Action Programme on Productivity Improvement, Competitiveness and Quality Jobs in Developing Countries - Working Paper PMD-5

This working paper is circulated solely to stimulate discussion and critical comment

FOREWORD

EXECUTIVE SUMMARY

1. INTRODUCTION

2. MANUFACTURING EXPORTS

3.AFRICA AND TRADE AGREEMENTS

3.1 THE LOMÉ CONVENTION

3.2 OTHER TRADE ARRANGEMENTS

3.3 ECONOMIC BLOCS

4. STRUCTURAL ADJUSTMENT IN AFRICA

5.SUPPLY-SIDE MEASURES

5.1 HUMAN RESOURCE DEVELOPMENT

5.2 TECHNOLOGY

5.3 EXPORT PROCESSING ZONES (EPZ): A MAURITIAN EXAMPLE

6. INDUSTRY IN AFRICA

6.1 INTRODUCTION

6.2 SHARE OF MANUFACTURED VALUE ADDED IN GDP

6.3 KEY INDUSTRIES IN SOUTHERN AFRICA

6.4 THE STRUCTURE OF INTERNATIONAL AND REGIONALMARKETS FOR AFRICAN EXPORTS

6.5 EMPLOYMENT IN SUB-SAHARAN AFRICA

6.6 SECTOR CONSTRAINTS EXTERNAL TO ENTERPRISES

7. ENTERPRISE-LEVEL CONSTRAINTS

7.1 INTRODUCTION

7.2 FACTORS INFLUENCING COMPETITIVENESS

7.3 FACTORS THAT HINDER/HELP AFRICAN MANUFACTURERS TO EXPORT

7.4 CONSTRAINTS AFFECTING ORGANIZATIONS IN SOUTH AFRICA

8. PRODUCTIVITY MOVEMENT IN AFRICA

8.1 AFRICAN PRODUCTIVITY PERCEPTIONS AND EXPERIENCE

8.2 THE PRODUCTIVITY MOVEMENT IN AFRICA

8.3 REQUIREMENTS FOR A SUCCESSFUL PRODUCTIVITY CENTRE IN AFRICA

8.3.1 General

8.3.2 Organizational aspects

8.3.3 Financing

8.4 STRATEGY

8.5 CORE PRINCIPLES

8.6 CONCLUSION

SOURCES AND REFERENCES

LIST OF TABLES

1. COMMITMENTS MADE UNDER THE LOME CONVENTION (ECU million)

2. WORLD EXPORTS IN TEXTILES AND CLOTHING (US $ billion)

3.SOUTH AFRICA: CLOTHING PRODUCTION, 1988-1995 (Million pieces of garments)

4.MAJOR EXPORT CATEGORIES FOR JANUARY-JUNE 1998(US $ million)

5. SOUTH AFRICA: PRINCIPAL TRADING PARTNERS IN TEXTILES AND CLOTHING: EXPORTS OF CLOTHING

6.ADVANTAGES AND DISADVANTAGES PERTAINING TO THE TEXTILE INDUSTRIES IN AFRICA

7. ECONOMIC PROFILE OF SADC: 1998

8.SOUTH AFRICAN - AFRICAN TRADE

9.COMPOSITION AND GROWTH OF SOUTH AFRICA'S MANUFACTURING EXPORTS

10. DESTINATIONS OF SOUTH AFRICAN MANUFACTURING EXPORTS

11. ECONOMIC PROFILE OF SOME AFRICAN COUNTRIES

12.ENTERPRISES, WORKFORCE, AND AVERAGE NUMBER OF EMPLOYEES BY EPZ PRODUCT GROUP, 1997

13. EPZ EXPORTS OF FOUR MAIN PRODUCTS

14. AFRICA'S BALANCE OF TRADE, 1970-96 (US $ million)

15. EXPORTS FROM AFRICA AND KEY TRADING PARTNERS

16. EMPLOYMENT IN SUB-SAHARAN AFRICA, 1985-2020 (millions)

17. PERCEPTIONS OF RESPONDENTS IN SPECIFIC COUNTRIES IN TERMS OF COMPETITIVE LINKS

18. EXPORT INCENTIVES SPECIFIED BY RESPONDENTS

19. ROAD INFRASTRUCTURE AND TELECOMMUNICATIONS FOR SELECTED SADC COUNTRIES

LIST OF GRAPHS

1. PRODUCTION OF COTTON LINT ('000 metric tons), 1997

2. KEY FACTORS AFFECTING FDI IN SOUTHERN AFRICAN COUNTRIES

3. PER CAPITA GDP IN 1995 (US$)

4.SHARE OF MVA IN GDP, 1980 AND 1995 (percentage)

5.SHARE OF MVA IN GDP IN SELECTED AFRICAN COUNTRIES, 1995 (percentage)

6.PERCENTAGE SHARE OF MVA IN GDP IN SELECTED INDUSTRIALISED COUNTRIES, 1995

7. KEY INDUSTRIES IN SOUTHERN AFRICA WHICH REFLECT HIGH GROWTH OPPORTUNITIES (% of respondents)

8. COMPETITIVENESS INDEX AND MARKET GROWTH INDEX

9.OPENNESS-RELATED FACTORS THAT AFFECT AFRICAN FIRMS, 1997

10. GOVERNMENT-RELATED FACTORS THAT AFFECT AFRICAN FIRMS, 1997

11. FINANCE-RELATED FACTORS THAT AFFECT AFRICAN FIRMS, 1997

12.LABOUR-RELATED FACTORS THAT AFFECT AFRICAN FIRMS, 1997

13. INFRASTRUCTURE-RELATED FACTORS THAT AFFECT AFRICAN FIRMS,

14.INSTITUTIONAL FACTORS THAT AFFECT AFRICAN FIRMS, 1997

15. MANUFACTURING EXPORTS (%)

16. MARKET FOCUS

17.THREATS AND OPPORTUNITIES (%)

18. FACTORS HAMPERING PRODUCTIVITY (Scale 1-10)

Foreword

Various studies (e.g. the World Bank studies under the Regional Programme on Enterprise Development[1] suggested that one of the lessons which emerged from the structural adjustments efforts in Africa is that macro-level reform is a necessary but not sufficient condition for private sector development. There are enterprise-level constraints that inhibit the growth of existing firms and impede the development of new ones. The studies highlighted supply-side constraints to the growth of manufactured exports in Africa, pinpointing an important problem facing many African economies today. Even in countries where policy reforms have favoured exports development, the proportion of manufactured exports to GDP continues to be small. In spite of export market opportunities in Europe and America for standardized garments and wood furniture for example, constraints at enterprise level such as production and marketing know-how, access to finance, and structure of production hamper the supply response. There are some African enterprises though that are able to surmount these constraints and are successful in penetrating the export markets.

This paper prepared under the auspices of the Pan Africa Productivity Association (PAPA) presents the roles of productivity movement, national productivity organizations and regional productivity organizations such as PAPA in addressing these constraints that prevent African countries from taking advantage of the opportunities presented by the increasingly globalized economy. The paper synthesizes and analyses the findings of the various studies on factors affecting the ability of African enterprises to take advantage of export markets. Based on the synthesis, the paper identifies the links between productivity and these enterprise level constraints. Some recommendations on how national productivity movements could help address these constraints and on what should be the roles national productivity organizations (or management development institutes or consulting organizations) in redressing the constraints are given.

This study on the supply-side constraints that hinder African enterprises from taking advantage of the new market opportunities emerging from the liberalization of international markets is undertaken complementary to another study that looked at the development process of growth oriented small enterprises in some East African countries.

This paper is produced under the Action Programme on Productivity Improvement, Competitiveness and Quality Jobs in Developing Countries. With increasing globalization, it is more and more appreciated that productivity improvement is crucial to a country's integration into the global economy.With the opportunities for growth of output and trade and the increased competition offered by globalization, it is important for countries to develop the capacity to pursue strategies for productivity and competitiveness improvement of industries supplying local and international markets. Particularly for developing countries, productivity improvement is essential to create more jobs through growth from new investments and to sustain jobs in the face of increased competition.

The Action Programme promotes the "high road" to productivity improvement and competitiveness, i.e. approaches that aim at achieving both economic and social objectives at the same time. It is developing various guides and manuals on improving productivity and competitiveness through customer orientation, quality, innovation, participation, human resource development, labour-management cooperation, better working conditions, and sharing of productivity gains, among others. It is documenting national, sectoral and enterprises level "best practices" in productivity and competitiveness improvement. The manuals and guides and the best practice cases will be disseminated through publications, national workshops and seminars as well as through undertaking of policy and programmes development advisory services.

Ms. L. Badia, Ms. M. Miller and Mrs. B. Cooper contributed greatly in putting the manuscript into publication.

[1] "Africa Can Compete! Export Opportunities and Challenges for Garments and Home Products in the European Market"; World Bank Discussion Paper No. 300. Similarly, "Africa Can Compete! Export Opportunities and Challenges for Garments and Home Products in the US Markets", World Bank Discussion Paper No. 242.

Executive summary

Africa as a continent has experienced huge development during the past century, but this has clearly not been sufficient to put it on a par with the developed world. The standard of living of Africans increased initially, but for the past 40 years there has been a steady decline. Many factors have contributed to this situation, but low productivity spawned by wrong economic policies and systems lies at the root of the decline. A number of countries have recently started moving away from these systems but it will take many years for them to catch up.

Many factors impair the productivity performance of individual firms. Economic policy is only one of these. Others are linked to financial factors, lack of foreign direct investment, shortage of high quality human resources that should be delivered by good education and training structures, infrastructure inadequacies and the basic values of workers. Entrepreneurial and management skills are scarce. Where these skills are available, the success of the organizations is both dramatic and lasting.

Much should and can be done to ensure a more competitive and contributing Africa. At the core is the development of national productivity movements. The notion of productivity improvement should be inculcated in the minds of workers and managers. A change in values should be led by heads of State who must understand that political and social success depends on economic success, which in turn depends on international competitiveness through productivity. The establishment of productivity centres in itself will not bring about the change required; it will merely create a focal point for guiding the change. Eventually managers and workers, teachers and labourers will have to be wealth creators rather than wealth seekers.

Africa is plagued with unemployment and it is natural that those who have work will do anything to remain employed. For this reason the underlying philosophy in Africa's productivity improvement endeavours should be to create more wealth with the same or more resources, and not to produce the same with less resources. A throughput growth philosophy is called for with guarantees of no job losses due to higher productivity. Such a philosophy must be supported by wealth-sharing policies.

1. Introduction

When most African countries embarked on import substitution industrialization programmes in the post-independence period, their economies had some particular characteristics. On the production side, they were predominantly agricultural or mining-based; they had a small manufacturing sector and a trade structure dominated by exports of primary products and imports of manufactured goods. There was a low level of literacy, and not enough skilled personnel at technical and managerial levels.

The domestic market was small due to either a low per capita income or a small population -- or a combination of both. Most of the population relied on subsistence production. Consumption patterns were skewed towards the urban consumer whose tastes were fashioned by imported goods. This led to the production of goods similar to imported products, i.e. import reproduction as opposed to import substitution.

Africa's economic performance indicates that the continent is out of step with the global industrialization process of the last 80 years (Mkandawire, 1988). The structural constraints, both internal and external, that have prevented African nations from benefiting from changes in the world economy as other Third World countries seem to do, are analysed below.

The period 1914-45 was the first phase of import substitution by default. The depression led to a drop of almost 60 per cent in the price of agricultural commodities and raw materials between 1929 and 1934, and the industrialized countries erected high tariff and other trade barriers to protect their own industries. Africa, however, was under colonial rule and could not avail itself of the opportunities provided by 'national protection'. Africa did not start the process that laid the foundation for post-war industrialization in other parts of the world.

1945-70 was an era of deliberate import substitution. This strategy was capital intensive, and it created important markets for industry in the advanced countries through the production of traditional primary exports which were not a threat to industry in the advanced countries.

