebrate the 50th anniversary of MAN.

“ It is important for African governments to provide a stable macroeconomic environment that avoids and smoothens out volatility in prices, sharp deteriorations in the current account and budget deficits, and of course, rapid accumulation in debt burdens.

“While they should be avoided the problem is seldom the occasional spikes in macroeconomic variables, but rather rapidly changing and fluctuating conditions that make it difficult for the private sector to make informed business decisions,” he said.

 VP Osinbajo said that over the years, MAN has been faithful to its mission of working with other organs of the Organized Private Sector, government, and other stakeholders in the economy, to create an enabling environment for industrial development, growth, and prosperity. Its strong focus on advocacy has also been an important sounding board for shaping government’s industrial and commercial policies

The evidence, historical and contemporary from across the world is that manufacturing is critical to economic transformation. It has been key in adding value to agricultural products and minerals and has also been a major motor of economic growth because it boosts productivity.

Equally compelling from the perspective of Nigeria which has a large population is that manufacturing has the potential to create a large number of sustainable jobs.

Given the large number of entrants into the workforce every year and the important role of employment in reducing poverty, there is no doubt at all that industrialization must remain a key priority for African countries

“So, the crux of my message today is that we must take policy actions to create an environment in which businesses can thrive. To start with, we must adopt the right type of macroeconomic and industrial policies.

“ It is important for African governments to provide a stable macroeconomic environment that avoids and smoothens out volatility in prices, sharp deteriorations in the current account and budget deficits, and of course, rapid accumulation in debt burdens.

“While they should be avoided the problem is seldom the occasional spikes in macroeconomic variables, but rather rapidly changing and fluctuating conditions that make it difficult for the private sector to make informed business decisions.

“On the industrial side, policies like tariffs, quotas, subsidies, and non-tariff barriers which protect our infant industries so that they can create jobs and enable learning are vital,” said Osinbajo.

 Continuing  he said “I think it’s also important to add that well-negotiated rules of origin are important in the context of the free trade agreement as they are key to preventing trans-shipment and the deflection of trade. 

“Without them, firms from non-state parties could set up simple labelling operations in one Member State with a view to shipping already finished products to another Member State without really adding any value.

“By the way, I think it is important for MAN to involve itself in an advisory capacity to government negotiators as we go further into the rules of origin negotiations (these rules negotiations have, of course, started), but I think as we go on, we should get more contributions and advise from MAN.

“Let me quickly add however that our manufacturers must also strive to become competitive after clearly specified time periods so that they can withstand the ever-present danger of stiff competition from imports.

“When the gap in prices between domestically produced goods and imports is too high, arbitrage opportunities become irresistible and Customs Services will struggle to reduce trans-shipments and stem smuggling.

“In other words, while our manufacturing industries must be nurtured and supported, they cannot remain infants forever.

 He said “one of the ways to increase the competitiveness of African industries is to develop and deepen regional value chains wherein production systems starting from conception and design right through to supply of raw materials, processing, transport, storage, marketing, and sales take place within our countries and continent. 

“When we export commodities to the rest of the world, we are also exporting jobs and the positive spillover effects such as learning that come with manufacturing are lost.

“Happily, we are already beginning to see some green shoots emerging in this regard as Nigerian fertilizer blenders obtain phosphates from Morocco for blending with urea produced in our petrochemical plants.  Similarly, South African car manufacturers already buy leather for car seats from Botswana.  We however need much more of such activities.

“There are a number of other things that need to be put in place quite quickly if we are to see the kind of manufacturing activity that we desire.  First of all, we need to develop a strong infrastructural base.  Extensive, cheap, and affordable infrastructure is vital for the success of our economies.

“We must build a network of roads, bridges, and rail that will facilitate the movement of goods and people just as we build the electricity plants to power our factories and the broadband networks that lubricate modern business.

 “It would also be essential in the interim to develop sites with dedicated infrastructural and regulatory structures like Special Economic Zones and Shared Facilities for small businesses.

“Another requirement is to deepen the ecosystem for domestic and regional value chains.  In such an ecosystem, incentives will be coordinated and tied to performance; development banking institutions will be geared to supporting manufacturing activity while investment and intellectual property regimes are harmonized, aligned and consistent with Africa’s realities and industrial policy objectives.

There would also be sharing of research and development outcomes across regions and even supply chains that interlink Special Economic Zones.

“Another major objective must be to ease payments across borders.  It follows that payment flows which work in the other direction of the flow of goods and services are equally important.

The VP, however, that foreign currencies have been mostly used for such payments which constrain the amount of trade that takes place because most African economies face foreign exchange constraints, adding that it is quite essential then to develop and deepen inter-regional and continental payments systems.

 According to him, “it is particularly important in this regard to rapidly operationalize the effort by Afreximbank to establish a Pan-African Payments and Settlement Platform. This will go a long way in creating the desired continental payments system and also in facilitating cross-border informal trade which is estimated to be about $93 billion per annum.

He also noted that some complementary policies are required for industrial transformation especially in the context of the free trade agreement.

“I have in mind the free movement of people across the continent.  Right now it is often easier for business people and tourists from outside the continent to travel within Africa and this needs to change especially as security and related concerns can now be addressed with technology including improvements in travel documentation and maintenance of digital databases.

“Free movement including the right of establishment will create the necessary framework for businesses to widen their operations across the sub-region and thereby deepen regional value chains.

“So, I call on the AU Member States to ratify and implement the Protocol on the Free Movement of Persons, Right of Residence, and Right of Establishment.”