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: Economi