The global environment was made favourable by the US hegemony that insisted on a global open-door policy. A number of countries that pursued this strategy set up a wide range of industries and intensified their industrialization process. During the period 1945-60, the African countries could not pursue independent policies of industrialization, as they were still part of the imperial economy. African countries were consequently the least industrialized, and manufacturing accounted for 6.8 per cent of GDP in 1960 for sub-Saharan Africa as a whole.

After independence, from 1960 onwards, industrialization began in Africa through import substitution. Between 1960 and 1975industry grew 7.5 per cent per year. Algeria, Egypt, Libya, Morocco and Nigeria together accounted for about 53 per cent of Africa's industrial production, while 27 others had a share in regionally manufactured added value of less than 1 per cent.

Africa was lagging behind the rest of the Third World between 1970 and 1976. Of the 43 countries for which information is available, ten experienced negative growth rates in manufactured added value, and 14 had less than 5 per cent growth over the entire period. Only ten countries recorded more than 10 per cent growth over the 16-year period. Seven of them based their performance on petroleum, new mineral finds or investments (Adu Boahen, 1985).

Africa's industry was small, with inflexible structures limited to a few lines of production. Most industries were based on light consumer goods. The overwhelming dependence on imported capital goods led expensive technological imports, inappropriate technology or scale of production, insufficient convergence of the region's resource base and industrial structure, and weak backward and forward linkages.

The 1960-73period nevertheless witnessed some important first steps in the industrialization process in Africa, with significant gains in skills through learning-by-doing. However, countries failed to attract the foreign investment that often accompanied industrialization due to African socialism, which typified the economic and social structures and strategies followed by almost all countries after independence. In these countries most large organizations (mainly resource based) belonged to the state and were managed along civil service lines.

The world experienced a period of export-oriented industrialization from 1973 to 1982. The OECD countries faced falling profits and lower productivity gains. Little investment and negative real interest rates led to increased bank liquidity. Newly industrialized countries emerged with the availability of alternative sources of finance from fictitious capital (rent incomes from land and oil). There was an outward-looking movement and a market-oriented 'trade regime' of industrialization. Africa failed to benefit from these changes in the world economy, as the region had no industrial products to export.

Primary import substitution is an important phase in the successful transition to export-oriented industry because it provides physical infrastructure and expands entrepreneurial capacity. Africa did not attract much foreign direct investment, nor did it make use of international financial markets to raise capital for its industries.

Some African countries (Côte d'Ivoire, Kenya and Nigeria) that had the capacity to borrow in the international financial system avoided the new sources of funds and were forced by the World Bank to turn to the prevailing low-interest financial markets. Most African countries borrowed at high interest rates and short repayment periods after the second oil crisis in 1979 to meet their short-term financial commitments because of unfavourable balance of payments caused by declining exports and increasing food imports. External factors such as the deterioration of terms of trade and inadequate rainfall blocked the emergence of a dynamic industrial sector.

There are two schools of thought concerning reasons for the slow growth of exports in sub-Saharan Africa. One emphasizes external factors such as slow volume growth in the world's primary commodity markets, deteriorating terms of trade, fluctuating international interest rates and reduced inflows of foreign aid. The other school of thought emphasizes internal factors such as inappropriate domestic policies that adversely affected export supply, excessive import protection, overvalued currencies and high taxes on exports, which reduced export volume.

The main elements of economic reform that started in the 1980s in various African countries have been the liberalization of external and internal trade, greater reliance on market forces (price liberalization, devaluation and interest rate adjustments), credit squeezes and budget cuts.

Africa's position in global trade relations was largely determined by action in two directions: first, increasing the regional and international competitiveness of its production, and second, changing the structure of exports to include more sophisticated products.

Globalization has become a cruel reality for many countries trapped in the paradigm of the past. Africa is particularly vulnerable because basic prerequisites for effective functioning in a globalized environment, such as communication systems and other infrastructure requirements, are lacking.

Globalization is described as a process by which markets and production in different countries become increasingly interdependent due to capital and technology flows. Globalization, regionalization, international trade and competitiveness are interrelated terms. Landau (1992) defines competitiveness as "the ability to sustain, in a global economy, an acceptable growth in the real standard of living of the population with an acceptable fair distribution, while efficiently providing employment for substantially all who can and wish to work, and doing so without reducing the growth potential in the standard of living of future generations."

Globalization should lead to the widening and deepening of international flows of trade, finance and information in an integrated global market. During 1995-2001 the results of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) are expected to increase global income by an estimated US $212 to $510 billion. The least developed countries would lose up to US $600 million a year, and sub-Saharan Africa US $1.2 billion.

Foreign exchange losses will translate into pressure on income, loss in revenue from trade, and increased dependence on aid. Poor macroeconomic policies (large fiscal deficits) discourage investors. Tariffs that overprotect local producers for long periods also discourage the import of capital and intermediate goods that could be used to increase productivity.

The real GDP growth rate in Africa reached 3 per cent in 1995. Despite this improved economic performance, the continent still lags behind the 6 per cent growth achieved by developing countries as a whole. The overall growth was determined by services and industry sectors, which together accounted for 75 per cent of GDP growth. A steady revival of the manufacturing sector boosted its contribution to GDP growth to 0.4 per cent or about 15 per cent of the total.

2. Manufacturing exports

Sub-Saharan Africa accounted for 3.1 per cent of global exports in the mid-1950s. However, by 1990 this share had dropped to 1.2 per cent. Tariff protection in the OECD markets was commonly blamed as an important contributing factor. Another view is that Africa's marginalization was primarily due to inappropriate domestic policies that reduced the region's ability to compete internationally. World market conditions, industrial capabilities, incentive systems, trade infrastructures, and weak industrial capabilities constrained export growth from sub-Saharan Africa. In 1987 the region's total manufactured exports were US $3.6 billion compared to exports of US $30billion for Latin America and US $187 billion for South-East Asia. Africa's share in world manufactured exports declined from 0.28 per cent in 1970 to 0.21 per cent in 1987, while the share of other developing regions increased significantly.

The subsectoral composition of industry was dominated by food and textiles. The pattern of African trade fits the basic factor endowment theory that states that comparative advantage is strongly affected by factor endowment. The poor development of industrial capability -- physical and human capital, labour skills, managerial and entrepreneurial ability, technological capability and trade infrastructures -- is responsible for differences in export performance in sub-Saharan Africa. The overvaluation of domestic currencies (in Ghana, Nigeria, Sierra Leone, Sudan, Tanzania, and Zaïre) was an important source of anti-export bias. Export processing zones (EPZ) existed in Ghana, Liberia, Mauritius, Senegal and Togo to promote exports and attract foreign capital, but, generally speaking, EPZs made little contribution to exports in the sub-Saharan countries.

3. Africa and trade agreements

3.1 The Lomé Convention

The Lomé I Convention was signed in 1975 -- followed by Lomé II in 1980, Lomé III in 1985 and Lomé IV in 1990 -- between the African, Caribbean and Pacific (ACP) countries and the European Union (EU) to symbolize a new era in relations between the industrialized countries of Western Europe and the Third World.

The Lomé Convention provides for ACP-EU cooperation in the development of all economic sectors, in cultural, social and regional matters, and protection of the environment. Its principal provision concerns trade, promoting and diversifying ACP exports to the EU in order to decrease ACP dependence on primary exports. Preferential access to the EU market is offered, which has been seen as a spur to investment in new export sectors and a generator of employment opportunities.

Nearly 97 per cent of ACP exports entered the EU market without any duty or non-tariff restrictions. These exports broke new ground in the economic and political liberalization process, structural adjustment and democratization.

TABLE 1
COMMITMENTS MADE UNDER THE LOME CONVENTION (ECU million)

Source: European Commission, 1996.

The Convention had little impact on ACP trade flows, despite the advantages to ACP countries. The value of duty-free access to the EU is not as significant as it appears at first sight. In 1993 the EU Commission calculated that 63.4 per cent of exports from ACP states would enter the EU duty-free anyway under the generalized system of preferences.

Most ACP states have been losing market share in the EEC. Many countries did not diversify their offering and concentrated on primary products, while commodity prices have been falling. The principal beneficiaries of the trade provisions were the main EU exporting companies.

In isolated cases exports of textiles and clothing, canned tuna and processed wood have expanded due to advantages in the EU market. Export diversification did occur on a small scale in Ethiopia, Jamaica, Kenya, Mauritius and Zimbabwe, although this cannot be attributed solely to the Lomé preferences. Inadequate infrastructure, little private investment, and limited awareness of Lomé advantages resulted in less benefit than might have accrued otherwise.

The Lomé rules are too stringent to ensure significant benefit to the infant ACP countries. On the other hand, EU companies enjoy a direct advantage in setting up processing and assembly industries because EU materials (ACP inputs) are considered to be originating products. A restriction of 50 to 60 per cent of the total value added of the exported goods is also too stringent for products from ACP countries. These countries are at an early stage of industrialization, and the goods have only 20 to 48 per cent added value as a proportion of gross value.

Supply-side factors that affect exports include natural disasters such as drought, insufficient production capacity and high transportation costs. The small quantities that are despatched do not obtain competitive shipping prices. A weak human resources base also hampers the ACP economies because insufficient technical training is available and the entrepreneurial and management skills that are crucial to innovation are lacking. Most African states remain trapped in a spiral of economic decline, debt, poverty and inequalities (Sparks, 1999).

The EU has been paying more attention to the development needs of countries beyond its immediate borders, and to developing trade relations with faster growing regions of the developing world. In June 1998 the EU's foreign affairs ministers approved directives for negotiation of a new partnership accord. This accord is based on proposals to replace existing trade privileges with regional free-trade areas by 2015. Provision is made that the poorest states be allowed to export goods to the EU without duty, with additional financial support to promote the private sector in the ACP states.

3.2 Other trade arrangements

Africa's protectionist policies meant that sub-Saharan Africa accounted for 3.1 per cent of global exports in 1955. This share had dropped to 1.2 per cent by 1990, implying a trade loss of US$65 billion. According to UNCTAD and the World Trade Organisation, protectionism in the OECD markets played an important role in Africa's marginalized global trade. The World Bank and the International Monetary Fund maintain that inappropriate domestic policies greatly diminished Africa's ability to compete internationally and they advocated structural adjustment programmes to reverse unfavourable trade and economic trends.

External protectionism could have played a role in the marginalization of Africa in terms of world trade. If foreign tariff and non-tariff barriers discriminated against Africa specifically, or against the types of product that Africa exports, this could have been the case. A factual analysis of the situation shows the opposite, however.

Sub-Saharan Africa receives trade preferences under the OECD's Generalised System of Preference (GSP) schemes and through the European Union's Lomé Conventions. Many GSP schemes differentiate between developing countries in general and those designated by the United Nations as the 'least developed countries' to which lower preferential tariffs may be extended. For example, Angola received EU tariffs at 3.2 percentage points below the average for all other exporters of the same products. The average EU tariffs for Africa are below those paid by other exporters. For some products these preferential tariff margins were 20 percentage points or more below the prevailing most favoured nations' (MFN) tariffs. This evidence suggests that the tariff treatment enhanced rather than inhibited Africa's position vis-à-visother exporters (Ng and Yeats, 1997).

If tariffs were not a factor in Africa's diminishing role in global trade, non-tariff barriers (NTB) might have played a role. Non-tariff protection against sub-Saharan African exports differs from that applied to other developing countries. For example, only about 11 per cent of African non-fuel exports face NTB as opposed to the 17 per cent average for all developing countries.

The lower NTB coverage ratio is largely accounted for by the fact that most African countries' textile and clothing products are not affected by the Multifibre Arrangement (MFA) restrictions. Mauritius is an exception, with 88 per cent of its textile and clothing exports covered by quotas to the United States.

In 1992 only 19 per cent of African textile exports faced NTBs, as opposed to 53 per cent for all the developing countries combined. The African coverage ratio for clothing is about 18 points below the 63 per cent developing-country average. This pattern is reversed with respect to several food products, where African countries encounter a higher incidence of NTBs than other developing countries.

Trade policy reforms in developing countries can make an important contribution to industrialization and growth (Nash and Thomas, 1991). Trade restrictions and domestic policy interventions frequently create a bias against exports that prevent otherwise attainable growth rates from being achieved. Trade barriers in Africa are far more restrictive than in any other region. Sub-Saharan Africa's tariffs average 26.8 per cent which is more than three times those of fast-growing exporters and more than four times the OECD average of 6.1 per cent.

The OECD countries reduced their tariffs by 40 per cent after the Uruguay Round. Many fast-growing exporters also made important concessions but Africa's trade barriers were left virtually unchanged. The gap between Africa's tariffs and those in other countries has consequently widened. The divergence in the use of non-tariff protection is sharper. More than one-third of all African imports encounter some restrictions that have a detrimental impact on these countries.

If foreign producers become increasingly efficient relative to domestic African suppliers, they may erode the protective effects of a tariff over time. This could increase Africa's access to lower-cost foreign products, improve living standards and the region's ability to compete in foreign markets. Under NTBs (quotas) no such benefits are possible as the volume of imported goods is subject to fixed ceilings.

African tariffs on production inputs are very high and they place domestic producers at a direct cost disadvantage vis-à-vis fast-growing exporters. Agricultural raw materials such as fertilizers and fibre are key inputs for textile production, and high tariffs on these imports have major adverse implications for Africa's trade and growth prospects. Increasing costs of inputs are a major disincentive to local production for export. Import barriers such as high tariffs and trade controls for fertilizers and agricultural chemicals act as a major constraint to the expansion of agricultural output for the agroprocessing industries. This, in turn, has a major impact on living conditions and income in Africa.

Some views hold that external protection in the OECD markets contributed to the decline in sub-Saharan Africa's exports. If so, the solution to Africa's trade problems involves a liberalization of the industrial countries' trade barriers. An alternative view is that Africa's marginalization was due to inappropriate domestic policies that reduced the region's ability to compete internationally. If so, Africa's own trade policies should be reversed. If Africa had retained its 1962-64 OECD market share, its exports would be 75 per cent higher today.

A discussion of the textile and clothing industries in Africa and the relevant trade agreements demonstrates the situation clearly. Africa's share of world trade in textiles and apparel is very low: from 1990-94 it was only 2.5 per cent of overall world exports of clothing and apparel and less than 1 per cent of textile exports. Africa's poor performance is partly due to external factors such as competition from Asian producers and partly due to internally imposed barriers to the apparel trade.

Protectionist, inward-looking trade policies in Africa have curbed textile and clothing manufacturing exports. Tariff rates averaged just over 26 per cent from 1984-87, and just under 26 per cent from 1991-93. Latin America's tariffs dropped by half during this period -- from 26 to 12.3 per cent. East Asia's tariffs were 17.9 per cent and 16.7 per cent respectively for the same periods. In terms of non-tariff restrictions, Africa as a whole was placed at 43 per cent and the sub-Saharan region at 47 per cent from 1991-93, against 8.65 per cent in Latin America, 20.4 per cent in South Asia, and only 3.6 per cent in East Asia (WEFA, 1998 b, p.40). These protectionist policies made Africa unattractive for foreign direct investment in apparel except for Egypt, Mauritius, Morocco and Tunisia.

A report on textile tariffs and quotas by the US International Trade Commission (1997) concluded that if all quotas and tariffs were dropped for sub-Saharan Africa, only 676 US jobs would be lost but the net benefit to the economy would be US$47 million to US$96 million. The report also stated: "With the proper amount of investment and opportunity to export to the United States with quota-free and duty-free status, these countries (Botswana, Cameroon, Côte d'Ivoire, Ghana, Malawi, Mozambique, Nigeria, Tanzania and Zambia) would likely develop a textile and apparel sector capable of competing in the US market."

For nearly 30 years international trade in textiles and clothing was subject to theMultifibre Arrangement (MFA) and the short-term textile arrangement. These arrangements established quotas on developing countries' exports to the OECD, based on previously achieved market shares. The MFA had positive implications for African exporters, since it shielded them from direct competition.

The agreement on textiles and clothing in the Uruguay Round provides for elimination of the MFA over a ten-year period. The phasing out will gradually lead to the elimination of overall quantitative restraints by product category. Whether Africa will be able to maintain viable textile and clothing exports will depend on its ability to compete with other producers.

The implications of these decisions are that if Africa is to reverse its unfavourable export trends, the region must adopt appropriate trade and structural adjustment policies in order to enhance its international competitiveness and to capitalize on opportunities in foreign markets. Collier (1995) identified political and policy uncertainty, a high-risk environment and inadequate government commitment to reforms as key factors in Africa's marginalized world trade. Civil wars, export taxes, smuggling and false invoicing have negative effects on trade performance.

In the World Bank discussion papers, Biggs et al(1994) point out that recent developments in the US retail market are offering African producers of textiles, garments and consumer goods an opportunity to expand their exports of manufactured products.

Demographic changes in the United States have created opportunities for Africa. There has been a growing desire in the United States to offer more value-oriented, low-price goods to customers and to build niche markets for African-Americans.

Demographic shifts include the rapid growth of minority groups, with a resurgence of cultural identity among African-Americans, and market opportunities for retailers in the Afro-centric product category. A study of attitudes and values in African-American buying behaviour found that customers spend a larger portion of their income on image-enhancement items.

African manufacturers are presented with two strategies dictated by market requirements: (1) to produce high volumes of consistent quality at low cost, and (2) to produce low volumes for high-income retailers. Long-term competitiveness depends on a producer's ability to achieve a balance in terms of the cost, quality, output and design capabilities required by retailers. The following difficulties are encountered in meeting a high-volume strategy:

• mismatch in scale and technical competence of African exporters and the American buyers;
• inability of exporters to negotiate a realistic price;
• lack of information about financial institutions and instruments in international trade;
• differences in business culture;
• inexperienced intermediaries.

The greatest impediments to growth in Afro-centric home products are the difficulty in organizing many remote small producers, the need to provide working capital, and the unfamiliarity of African producers with market standards.

The macroeconomic environment in many African countries has to be reformed. Most potential exporters in sub-Saharan Africa are unprepared for the demanding and highly discriminatory nature of the international market.

Garment manufacture is a starter industry in a country's industrial development. It is labour intensive and does not depend on sophisticated skills or technology. Africa's competitive advantage in this sector is based on low labour costs and quota-free access to the US market. Cheap labour is an important element in locating a garment factory. Import quotas under the Multifiber Agreements have prevented the traditional supplier nations from expanding their exports. Opportunities therefore exist for new low-cost manufacturers in the quota-free apparel producing countries in sub-Saharan Africa, provided that manufacturing in these countries is able to meet international standards of quality, price and service.

The competitiveness of garment manufacturers in Ghana, Kenya and Zimbabwe does not translate into significant exports. A considerable degree of indigenization is needed to ensure the sustainability of the industry once real unit labour costs begin to increase. The main challenge for Afro-centric products is to improve technical design and management capabilities and to solve financial and market-related problems.

Export industries in Africa are still in their infancy. The World Bank and other donors have focused on reforming price incentives to stimulate investment, employment and export growth. Getting the prices right is a necessary, but not a sufficient, condition for stimulating export growth. Supply-side constraints at enterprise level such as lack of technical, marketing and managerial know-how, and access to established world markets are critical impediments to export growth.

Source: Sparks, 1999, p.38.

Cotton is the principal commercial crop, in terms of foreign exchange earnings, in Angola, Benin, Burkina Faso, Cameroon, Chad, Egypt, Malawi, Mali, Sudan, Togo, and Zimbabwe.

Although cotton is the world's leading textile fibre, its share in global consumption of fibre declined from 50 per cent in 1986 to 44 per cent in 1997 due to increased use of synthetics. During the 1980s world cotton consumption failed to keep pace with growing production, surpluses and lower prices. This had serious consequences for many African countries that rely on cotton for their export earnings.

The leading exporters of cotton are the United States, Australia, Argentina and Greece. The countries of francophone West Africa are significant exporters of cotton, increasing their share of the world market from 9 per cent in 1993-94 to 15 per cent in 1997-98.

The value of world exports of textiles and clothing in 1997 amounted to an estimated US $310 billion.

TABLE 2
WORLD EXPORTS IN TEXTILES AND CLOTHING (US $ billion)

Source: Industry Focus No. 38, May-June 1998

South Africa is one of the largest producers of raw wool and cotton. Textiles and clothing is the sixth largest industry in the manufacturing sector, accounting for about 10 per cent of all enterprises, 15 per cent of employment, and contributing 7 per cent to net output.

Due to the importance of mineral products, which account for two-thirds of all exports, textiles and clothing account for only 2 per cent. The industry is confronted with challenges from world markets, but there is a growing opportunity for South African exports.

There is a considerable need to modernize production equipment and to train workers in textiles and clothing. South Africa has about 20,000 wool producers, who employ about 350,000 people. Some 40,000 tons of wool are produced, but only about 10 per cent of this is used in South Africa's own textiles and clothing industry -- 90 per cent being exported in semi-processed form.

South African cotton production dropped from about 52,000tons in 1990-91 to 11,000tons in 1993-94, but recovered to 39,000tons in 1996-97.

TABLE 3
SOUTH AFRICA: CLOTHING PRODUCTION, 1988-1995
(Million garments)

Source: Industry Focus No. 37, Mar.-Apr. 1998.

TABLE 4
MAJOR EXPORT CATEGORIES FOR JANUARY-JUNE 1998 (US $ million)

Source: Clothing Federation of SA, 1999.

The major exporting countries are the United Kingdom, the United States, and Germany. To attain competitiveness, South African firms streamlined and rationalized, with the result that total employment dropped from 144,200 in November 1997 to 138,000 in March 1998 -- a net loss of 6,200 jobs.

TABLE 5
SOUTH AFRICA: PRINCIPAL TRADING PARTNERS IN TEXTILES AND CLOTHING: EXPORTS OF CLOTHING

Source: Industry Focus No. 37, Mar.-Apr. 1998.

The possible promulgation of the US/Africa Growth and Opportunity Act and the EU free trade agreement next year represents a positive outlook for the future.

The textile industry is global and the domestic market is affected by alternative sources of supply through importation. The advantages and disadvantages of the textile industry in Africa are summarized in Table 6 below.

TABLE 6
ADVANTAGES AND DISADVANTAGES OF TEXTILE INDUSTRIES IN AFRICA

Source: African extiles, Oct./Nov. 1998.

The African textile industries have traditionally accepted low manufacturing cost as a major factor in achieving a competitive advantage. However, competitiveness beyond 2000 will mostly be driven by the needs of customers and maximum flexibility.

The above analysis of how Africa has been treated by developed countries with respect to tariffs and quotas suggests that Africa's poor export performance cannot be blamed on punitive import duties for African products. The contrary is true. There must be other factors at work, such as the slow pace of global demand for the continent's major exports. The inability of African entrepreneurs to diversify their export offering is probably a major factor in the present undesirable situation. The future looks less favourable than the past since goods from the industrial countries enjoyed greater tariff reductions in the Uruguay Round than those from developing countries. The practice of setting higher tariffs on processed goods than on raw materials locks the developing countries into volatile primary commodity markets where real prices are declining. As the GATT agreements reduced tariff barriers, the industrial countries switched to non-tariff barriers (NTB) such as quotas, antidumping measures and voluntary export restraints.

3.3 Economic blocks

Economic and political developments such as the European Union (EU), the North American Free Trade Area (NAFTA), and the Association of South East Nations (ASEAN), reflect a movement towards regionalization. The real possibility that Africa could be further marginalized led to the formation of the Southern African Development Community (SADC), at present comprising 14 Southern African countries (Angola, Botswana, Democratic Republic of Congo, Lesotho, Malawi, Mauritius, Mozambique, Namibia, South Africa, the Seychelles, Swaziland, Tanzania, Zambia and Zimbabwe). Attempts to form free trade areas and customs unions have generally been unsuccessful, although one of the most successful regional organizations is the Southern African Customs Union (SACU), founded in 1969. Five of SADC countries, Botswana, Lesotho, Namibia, South Africa and Swaziland, are members of the SACU. The goal of the Economic Community of West African States (ECOWAS) is the removal of barriers to trade, employment and movement between the member states, and the rationalization of currency and financial payments among members.

TABLE 7
ECONOMIC PROFILE OF SADC: 1998

* Due to dual exchange rate systems, statistical data cannot accurately be converted to US $.
Source: Committee of Central Bank Governors in SADC, 1998.

TABLE 8
SOUTH AFRICAN - AFRICAN TRADE

Source: South African Institute of Race Relations, 1997.

South Africa is the biggest SADC economy. It is almost 21 times bigger than the second biggest economy and accounts for 77 per cent of all goods and services produced in the region (Economist Intelligence Unit, 1997a, p.2). Angola's imports from South Africa include prepared foodstuffs and beverages (25 per cent), machinery (18 per cent), and transport equipment (13 per cent). Malawi imports machinery (22 per cent), chemicals (19 per cent), transport equipment (14 per cent), and base metals (12 per cent) from South Africa. Mauritius imports base metals (24 per cent), foodstuffs and chemicals (11 per cent each), machinery (10 per cent) and textiles (10 per cent). Mozambique's largest import from South Africa is food (23 per cent), followed by vehicles (10 per cent). Namibia imports mostly food (20 per cent), machinery and chemicals (17 per cent), and motor vehicles (16 per cent). Zambia imports large quantities of machinery (19 per cent), chemicals (17 per cent), and minerals (14 per cent) (Cornwell, 1993).

It is clear that South Africa exports a considerable volume of manufactured goods to the other SADC countries. The question is whether an economic bloc would lead to more exports to countries outside. There appears to be more trade amongst countries within the SADC and not necessarily with countries outside the bloc. It seems imperative that SADC should develop a strategy on how to collectively export more to other (non-SADC) countries. In this way the region would benefit more.

Growth in the SADC region has been driven by commodity exports such as diamonds, gold, copper, tobacco, coffee and tea, and is unlikely to provide sustained output and employment growth in the twenty-first century.

SACU recorded a trade surplus of nearly US$1 billion for the period January to June 1998. The relatively high average growth rate since 1990 for exports of capital goods such as motor vehicles, parts, accessories and tyres is an encouraging development with regard to export composition.

Europe, Asia and Africa remained the leading destinations for SACU export products, accounting for 82 per cent of total export earnings in the first quarter of 1998. The top manufactured export categories to Western Europe include basic iron and steel, nonferrous metals, machinery and equipment, and industrial chemicals. Exports to Asia included basic iron and steel and nonferrous metals, and the largest share of exports to Africa were in industrial chemicals, machinery and equipment, processed food and chemical products.

TABLE 9
COMPOSITION AND GROWTH OF SOUTH AFRICA'S MANUFACTURING EXPORTS

Source: Trade and Industry Monitor, Dec. 1997.

South Africa's export capacity improved between 1988 and 1996. The best-performing sectors during this period include transport equipment (29.4 per cent per annum), metal products and machinery (18.1 per cent), and chemicals, rubber and plastic (17.5 per cent). Nearly 83 per cent of South Africa's manufactured exports are destined for five regions, namely the European Union (33 per cent), the Far East (19.2 per cent), Southern Africa (14.5 per cent), North America (9 per cent) and the rest of Africa (6.9 per cent).

TABLE 10
DESTINATION OF SOUTH AFRICAN MANUFACTURING EXPORTS

Source: Trade and Industry Monitor, Dec. 1997.

In the opinion of foreign-owned companies operating in Africa, the most important factors determining the extent of investments and in conducting business are political and economic stability, tax systems, and adequate infrastructure. SADC has set the following crucial socio-economic goals for development:

• establishing and maintaining the regional infrastructure;
• working towards the creation of a free trade area;
• investing in human capital;
• creating a framework to ensure macroeconomic stability;
• facilitating the emergence of financial and capital markets;
• encouraging the development of strong private/public sector partnerships.

Attempts were made in Ghana, Liberia, Mauritius, Senegal and Togo to use export processing zones to promote exports and attract foreign capital. These zones made much less of a contribution to exports in Africa.

A study conducted by the World Economic Forum (1998) highlights key factors that affect foreign direct investment in the Southern African region. The findings are shown in Graph 2.

Source: Deloitte and Touche, 1998.

Foreign direct investment plays an important role in stimulating economic growth in the developing countries because of the transfer of modern technology and production techniques, skills, management expertise, access to international sources of finance, and access to global markets. Many countries in the Southern African region lack sophisticated business skills.

The main impediments to increasing exports of African goods are the inadequate technological capability, financial problems, insufficient market information and institutional coordinating mechanisms (Biggs et al., 1994).

Lack of product development is a major constraint to future growth. Foreign manufacturers have access to management and technical expertise, whereas African entrepreneurs lack market information on basic issues such as buyer specifications in terms of labelling, packaging, and so on.

The most crucial constraints to increasing exports are on the supply side in Africa. Poor industrial capabilities are ascribed to poor entrepreneurial abilities and technological backwardness. Core factors such as physical and human capital, technological capability, financial ability, infrastructure and the size of domestic markets are mentioned in the literature. Another constraint is policy induced, and while 'complementary assets' are related to the trade infrastructure.

Learning is considered the key to the effective transfer and diffusion of technology and to achieving innovation, industrial growth and international competitiveness (Mytelka, 1998). Competitiveness is sustained by continuously improving products, processes, customer services and management routines. Investment in education and in research and development is essential in ensuring technological competitiveness.

Growth in technological know-how was possible in the East Asian economies due to the free movement of skilled personnel between organizations and countries. African organizations were isolated from the dynamics of efficient change in other parts of the world, notably advances in management techniques. Lall (1995) points out the role of capability factors that are still neglected in African industrialization. Industrial capability includes physical and human capital, labour skills, managerial and entrepreneurial ability and technological capability.

TABLE 11
ECONOMIC PROFILE OF SOME AFRICAN COUNTRIES

Source: Committee of Central Bank Governors in SADC, 1998.

Table 11 reflects GDP growth at constant prices in SADC for 1992 and 1997. During 1997 the economies of SADC expanded at a lower average rate of 3.5 per cent. The smallest growth rate was recorded in South Africa with a further marginal contraction in Lesotho.

South Africa has made a major contribution to the total GDP of the region. In 1992 South Africa's share amounted to 77 per cent but it declined slightly to 73.7 per cent in 1997. The balance of payments position reveals that large deficits were recorded by Zimbabwe, Angola and Tanzania in 1997. South Africa and Botswana showed the largest surpluses. Changes in the central bank accommodation rates indicate that wide fluctuations occurred in Angola, Mozambique and Zambia.

Budget deficits as a percentage of GDP declined strongly in Angola, Lesotho, South Africa, Tanzania and Zambia. Seven of the 12 SADC members recorded surpluses on their central government budgets in 1997.

There are a few obstacles to closer financial integration in the SADC region, including disparate economies and infrastructure, communication channel differences, limited technological capacity and financial resources. Monetary arrangements and policy application differ with respect to interest rates and exchange rates. The coefficient of variation (CV) reflects an improvement in GDP growth in the initial period (1992) as well as the current period (1997). The balance of payments position and government surpluses have not improved. A marginal decrease occurred in the central bank accommodation rate.

Trade liberalization in South Africa led to comprehensive tariff cuts and the phasing out of the general export incentive scheme (GEIS) agreed on during the Uruguay Round of GATT negotiations.

Between 1990 and 1996 the mean statutory tariff in manufacturing fell from 29.8 per cent to 15.5 per cent and effective protection dropped from 30.2 per cent to 22.2. (Tsikata, 1999). There has been a shift in the sectoral composition of exports, away from labour-intensive industries to skills-intensive and capital-intensive sectors. Tsikata (1999), however, concludes that South Africa's export structure is paradoxical, with a remarkably low -- and declining -- share of exports that make use of unskilled labour, and a relatively high share of exports that make use of more skilled labour. However, the Republic of Korea has a higher proportion of unskilled labour-intensive exports than South Africa. This is due to South Africa's comparatively high wages relative to productivity, which puts the country at a disadvantage in terms of low-wage, unskilled, labour-intensive activities.

4. Structural adjustmnet in Africa

Sub-Saharan Africa suffered several external shocks in the mid-1970s because of high oil prices, a general deterioration in terms of trade, and world recession. The proportion of external debt to GDP in Africa stood at 27.4 per cent in 1980 and rose to an average of 92.1 per cent between 1985 and 1991.

Of the 40 countries classified as heavily indebted, 33 are in sub-Saharan Africa (World Bank, 1995). The World Bank attributed Africa's poor performance mainly to internal causes such as inappropriate domestic policies, e.g. expensive, inefficient and unproductive public sectors. Against this background, the IMF and the World Bank formulated stabilization and structural adjustment programmes. Nearly 30 African countries were implementing economic reforms by 1992. Adjustment programmes mainly addressed four areas, namely the size and allocation of public investment, public sector institutions, the fiscal burden of public enterprises and tax reforms aimed at enlarging the revenue base. Other areas were the liberalization of interest rates, and recommendations to devalue and liberalize foreign exchange transactions.

Africa's ability to respond positively to market liberalization has been poor. The weakness of the supply response has been particularly marked in manufacturing industry and export performance. The World Bank comes to an optimistic conclusion on the impact of adjustments in industry in a 1994 report on adjustment in Africa: "In the African countries that have undertaken and sustained major policy reform, adjustment is working." The essence of the neoliberal philosophy that characterized the Bank's approach to adjustment is that the state should withdraw from economic life, apart from furnishing the rules of the game and market-friendly interventions. Governments should manage the macro economy and invest in infrastructure and education.

Structural adjustment has two components. One is macroeconomic reform or 'stabilization' policies to achieve internal and external balance in the short to medium term. This component is generally considered the province of the IMF. The other is 'adjustment proper', or 'structural adjustment in the narrow sense'. Reforms are necessary to free market forces and promote long-term growth -- traditionally the province of the World Bank.

Structural adjustment programmes (SAPs) involve the freeing of markets so that competition may help to improve the allocation of resources, adjust prices and create a climate that allows business to respond to price signals in ways that increase the return on investment.

Macroeconomic stabilization generally precedes or accompanies adjustment and many stabilization measures could be important elements of adjustment. Exchange rates could be used as an adjustment as well as a stabilization measure, and could have important resource allocation effects. Stabilization is universally accepted as a policy goal. It requires a prudent government. The World Bank approach is that markets are essentially efficient and that government intervention in resource allocation is inefficient. The only exceptions are market failures in the provision of infrastructure and education, where the World Bank recommends market-friendly interventions.

Adjustment is based on the assumption that free markets are efficient, leading to the optimal allocation of resources. Another assumption is that static optimization leads to dynamic long-term growth. It is assumed that all organizations operate with full knowledge of all possible technologies, equal access to these technologies, and the ability to use technology efficiently without risk, cost or effort. Technical inefficiency is due only to management incompetence and would exist if governments intervened to create barriers to trade or competition. No activity that is efficient would die, and none that is inefficient would survive. The demise of inefficient activities would release productive resources for others that are efficient. The ideal form of adjustment is difficult to find in practice.

A different approach to industrialization is the technology capability approach, meaning that the process of becoming efficient in industry is slow, risky, costly, and faces market failures that might call for intervention in the product and factor markets.

In the product markets intervention may call for infant-industry protection; in the factor markets intervention may be needed to direct resources to particular activities such as skills training, the promotion of local technology, and the creation of support institutions.

Cornia (1991) suggests that SAPs have not removed the obstacles to long-term development. Countries that concentrate on primary commodity production, import liberalization and public expenditure cuts are pushed away from self-sufficiency and growth in their manufacturing capacity and diversified exports. Most countries in sub-Saharan Africa showed no supply responses to SAPs during the 1980s and 1990s, mainly due to insufficient commitment, delayed reforms and conflicting policy recommendations.

Interventions can be distortive and costly if they do not address market failures. Import-substituting regimes have been marked by such uneconomic interventions, leading to inefficiency instead of dynamic competitiveness.

The East Asian newly industrialized economies show that selective interventions in an export-oriented setting, backed by investments in human capital, can create a dynamic set of competitive industries with domestic linkages and indigenous technological content. Adjustment based on rapid exposure to free markets might kill activities that are potentially competitive. Such activities face learning needs that might be costly and prolonged, ending in market failure. This could in turn lead to the loss of past investment in physical and human capital. Government failures are replaced by market failures. The chance of poor results is greater in sub-Saharan Africa, with its lack of skills relevant to modern industry and a weak tradition of industrial entrepreneurship.

According to a World Bank assessment (1994), Ghana is the most advanced country in Africa in terms of reaching low tariff-based protection and free trade. Reforms have included a massive depreciation in the exchange rate (from 2.75 cedis to the dollar in 1982 to 920cedis in early 1994, to 3,793 cedis in 1998), the removal of all quantitative restrictions on imports, the lowering of tariffs to a relatively uniform 10 to 25 per cent, the reduction of corporate taxes to 35 per cent, and fixing capital gains tax at up to 5 per cent. Other measures included the removal of price controls and subsidies, the abolition of credit ceilings, privatization of state-owned enterprises, and granting incentives for exports and for investments in infrastructure.

In the early 1990s, Ghana had an open and liberal economy and had achieved reasonable stability and adjustment. A recent study, however, concluded that rapid liberalization coupled with a low level of technological capability and the lack of supply-side measures to develop skills, capabilities and technical support gave rise to costly deindustrialization (Lall, 1995).

Ghana's experience provides an important lesson in industrial adjustment in sub-Saharan Africa. An initial favourable response in manufacturing to adjustment will not necessarily lead to sustained growth and diversification. Policy reforms should be paced according to the country's resource and skill base. Too much change too soon could be inefficient. Capacity building must go hand-in-hand with more outward-looking and competitive trade and industrial processes.

5. Supply-side measures

5.1 Human resource development

Some supply-side measures to strengthen competivity are skills development, technology support and financial support. Sub-Saharan Africa has the lowest enrolment in all levels of schooling, worker training and higher education in the developing world. Many existing industries could become competitive if the quality of human resources was improved.

Improving the educational level of a nation is a long and difficult process. The syllabusmust be changed, and the effective implementation of new curricula takes a long time because teachers must be retrained. It often happens that the cultural structures of a country hold back changes in education, particularly where child labour is widespread. In many countries basic education in literacy and numeracy is lacking.

Good training programmes must be based on good education. People can only work effectively when they have the skills, knowledge and attitude to be productive. Skills can be taught in training courses, but knowledge and attitudes depend more on good education. However, improving the education base is a slow process.

Training must be relevant to the needs of business and industry. The East Asian economies directed their skill development programmes to the critical areas of industry where competitiveness could improve.

The apprenticeship system in Africa is geared to the transmission of traditional skills atlow levels of technological sophistication, and has little relevance to improving global competitiveness. It would be more effective to establish training institutes and stimulate in-company investment in training.

5.2 Technology

Another crucial measure for industrial upgrading is the development of technology infrastructure and the provision of technical extension services to industry, especially to small and medium enterprises. Governments need to set higher standards and provide consulting assistance to companies to help them obtain certification. Technical services in Africa are seldom effective and cannot provide the required inputs for enterprises to upgrade their competitive capabilities. The main thrust should be to improve services to those industry clusters that are most important for international competition.

Adjustment in Africa usually takes place in conditions of financial stringency. The information services for potential exporters are inadequate and the physical infrastructure is poor. Structural adjustment without these basics is virtually impossible.

Structural adjustment should be gradual, with greater commitment and sound, strategic direction and government involvement (Lall, 1995). The conclusion that has emerged from structural adjustment efforts in Africa is that macro reform is a necessary but insufficient condition for private sector development. Several enterprise constraints inhibit the expansion of existing companies and impede the growth of new ones.

5.3 Export processing zones (EPZ): A Mauritian example

Export Processing Zones (EPZs) are an interesting supply-side measure adopted by various countries. In the African context, Mauritius has succeeded admirably with this approach, and a brief overview of this example is very informative.

The EPZ sector in Mauritius has performed relatively well. The sector, with 480 enterprises and a labour force of 82,000, exported US $1 billion worth of goods in 1997. Its main markets are Europe (70 per cent) and North America (17 per cent).

Fifty-six per cent of the country's companies are in textiles and clothing, while the textiles and clothing sector accounted for 87.5 per cent of EPZ employment in 1997 and 84.6 per cent of its exports. Exports to the American market have become more difficult due to competition from low-cost countries such as Bangladesh, China and India.

TABLE 12
ENTERPRISES, WORKFORCE, AND AVERAGE NUMBER OF EMPLOYEES
BY EPZ PRODUCT GROUP, 1997

Source: Export Processing Zones Development Authority, Mauritius, nnual Report 1996/1997.

As Table 12 shows, textiles and clothing made up 56 per cent of the total number of EPZ enterprises and 87 per cent of EPZ employment in 1997.

Mauritius' products, especially in the clothing sector, have remained competitive as a result of restructuring and improved productivity. The four main markets are France, the United Kingdom, the United States and Germany, and the four main products are T-shirts, pullovers, shirts and trousers. These four products accounted for nearly 90 percent of clothing exports in 1997.

No dramatic change is expected in the export sector within the next five years. Restructuring of the clothing industry will intensify, and productivity, quality and creativity will remain key instruments for sustained growth.

TABLE 13
EPZ EXPORTS OF FOUR MAIN PRODUCTS

Source: UNIDO, 1996.

The private sector in Mauritius has been closely involved in the Lomé arrangements during the past three decades. Other factors that contributed to its economic development are political stability and an appropriate macroeconomic environment.

6. Industry in Africa

6.1 Introduction

The economies of sub-Saharan Africa are very diverse, some countries being more urbanized than others. The region's total population is about 583million. In Zambia, the urban population represents 50 per cent of the total population, whereas in Burundi it is only 6 per cent. Sub-Saharan Africa accounts for less than 1 per cent of world trade and global GDP.

Education also varies greatly. In Mauritius, secondary-school enrolment is nearly 54 per cent, followed by 52 per cent in Zimbabwe and South Africa, and only 2 per cent in Rwanda. The literacy level is 83 per cent in Mauritius, and less than 20 per cent in Burkina Faso. South Africa, Zimbabwe, and the Democratic Republic of Congo are endowed with extensive natural resources, whereas other countries such as Somalia have very few.

Sub-Saharan Africa has recorded a 3.4 per cent average annual growth rate in GDP since 1961. Between 1965 and 1975, GDP per capita rose by 2.6 per cent per year, but real GDP per capita dropped by 42.5 per cent between 1980 and 1990. The region's GDP increased by 2.2 per cent in 1994, and by 3.2 per cent in 1995. In 1996, sub-Saharan Africa recorded a 4.4 per cent growth rate, followed by a rate of 3 per cent in 1997.

The World Bank estimates that the region's GDP will increase by 4.1 per cent annually between 1997 and 2006. Considering the world's four major developing areas (sub-Saharan Africa, East Asia, South Asia and Latin America), sub-Saharan Africa has the second lowest GDP per capita growth rate, the lowest average life expectancy, the lowest literacy rate, the highest population growth rate (3.2 per cent) and the highest infant mortality.

Source: Sparks, 1999.

There have been some improvements, however. Between 1960 and 1994 life expectancy increased from 40 to 52 years, although AIDS has dramatically reduced the figure during the past five years. During the past decade, adult literacy increased from 27 to 55 per cent. On the other hand the decline in trade, aid and investment has contributed to the continent's poor economic performance during the past 20 years. The major internal factors contributing to the poor performance are impoverished soil, widely fluctuating climates, poor human and physical infrastructure, rapid urbanization and population growth, environmental degradation, ineffective government and inappropriate public policies.

Structural adjustment programmes incorrectly assumed that industrial recovery and growth would be assured by setting prices right. Competitiveness, technological upgrading, quality and the timely delivery of products were ignored. The following are obstacles to industrial development:

• Afica's comparative advantage lies in low labour costs, which are less important in global competition today.
• Africa is at a serious disadvantage in respect of infrastructure quality and costs, industrial sophistication and technology.
• The low levels of education and training discourage foreign direct investment in Africa.

The United Nations Industrial Development Organisation (UNIDO, 1996) estimates that 15 African countries experienced deindustrialization in the first half of the 1980s because liberalization has proceeded too rapidly. Nearly 15 years of structural adjustment have produced disappointing results because of inappropriate policies, uncertain political support and inadequate institutional capacity. Only a few countries maintained reform programmes for a sustained period. Some of the largest economies, in terms of population, failed to undertake reforms (Ethiopia, Sudan, Zaïre) or abandoned these programmes prematurely (Nigeria). A few countries such as Kenya, Malawi, Tanzania, Zambia and Zimbabwe pursued stop-start strategies, with periods of rapid reform and years of policy stagnation. The region's depleted infrastructure also inhibited the supply response.

6.2 Share of manufactured value added in GDP

From 1980 to 1995 the share of manufactured value added (MVA) in GDP did not change significantly in the African countries, where it stayed around 13 per cent whereas compared with 27 per cent in the Asian economies. The share of individual African countries emphazises the same point:

*NIC: Newly Industrialized Country
Source: UNID, 1998.

The share of MVA in the GDP of some African countries is low compared to that of the developed economies of Europe and the United States. South Africa's share of 24 per cent is comparable to the average in the industrialized countries.

Graph 5 shows that MVA contributes only a small percentage of GDP in African countries compared to the developing world, which is shown in Graph 6.

Source: UNIDO, 1998.

Source: UNIDO, 1998.

According to the IMF (1996), "the poor economic performance of sub-Saharan African countries as a group during the 1986-93 period, stemmed mainly from differences in policies pursued, particularly in a context of a deteriorating external environment."

Africa's poor performance is due to inappropriate policies, inadequate infrastructure and depleted institutional capacity.

South Africa's infrastructure is, in the African context, of an exceptionally high standard, which is a positive factor in setting up manufacturing plants, and other value-adding projects. South Africa also has one of the most sophisticated financial service industries in the Southern hemisphere. The country has a competitive advantage in terms of manufactured exports to Africa compared to the European Union and the United States, due to its geographical location.

6.3 Key industries in Southern Africa

Business and political leaders debated economic development strategies at the World Economic Forum's 1997 Southern African Summit in Harare. Tourism, agriculture and manufacturing were identified as sectors with high growth potential. About 47.2 per cent of respondents indicated that tourism had great potential for job creation, while about 40 per cent indicated that manufacturing had growth potential.

Source: Deloitte and Touche, 1998.

6.4 The structure of international and regional markets for African exports

More than half of sub-Saharan Africa's exports go to the Western industrialized countries. Primary products account for 80 per cent of the region's export revenue -- about the same as during the sixties. Poor export performance and many other problems have resulted in increased deficits in the balance of payments accounts of most African countries.

TABLE 14
AFRICA'S BALANCE OF TRADE, 1970-96 (US $ million)

Source: Economic trends in Africa south of the Sahara, 1998

African countries typically produce one or two major agricultural or mineral commodities for export to the West.

TABLE 15
EXPORTS FROM AFRICA AND KEY TRADING PARTNERS

Source: World Economic Forum, 1998.

As incomes increase in the industrialized countries, demand for agricultural products does not increase proportionately. Most African states export similar items, generally primary agricultural or mineral products, and regional trade is low. The states frequently discourage trade by their inward-oriented, import substitution development strategies (overvalued exchange rates and projectionist trade policies). The transport infrastructure is geared for exports to the EU, Japan and North America.

Seven African countries export textiles and apparel to the United States, representing about 1 per cent of total US imports of those products. Lesotho, Mauritius and South Africa account for 80 per cent of that figure.

6.5 Employment in sub-saharan Africa

The unemployment problem is most acute in sub-Saharan Africa, which has the highest population and labour force growth rates. Labour force growth is predicted to accelerate from 2.2 per cent in the 1970-90 period to 3.3 per cent in 2020.

TABLE 16
EMPLOYMENT IN SUB-SAHARAN AFRICA, 1985-2020 (millions)

Source: UNIDO, 1996.

6.6 Sector constraints external to enterprises

Rostow (1960) highlights the essential requirements for industrially based modernization and identifies three conditions for traditional societies to begin sustained economic growth. Productive investment has to increase to at least 10 per cent of the national income; one or more substantial manufacturing sectors with a high growth rate have to be developed; and a political, social and institutional framework has to emerge to carry through the modernization process.

The failure of economic development in Africa may to some degree be ascribed to the absence of entrepreneurs who are prepared to invest and take business risks. This has led to low levels of investment in productive activities. Being in government is considered by many as preferable to being in business. As long as a nation has such a culture, it will remain underdeveloped -- irrespective of prevailing external conditions. It is, after all, individual businesses that produce goods and services and are involved in trade, exports and imports.

Economic failure in Africa may be attributed to internal and external factors such as:

• Sharp declines in commodity prices
• Unfavourable climatic conditions
• Rapid population growth
• An external debt burden
• Decreasing savings and investment rates
• An inadequate and deteriorating physical infrastructure
• Declining institutional capacity due to poor governance

Although Africa's economic decline is frequently attributed to external factors it must be accepted that unless Africans develop an entrepreneurial spirit, these factors will always be blamed for the continent's poverty. African countries produce mainly agricultural or mineral commodities for export to the West. Primary products account for 80 per cent of export revenue in the region, about the same as in the 1960s.

Poor export performance led to increased deficits in the balance of payments current account in most African countries. Exporters have lost market share, even for products that had a comparative advantage, and they have failed to diversify their export base. Market share for cocoa, coffee, rubber and vegetable oils has been lost to South-East Asia, Indonesia, Malaysia and Thailand.

Prices for many of the region's primary exports (coffee, sisal, sugar) have either remained steady or dropped. From 1970 to 1985 Africa's share of the world market for primary exports fell from 7 to 4 per cent of the total.

Increased trade and general integration into the global economy leads to faster growth. Despite privileged access to the EU, Africa's market share in the Western industrialised countries has declined relative to that of other developing countries. In some cases tariff and non-tariff barriers to trade have discouraged value-added or semi-processed agricultural imports from the African states.

The failure of African entrepreneurs to respond to world market challenges is manifested in excessive foreign debt, declining international aid, and difficulties in attracting foreign investment. In 1990 the region attracted only US $900 million but by 1996 this sum had increased to US $2600 million. However, investor confidence has been lost due to insufficient human and physical capital.

7. Enterprise-level constraints

7.1 Introduction

Since individual organizations export products and services it is essential to examine the factors that affect individual organizations. Unless problem elements are addressed it is unlikely that exports will increase.

7.2 Factors influencing competitiveness

The competitiveness index and the market growth index of a few African countries reveal that the market growth index (using the change in nominal GDP in dollar terms between 1996 and 1998) is reasonable for high-ranking countries (Egypt, South Africa, Tunisia, Mauritius, Botswana). Mauritius and the countries in the Southern African Customs Union (SACU) (South Africa, Botswana, Namibia, and Lesotho) scored well, indicating that geographical factors are important for competitiveness.

GRAPH 8: COMPETITIVENESS INDEX AND MARKET GROWTH INDEX

Source: World Economic Forum, 1998.

The qualitative perceptions of decision makers regarding competitive factors in Southern Africa and the strong and weak links in national competitiveness were identified in a survey conducted by the World Economic Forum (1998), Southern Africa. Respondents were required to assess their own country's competitiveness in terms of people and population, science and technology, management competence, infrastructure development, finance, government efficiency, the extent of internationalization, and the domestic economy.

Government and people factors are the weak links in the region, and finance and infrastructure are considered to maintain relatively strong. Table 17 reflects the perceptions of respondents in the survey with respect to their own countries.

TABLE 17
PERCEPTIONS OF RESPONDENTS IN SPECIFIC COUNTRIES IN TERMS OF COMPETITIVE LINKS

Source: Deloitte and Touche, 1998.

The openness of some African economies was assessed by means of criteria such as average tariff rates, exchange rate policy, real exchange rates and foreign investment protection. Government performance was measured by criteria such as government expenditure as a proportion of GDP, government deficits or surpluses as a percentage of GDP, corporate tax rates on profits, and public sector competence. The financial environment was assessed by criteria such as the degree to which domestic banks cope with competition from foreign banks, gross domestic savings as a percentage of GDP, the extent to which banks and other lending institutions adequately serve smaller companies, the interest rate gap between what is paid on bank loans and received for deposits. Other factors were national performance in labour markets, infrastructure, the incidence of organized crime, market dominance by a few companies and political stability.

Economies that are open to trade, investment and skill flows are more competitive than those that pursue inward-oriented economic growth. The SADC countries rank near the bottom of any openness index, except Botswana, Mauritius, the Seychelles and Swaziland. Any sudden transition to a manufacturing-driven growth path is difficult for the African countries since they are hampered by inadequate innovation and inefficient cost-saving capabilities.

According to the Africa Competitiveness Report published in 1998 by the World Economic Forum, overall competitiveness is based on an average of six indices, namely openness, government, finance, labour, infrastructure and institutions. The Report reveals that small, dynamic, stable economies with a solid export base perform well (Botswana, Mauritius and Tunisia). Openness to trade is generally low in Africa compared to the rest of the world. Surveys related to openness, exchange rate policies and tariffs are listed in graph 9. The numbers in brackets indicate rankings.

The 1998 Report indicated that Mauritius enjoyed several competitive advantages in the global economy in terms of openness. The country was associated with the European Common Market through the Lomé Convention and had an educated labour force. Its export-oriented development strategy was based on low wages, modelled on the East Asian approach. Export processing zones with tax incentives encouraged export ventures.

There seem to be two main routes to global competitiveness for the SADC countries:

• technical upgrading to improve productivity;
• raising quality standards and cutting costs through right-sizing.

Government-related factors that affect African businesses include a high corporate tax rate on profits, and government regulations that hamper competitiveness. Inadequate institutional capacity and infrastructure deficiencies are major impediments to regional competitiveness.

Botswana's tax system enhances competition. Low tax rates and ease of financing make Botswana an attractive destination for investment. The percentage of time that senior managers spend negotiating about licences, permits and tax assessments, is higher in Ghana, Tanzania and Zambia than in Botswana, Namibia, South Africa and Zimbabwe.

Finance-related factors that affect African businesses include inadequate access to finance, and foreign direct investment. Gross domestic investment as a proportion of GDP is highest in Tunisia (31 per cent) due to competition from foreign banks, and lowest in Zambia (11.7 per cent). Tunisia has participated in two IMF-supported structural adjustment programmes since 1986. The greatest hope for the Tunisian economy lies in the government commitment under the Euro-Mediterranean Association Agreement signed with the European Union in 1995, by which Tunisia is to form a free trade area with the EU by 2007, leading to a gradual reduction in protection.

The gap between interest rates on loans and deposits is larger than the international norm in Kenya, Mozambique, Nigeria and Zambia. Access to finance is adequate in Mauritius, Namibia and South Africa, but it is an obstacle in Cameroon, Ghana and Zambia.

Labour-related factors that affect business in Africa include tertiary education, flexible working hours, flexible hiring practices and the work ethic. University education does not meet business needs in Cameroon, Egypt, Mozambique and Namibia. The work ethic meets the needs of business in Burkina Faso and Egypt, but not in Malawi and Zambia. Burkina Faso is ranked first in terms of the work ethic of its labour force -- 'a country of honest people'.

A good infrastructure lower transaction costs by facilitating the flow of information and goods, and improving infrastructure is an essential step in achieving sustainable export growth. Transport costs do not limit business activity in Egypt, South Africa and Tunisia. Countries with poor infrastructure should raise capital in the private sector through concessions or by privatizing their existing infrastructure. Africa needs export processing zones (EPZs), which require good infrastructure.

Based on the WEFA survey data, institutional factors that affect business in Africa include market dominance, the legal system, crime, and uncertainty about legislation and rules that impose costs on business.

Prerequisites for export-led industrialization include efficient infrastructure, efficient labour markets, foreign direct investment and skills development.

7.3 Factors that hinder/help African manufacturers to export

A brief questionnaire survey was conducted for the purposes of this report in order to identify factors that either hampered or helped manufacturers to export.

Botswana, Ghana, Kenya, Malawi, Mauritius, Nigeria, Senegal, Uganda, Zambia and Zimbabwe participated in the survey. Fourteen questionnaires were completed. The data were analysed by means of descriptive statistics (frequency, measures of central tendency, graphs).

The following factors were considered in the survey:

• Policy matters and general economic factors
• Policy support for manufactured exports
• Incentives provided
• Agreements to promote trade
• Infrastructure
• Adequacy of transport
• Adequacy of telecommunication
• Accessibility of electricity
• Specific factors regarding manufacturing and exports
• Percentage of exports
• Local availability of raw materials
• Access to capital
• Market focus and export market growth
• Productivity
• Factors that hamper productivity

The analysis revealed that the main manufactured products exported by the sample countries are agri-based. Government policies support manufactured exports in almost 57 per cent of cases. Incentives are mostly in the form of EPZs (71 per cent). Table 18 lists some of the other types of incentive that are offered.

TABLE 18
EXPORT INCENTIVES SPECIFIED BY RESPONDENTS

Almost all countries in the sample have bilateral or multilateral agreements to promote trade in manufactured goods.

INFRASTRICTIRE-RELATED PROBLEMS

The African countries face several economic and procedural constraints that have prevented them from trading efficiently. Infrastructure supports development by creating favourable conditions for production. It also facilitates diversification. Telecommunication facilities reduce the cost of acquiring information.

Infrastructure imbalances and weak sea-bound transport links force landlocked countries such as Botswana, Lesotho and Swaziland to depend on South Africa for channelling their exports and imports.

TABLE 19
ROAD INFRASTRUCTURE AND TELECOMMUNICATIONS FOR SELECTED SADC COUNTRIES

The data in Table 19 clearly show that Zimbabwe, Swaziland, Malawi and South Africa have reasonably good road infrastructure compared to other African countries. The Maputo Development Corridor (MDC), which started in October 1997, is the biggest project in terms of road infrastructure development in the SADC region. South Africa also has the largest number of direct telephone exchange lines for telecommunication in the SADC area.

Nearly 35 per cent of questionnaire respondents felt that the transport infrastructure was sometimes adequate for export purposes. Some 28 per cent replied that transport was always adequate. Telecommunications infrastructure was considered adequate for export purposes in 57 per cent of cases. Electricity supplies were difficult to predict (42 per cent) and power was often interrupted (43 per cent). Almost 50 per cent of respondents thought that trained people could easily be recruited, and 28 per cent felt that untrained people had to be recruited and trained.

Almost 43 per cent of respondents export only 10 per cent of their manufactured products. Nearly 28 per cent agreed that more than half their manufactured products were exported largely because of EPZs.

Most respondents felt that the market focus was mainly on Africa and Europe. In Nigeria nearly 45.8 per cent of the market focused on the United States. The Zambian and Ghanaian markets focused on Europe. Uganda and Zimbabwe concentrated on their domestic markets.

Most respondents mentioned quality and design as factors that present a reasonable advantage in the export market. Constant supply was a major advantage. However, price was a major disadvantage and delivery was also a disadvantage. Less than 50 per cent of local raw materials were used for manufacturing export products. Locally supplied raw materials were consistent in terms of supply, quality and delivery. Most respondents stated that their production facilities (machinery, equipment, factories) for the export market were being upgraded.

OPPORTUNITIES AND THREATS

Several factors that affect export performance were identified and some of the threats and opportunities are presented in graph 17. Constraints to successful export performance were late delivery, slow growth in the export market, inadequate telecommunications and transport facilities, unreliable quality and delivery, frequently interrupted power supply, uncertain access to capital, and uncompetitive prices.

Opportunities lay in the fact that labour unrest was seldom experienced, joint ventures played a role in export promotion, quality and design offered a competitive advantage, and continuous supply was assured.

FACTORS THAT HAMPER PRODUCTIVITY

Respondents listed the factors that play the biggest role in low productivity in their countries.

Apart from the factors mentioned in the graph above respondents also mentioned controls and regulations, low national morale, inflationary fiscal policies, poor management of the economy, high taxes, high cost of utilities, worker unrest and pay policies. Government policies were given a modal value of 8 and work ethic, quality of management and quality of infrastructure were given modal values of 7, implying that these factors were of great concern.

ENVIRONMENT

Concerns were expressed that liberalization of trade and investment could be inimical to the environment or could lower environmental standards. Fears of massive redeployment of production to low-standard countries were overstated because experience has shown that openness to trade and investment translates into increased pressure for more stringent environmental standards.

The United Nations Environment Programme defines cleaner production as the continuous application of an integrated preventive environmental strategy in industrial processes and products to reduce risk to humans and the environment. Cleaner production includes conserving raw materials and energy, eliminating toxic raw materials, and reducing the quantity and toxicity of all emissions and wastes before they leave the process.

Process wastewater is the main source of pollution from the textile-finishing industry. In the Netherlands many chemicals are on a blacklist, especially products with an organic chlorine composition. Mordant dyes are banned in Europe. In Germany and the Netherlands it is no longer permitted to produce or import goods dyed with Azoic dyes. Dye and finish processes have to aim at reducing the number of chemicals. Dyeing and redyeing require a lot of extra chemicals, energy and water, apart from other costs. There is a risk that the liberalization of trade and investment could aggravate problems if environmental policies are poorly designed or weakly enforced.

The developing countries could increase their productivity enormously by using their current technologies more efficiently. Total factor productivity increases faster in the strongly outward-oriented economies than in the strongly inward-oriented economies. Africa needs to increase productivity, economic growth and employment. Setting up national productivity centres and productivity improvement organizations is of paramount importance in enhancing productivity.

7.4 Constraints affecting organizations in South Africa

The South African National Productivity Institute (NPI) conducted some 35 studies of factors affecting productivity and competitiveness in a variety of industries since 1970. The industries covered the manufacturing sector, e.g. clothing, textiles, furniture, metals engineering and saw milling; the service sector, e.g. hospitals and local authorities; agriculture; mining and construction. The studies were carried out by multidisciplinary teams visiting a representative sample of firms/organizations in each sector. The various experts in the teams assessed the constraints in each discipline that would cause the firm to be uncompetitive. On the basis of these visits comprehensive studies were published of factors that should receive attention to ensure higher productivity and greater competitiveness.

As can be expected, the factors differed in some respects from industry to industry, but the NPI concluded that a number of constraints were common to most of the studies. For some years the NPI was structured to address these constraints.

The first constraint was found to be the quality of the human resources. Not only was the quality of education insufficient, but also the nature of education was not in line with the needs of the economy. The education sector did not look at what the economy would need 20 years hence, the time frame that is necessary for effective education planning. Science and engineering education, as well as technical education, were particularly neglected. A complete reorientation of the education system was proposed, with benefits that would take 20 years to realize. Short-term measures such as immigration and, obviously, training, were seen as intermediate solutions. The shortcomings of inadequate education can often be alleviated by effective training that is based on needs analyses with carefully structured competency models.

The second main constraint experienced was that labour and management did not work together. They tended to argue about the distribution of wealth rather than agree about the creation of wealth. It is the objective of the firm to make more money now and in the future. At the same time it is the objective of individuals working in the firm to make more money now and in the future for themselves. Both the organization and the individual had the same objective, but they were not able to work together to achieving it. Japan offers relevant lessons to the world, which boil down to a fundamental agreement on a wealth creation process coupled with a wealth distribution formula. It is futile and counterproductive to argue about how to distribute wealth rather than how to create more wealth. A comprehensive national strategy of wealth creation and gainsharing was clearly called for.

The third constraint was that South Africans did not have a productive culture. Abundant natural resources meant that it was seldom necessary for any of the stakeholders to exert themselves through higher productivity. In some cases there was even the perception that it would be to the disadvantage of a certain group to be more productive because it would lead to more wealth for people who were perceived to have too much wealth already. Clear and committed leadership from the highest officials in the country on the process of productivity improvement was seen as necessary for breaking this constraint. The heads of state of all successful countries are involved in their quality and productivity programmes. They give moral and financial support to massive programmes to create productivity awareness.

The fourth constraint had to do with technology. Many industries found that their level of technology lagged behind that of world leaders, mainly because of market size. As a solution to this problem it was proposed that South African businesses learn how to manage short production runs and find market niches that cannot be satisfied by big producers. It was generally found that managers at all levels lacked know-how about productivity technology. Basic productivity improvement techniques, such as activity sampling, were often completely new to managers. There was also a lack of know-how amongst managers on how to identify and isolate core problems causing most of the undesirable effects in businesses. The NPI has embarked on major programmes to expose South African managers to productivity improvement technology.

The fifth constraint related to marketing. In many instances productivity improvement was seen as a process concerned with the better utilization and more efficient use of labour, capital and materials in the production environment. Few realized that productivity improvement starts at the effectiveness end: doing the right things. This means that only products and services fully addressing the needs of the customer must be produced at all times. Strategic marketing was a strange concept for many marketing managers. A huge gap existed between production and marketing in many organizations. Some were strongly production oriented, but inferior products were often sold by competitors because of better marketing strategies and slick sales management. Total quality management, which means that individuals throughout the organization should have the market in mind in whatever they do, was seen as a solution to this constraint.

The sixth and most important constraint was lack of leadership. Management must see that things are done right in the organization, and leaders must make sure that the right things are done. The right things are those that have a market, now and in the future. Leadership means that people appointed to lead the organization must understand the market and market trends, and have a long-term vision of how demand for the products and services that the organization canproduce (not what it produces at the moment), will develop. It means that globalization must be seen as an opportunity, not a threat. Many South African firms were very reluctant to take the globalization step.

8. The productivity movement in Africa

8.1 African productivity perceptions and experience

It is fair to say that in most of Africa and certainly in sub-Saharan Africa, productivity has been viewed negatively for many years. Although colonialism made a big contribution to the continent's development in that it brought educational and infrastructural development with it, the prime reason for colonization, to achieve economic gain for the homeland and its inhabitants, cannot be ignored. The prime motivation for establishing colonies was enrichment of the home economy, not the economic development and enrichment of the local population. Locals were often seen as cheap labour who should be prepared to do hard work for little personal benefit.

Local populations did not connect higher productivity with more personal wealth, because higher personal productivity merely served to enrich the employers and owners of the capital. For many, colonization meant disruption and not enrichment. Against this background the tendency of many African countries to adopt socialist and communist economic policies after independence can be understood.

It is true that the value system in many African cultures prevents the development of an entrepreneurial spirit, which is the backbone of high national productivity. It is more important for the individual to adhere to the rules and discipline of the group and the chief than to rise above the rest. This value lies at the root of the high standing of government in Africa and the almost naïve belief of many that 'the government will provide'. In most developed economies the role of government is much less pronounced than in Africa. Because of the high status of government there are many forces working towards becoming part of government, rather than taking individual risk and developing business for personal benefit.

It is common knowledge that public-sector organizations seldom perform as productively as the private sector due to lack of competition and a profit motive. Africa, with its large governments and many public-sector organizations, developed structures that are inherently less productive than a private-sector dominated economy. This had an adverse effect on the perception of productive work because public-sector organizations seldom, if ever, remunerate people better for better work performance.

Finally, many Africans were subjected to personal duress due to the view of many managers that higher productivity equates with cost cutting and, more specifically, job cutting. Very few workers, if any, would participate in a process called productivity if it invariably resulted in job loss and economic distress, if not for the individual concerned then certainly for the extended work family.

All of these factors and undoubtedly many others, such as the late development of sophisticated written languages, the availability of abundant natural resources and the climatic conditions in many countries, meant that productivity was not seen as a prerequisite for higher material welfare. On the contrary, it was and still is seen by many as a threat and an idea to be resisted.

8.2 The productivity movement in Africa

In view of the above it is not surprising that the productivity movement in Africa is slow and underdeveloped. Productivity centres were started in Nigeria and South Africa some 30 years ago, while other countries such as Ghana saw the creation and the closing down of a productivity centre. Tanzania and Botswana have productivity centres, while productivity concerns are the responsibility of government departments in Egypt and Zambia.

It is fairly common for productivity centres and activities in Africa to be locked into government structures. For reasons already described this made sense to policy makers because of the standing of governments. The advantage of this arrangement is that the governments themselves were comfortable with it, but the disadvantage is that centres locked into government are less effective because of insufficient business culture. The private sector is often reluctant to work with government-bound centres. In various instances productivity centres were converted into management training and development institutes. This was not in itself an undesirable development because management development is undoubtedly a prerequisite for higher productivity as indicated in 7.4, but it did take the focus away from productivity.

The most successful productivity movements in the world almost invariably have the support of the head of state or government. In Africa, productivity initiatives were almost always delegated to a cabinet minister and unfortunately in many cases to the Minister of Labour. History has shown that a regulatory department is less suitable than a department such as trade and industry, which has a growth culture. Funding is also problematical because departments tend to give priority to activities that form their core business, with the result that productivity plays second fiddle.

An important development in the African productivity movement was the formation of the Pan-African Productivity Association (PAPA). PAPA was formed in 1992 with the South African National Productivity Institute as the prime mover. PAPA was formed under the auspices of the World Confederation of Productivity Science (WCPS). The secretariat of PAPA is located in the NPI in South Africa.

PAPA's objectives were defined as follows in its constitution:

• To provide a forum for promoting and sharing ideas and experience on strategies, techniques and practices for productivity enhancement and accelerated economic growth and social development in Africa.
• To encourage the development of a productivity culture in African economies in order to ensure better living standards on the African continent.
• To foster cooperation and collaboration between national productivity organizations and other related bodies in and outside Africa with a view to promoting sustainable growth in productivity in the economies of Africa.
• To facilitate the establishment and development of national productivity organizations, centres or institutions in all African countries.

During the first three years of its existence PAPA did not achieve much. Only after a new executive committee and President were elected in December 1995 did some development take place. A productivity assembly was organized in collaboration with the National Productivity Institute (NPI) and World Confederation of Productivity Science (WCPS) in Johannesburg during September 1996 on the topic of Achieving world-class competitiveness: Strategies for improving productivity. Some 20 African countries were represented. In June 1997 a workshop on Work ethics and leadership in Africawas organized in Ghana. Again some 20 countries were represented. In October 1998 PAPA was joint organizer of the International Productivity Services' biennial international conference on The global challenge: Competitiveness and development through productivity in Pretoria, South Africa. Apart from these activities PAPA also published regular newsletters about productivity and productivity events.

PAPA obtained observer status at the Organisation of African Unity's Labour and Social Affairs Commission and in that capacity made various presentations to OAU representatives about productivity. These presentations were very well-received, but they had little practical effect.

PAPA clearly fulfils a useful role as a productivity body but its viability is suspect. It is an inter-organizational organization and not an inter-governmental one which, in the African context, seems to be important to obtain financial support. It is too small to justify an independent secretariat with the result that it does not always receive the priority and support it deserves.

The Southern African Development Community (SADC) organized a major conference on productivity in Windhoek, Namibia, in February 1997. This conference, attended by more than 1,000 delegates, was to be the springboard for a regional productivity initiative. It was decided that the heads of state of SADC countries would sign a declaration within a year committing themselves to productivity initiatives in their respective countries. The declaration went through a number of modifications and was eventually signed by the middle of 1999. It can be assumed that it will take a number of years after the SADC Summit agreed to the declaration for some of the countries to actually initiate productivity programmes.

8.3 Requirements for a successful productivity centre in Africa

8.3.1 General

It is commonly accepted that it is difficult, if not impossible, to make progress with productivity improvement unless there is a legitimate productivity promoting agency in the country. The productivity success of Europe and Asia resulted from the initiatives of productivity centres. There is a theory that the need for a productivity centre diminishes as the country's economy becomes more mature but the contrary has proved to be true in countries such as Germany and Japan. In view of the fact that no productivity movement of significance started spontaneously in Africa it is reasonable to believe that unless productivity centres are established, little progress will be made with productivity improvement.

Studies have shown that successful productivity centres have certain features in common. It has been argued that there are certain prerequisites for successful productivity centres, the most important being tripartism. Unless government, labour and employers are all involved and committed to the productivity centre and its ideals, it is unlikely to succeed. A productivity centre should be elevated above the politics of the day, whether they are government, industry or labour politics. Productivity is the only means by which the material and social well-being of every member of the population can be elevated to acceptable levels. For a productivity centre to be caught up in politics would make it the tool of one of the social partners; this would alienate the others, with undesirable results.

A third overall requirement for a successful productivity centre is that there should be a healthy balance between promotion, research and productivity advisory services. All three ingredients are necessary and the balance between them varies according to the maturity of the centre itself and the economy in which it operates. Dealing with one or two of these themes to the exclusion of the others is tantamount to making the centre ineffective.

The requirement for productivity awareness and knowledge about productivity, particularly in the African environment, need not be debated. It is almost a foreign concept for many and managers and workers would need to be educated in every country. A productivity centre is the logical organization to initiate education and training programmes.

Research is the second factor that a productivity centre should attend to. There are no universal solutions to the productivity dilemma. Each country has unique economic and social policies, values and environments that require unique solutions to the productivity problem. The general areas are known but the specifics must be researched and products and approaches developed to put a country on the productive road.

Productivity happens at the place of work and unless a productivity centre interacts with business by giving practical advice it could be out of touch with reality and remain a theoretical and irrelevant institution. Advisory services must be used by the productivity centre as a training ground for its staff to better understand the realities they must deal with. It is important to guard against productivity advice becoming a consultancy activity without feedback for research and development purposes.

8.3.2 Organizational aspects

It has been stated above that full commitment from the three social partners is an essential prerequisite for success. The centre's governance should reflect this fact and government, employers and labour should be represented on the board of control. It would be the task of this board to take account of the perspectives of each social partner in deciding strategies and structures for productivity improvement. It could be argued that there should be equal representation from the social partners on the board. This would be a requirement if there is likely to be a power struggle. Since productivity is a common ground where everybody can contribute to the creation of more wealth for all, power politics should be avoided at all cost. Consensus management is called for, in which case equal representation becomes unnecessary.

The (legal) organizational form of a productivity centre could vary from country to country, depending on the available options. Typical forms are a government department, a section of a government department, a state corporation, a section of a state corporation, a parastatal organization or a private company or corporation. It does not really matter which legal form is chosen provided that all the social partners are satisfied and the effective functioning of the centre is not curtailed by the chosen form. History has shown that productivity centres seldom function well within a government environment due to lack of flexibility regarding staff appointments, pay structures and excessive bureaucratic processes. It is also fairly common for employer organizations to be uncomfortable with state organizations.

A productivity centre cannot easily be a private-sector organization, because the government must support it financially, and most governments are not comfortable with giving money to the private sector.

To avoid all the pitfalls it is best to organize the productivity centre as a non-profit association. This places it on neutral ground where every social partner can be comfortable and the centre can be flexible.

8.3.3 Financing

Productivity improvement is of great national importance and the State should provide sufficient funding to make the productivity centre a viable and strong. In the long term the centre should earn income from commercial activities such as advisory services or training courses. The degree to which income can be earned will depend inter alia on the strategy adopted to improve productivity, which will be discussed later.

The State's financial contribution to the productivity centre should be independent of any department budget so that it cannot be manipulated by other government organizations that have other priorities. To ensure non-interference it would be desirable to associate it with the budget of the head of State. Since the head of State should be seen to be involved with the productivity effort, such positioning of the budget makes sense.

Experience throughout the world has shown that a productivity centre should not be too dependent on commercially derived income since this tends to move the focus away from nationally important issues. In developing economies the proportion of income earned from commercial activities should not exceed 30 to 40 per cent. Since most countries have private business consultancies, the productivity centre should ensure that it does not undercut their services using the government grant. Consulting work or training should be provided at normal commercial fees. This should also ensure high-quality services

8.4 Strategy

It goes without saying that it is vital to adopt a sound strategy for productivity improvement. The most crucial strategy of all is the basic economic policy of the State. It has been proved that socialist/communist economic policies are fundamentally less productive than private sector-based capitalist/market-oriented economies. Africa abounds with socialist and communist thinking and policies, and although it would be possible to improve productivity in such an environment, it can never be as productive as a private sector-based economy, mainly because it prevents individuals from using their own initiative to create wealth.

Any strategy for productivity improvement should be designed to ensure higher productivity in organizations, i.e. where people at work are using raw materials, capital, technology and their own abilities to produce goods and services that the market needs and demands. Strategy should be designed to break the constraints preventing organizations from being more productive. The constraints generally present themselves in the form of human resource constraints, physical constraints and policy constraints. When strategy is devised it is necessary for the social partners to analyse these three areas and find ways of overcoming the identified constraints.

As indicated throughout this study, a major human resource constraint in Africa is inadequate education and training to equip the workforce to function effectively in a competitive global environment. Upgrading a country's education system is a long and arduous task. Whilst it is necessary to do this for long-term results it is of great benefit to devise, develop and implement effective training systems to improve workers' skills in the short and medium term.

A second human resource constraint is that productivity and productive behaviour have never been necessary for survival in Africa. Policies should consequently be designed to inculcate this value at least in the workforce. Major programmes aimed at creating productivity awareness are called for. A particular skill scarcity is in the field of management. Because Africa does not play a major role in international trade, the management skills required to lead firms to international competitiveness cannot easily be developed. Some African firms are doing well internationally although they suffer from the same constraints that others use as an excuse for poor performance. The difference is merely the quality of management. African cultures strongly prefer participative management styles. This requirement is so strong that it would be fair to say that unless managers adopt a participative style, they will probably fail. Promoting good labour relations and cooperation between management and workers should be high on the priority list of any productivity centre.

Africa needs entrepreneurs and skilled managers if it is to become successful in international markets. Strategies to develop people to fulfil this role are essential. The process of developing entrepreneurs should start at school, and management development should be a primary objective in any firm or organization. It has been shown that success is possible, provided management development gets proper attention.

Many physical constraints stand in the way of higher productivity in Africa. All the sub-Saharan countries, with the exception of South Africa, do not have sufficiently developed transportation, communication or energy infrastructures to support high productivity. It might be opportune for African productivity centres to focus first on increasing the effectiveness, efficiency and utilization of infrastructure providers so as to eliminate this very crucial physical constraint. Africa is also a capital-hungry continent and many firms do not have the means of acquiring the physical they need to increase their productivity. An important means of overcoming physical constraints in individual businesses is to become more proficient in production planning and control systems, as well as in planned procedures. It often happens that very old machines can still work productively and competitively, provided they are well-maintained and their utilization is maximised through effective management systems.

Policy constraints are many and varied. Reference has already been made to overall economic policy, but at the level of the firm some policies can destroy productivity. Examples are strategic decisions regarding market segmentation, remuneration policies, equipment replacement policies and human resource development policies. Employer and labour leaders in industry must scrutinize their policies and study the effect they have on the functioning of organizations in those industries. Equally, leaders in organizations must question the way in which policies are devised and implemented, and the effect they have on the productive performance of the organization.

The above discussion emphasizes the universal truth of productivity: it is a holistic concept. Any strategy that departs from the premise that productivity is a labour, capital, management or government issue is bound to fail. Productivity should be seen as an interactive system and the system as a whole must function well. Unless productivity is seen in this way it will be difficult to improve it. This does not mean that specific productivity issues must not be identified and dealt with. On the contrary, unless the problem is broken down into manageable chunks, progress will not be made. The key is to identify the core constraints and to tackle them first. Otherwise there will be a tendency to deal with the effects of problems, not with the problems themselves.

8.5 Core principles

As this study has shown, Africa is plagued by low economic growth and high unemployment. Economic development has been so slow that living standards have continuously declined in most countries. Productivity improvement seems to be the only way out of this poverty trap, and yet it would be surprising if the average African embraced productivity enthusiastically as the solution. Common logic would say that productivity improvement means that fewer people will have to do more work, which will aggravate rather than solve the poverty problem. For this reason it will be necessary to agree to a number of guiding principles that must underpin the productivity initiative. These principles are not negotiable, and must be respected at all times.

The first principle is that workers should be given a guarantee that people will not lose their job because they are more productive. Workers will not participate in a productivity drive if it could mean unemployment. Therefore, guarantees must be given that although employees could lose their job for other reasons, productivity improvement would never be the reason.

This principle automatically leads to the next one, namely that the fundamental productivity improvement philosophy should be to produce more with the same or with slightly more resources, rather than to produce the same with less resources. Physical productivity can be improved in one of five ways, as follows:

Higher physical productivity () can then be obtained, in the following five ways:

In the above, scenario 1 means that the same is produced with less input; scenario 2 that more is produced with less input and scenario 3 that less is produced with relatively bigger savings in resources. In scenario 4 more is produced with the same resources and in 5 a lot more is produced with slightly more resources. Throughput thinking says that scenarios 1, 2 and 3 are not acceptable, and 4 and particularly 5 are acceptable. This does not mean that cost discipline can be ignored; it does mean that a growth mentality must take precedence over a right-sizing mentality. It means that the statement 'you can never shrink yourself to greatness' must be the driving value of the organization. With the limited market scope in most African countries, throughput thinking translates into exports, which is exactly what Africa needs to grow!

The third principle is that since productivity improvement means that more wealth is created, the additional wealth must be distributed to stakeholders in a previously agreed manner. The beneficiaries of increased wealth should be the customers, the providers of capital and the employees. It would make little sense for employees to improve productivity, if the only beneficiary is the provider of capital, who collects more profits. Productivity improvement means more wealth for all, and the wealth distribution decision must be taken at the level of the firm, according to a formula devised by management and labour. It could be agreed that all the benefits flowing from productivity improvement should initially be passed on to the customer to ensure market share, but the moment should soon arrive when the other stakeholder groups also receive a part of the created wealth.

The three principles outlined above are not new. They formed the cornerstone of the Japanese productivity movement when it started in the 1950s, and Japanese organizations still adhere to them. Africa can use these principles to great advantage.

8.6 Conclusion

Africa lags behind the rest of the world as far as productivity promotion is concerned, yet it needs higher productivity more than any other region at present. Efforts to establish productivity centres take an extremely long time and it takes years to make very little progress. Hopefully the SADC initiative will serve as a role model for the rest of Africa.

It is clear that productivity initiatives will not develop spontaneously. Governments will have to take the lead, involve the other social partners and establish and finance productivity centres. The activities of these centres should be designed to overcome the core constraints hampering productivity improvement. Since productivity is a holistic concept and the constraints could be in any of the traditional organization functions, the centres should be multidisciplinary in nature. They should remain sufficiently distant from the State to ensure flexibility, but they should receive enough government funding to deal with important national issues. All productivity efforts should be underpinned by a set of basic principles guaranteeing that the benefits of more productive efforts will be to the advantage of everybody.

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