Valuable Linkages: Manufacturing systems development and policies for Africa Antonio Andreoni Lecturer in Economics and Coordinator of the SOAS-IDP Interdepartmental research cluster
Outline 1. Industrialisation challenges for Africa Different: country and manufacturing industry specific Common: global market factors and local weaknesses 2. Manufacturing system development in Africa Main features Tanzania case example 3. What manufacturing system policies? Micro system interventions: PTIs and technology infrastructure development Macro system interventions: Policy measures alignment, governance coordination and synchronisation
INDUSTRIALISATION CHALLENGES FOR AFRICA
Different industrialisation challenges Countries face specific industrialisation challenges given Their different comparative advantage Their different industrialisation pathways Their different institutional settings Their different political settlements Etc. but also given the way in which these country specific factors interact with different types of manufacturing industries
Different industrialisation challenges Structural heterogeneity (Andreoni and Chang 2015) High degree of structural heterogeneity in the industrial sector (among manufacturing industries): Different industrial capabilities and infrastructure requirements, dependence on industrial raw materials and natural resources Shop floor process configuration and scope for modularisation (VCs typologies, buyer-driven, supplier-driven, additive, etc.) Scale economies, cost structures and scope for automation and C/L ratios etc. Technology and product life cycles Manufacturing value scope and opportunities, scope for productivity improvement and technological innovation Elasticity of demand, type and extent of the market
Common industrialisation challenges (Global market factors.1) MVA growth rates in EIEs and LDCs outperforming IEs
Common industrialisation challenges (Global market factors.2) But MVA world shares have remained highly concentrated over the last two decades: Top 5 Mfg countries produce almost 60% of World MVA Top 20 Mfg countries produce around 80% of World MVA (SA 0.532)
Common industrialisation challenges (Global market factors.3) Crowding out by commodification of low tech mfg components and products (reduced margins depressed by economies of scale and short technology life cycles) e.g. electronics (Regional) value chains integration characterised by: FDI inflows, but cathedrals in the desert model Limited domestic content/value addition Limited linkages development (resulting from both the WTO trade regimes > reduced policy space and the low quality standards of local manufacturers)
Common industrialisation challenges (Local weaknesses.1) Lack of productive capabilities in mfg firms: Functional areas 1.Investment 2.Product design 3.Process organisation 4.Production process 5.Linkage and cooperation Productive Activities: Technical change activities: Feasibility studies Negotiations and bargaining suitable terms Equipment and machinery procurement Recruitment of skilled personnel Search for technology sources Equipment design and adaptation Engineering training Joint ventures Replication of fixed specifications and designs Standard design for manufacturing Development of prototypes Adaptations to product technology driven by market needs and request Improvements of product standards and quality Development of complementary products (e.g. embedded software) or components R&D into new product generation R&D (basic) into new materials and new specifications Production planning and control International certification (ISO 9000) Automation of processes Adoption modern organisational techniques (e.g. just in time and total quality control) Flexible and multiskilled production Architectural services Selection of technology and organisational formats Minor changes to process technology to adapt it to the local conditions Improvement and development of new organisational techniques Improvement to layout Work flow scheduling and monitoring Manufacture of components Sub-assembly and assembly of components and final goods Stretching, control and maintenance of machinery and equipment Inventory control Productivity and quality control Efficiency improvement in tasks execution Improvement and cost savings in machinery and equipment Inverse engineering and development of machinery Exchange with Suppliers Horizontal cooperation across firms Distribution and Marketing After sale services Technological transfer and S&T linkages development Coordinated R&D and joint ventures Licensing own technologies to others Productive capabilities are personal and collective skills, productive knowledge and experience needed for firms to perform different production tasks as well as to adapt and undertake in-house improvements across different technological and organisational functions Process oriented R&D (basic) for radical innovation Mahmood, Andreoni and Chang, 2016
Common industrialisation challenges (Local weaknesses.2) limiting: Manufacturing processes upgrading: productivity increases and reliability by organisational capabilities development, routinised practices, conformity assessment Manufacturing products upgrading: higher valueadded products and quality standards (for both export and domestic markets) But the most fundamental challenge constraining value creation and capture is not simply an individual firm level problem
MANUFACTURING SYSTEM DEVELOPMENT IN AFRICA
Common industrialisation challenges Missing manufacturing systems as the main cause for limited value creation/capture (I) Manufacturing firms: Foreign owned companies operating as cathedrals in the desert Domestic large scale companies are limited, tend to rely on imported intermediate components/industrial raw materials (low value addition) and when are able to orchestrate domestic production networks tend to extract local value chain rents (e.g. in distribution in the food industry) First tier mfg suppliers are limited (the missing middle companies) Small enterprises are unfit, unreliable and tech backward (limited compatibility) Valuable Linkages between Mfg firms: Value addition relationships backward and forward linking manufacturing firms are very limited and declining over time
Tanzania case: Backward linkages 45,0% 40,0% 35,0% 30,0% 25,0% 20,0% 15,0% 10,0% 1997 2001 2004 2007 2011 5,0% 0,0%
Tanzania case: Forward linkages 45,0% 40,0% 35,0% 30,0% 25,0% 20,0% 15,0% 10,0% 1997 2001 2004 2007 2011 5,0% 0,0%
Tanzania case: Value heat map Clothing is the only manufacturing industry showing increasing value addition within the Tanzanian manufacturing system 2004-2011 DEMAND SUPPLY g_primaryagr g_otherprim g_energy g_procfoods g_bevtobaccog_textiles g_clothing g_leather g_lumber g_paperpub g_chemicals g_nonmetming_metals g_fabmetals g_transpequipg_machinery g_othermanug_water g_constructiog_distributiong_transport g_communcag_finance g_insurance g_obsict g_oconsumerg_oservices primaryagr otherprim energy procfoods 0 0 0 0 bevtobacco 0 textiles clothing 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 leather 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 1 1 0 0 lumber 0 0 0 paperpub chemicals 0 0 0 nonmetmin 0 0 0 0 0 0 0 1 1 0 metals 0 0 0 1 1 fabmetals 0 0 0 transpequip 0 0 0 machinery 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 othermanuf water construction 0 0 distribution transport communcatio finance insurance obsict oconsumer oservices 0 0 0 0
Common industrialisation challenges Missing manufacturing systems as the main cause for limited value creation/capture (II) PUBLIC ACTORS: Public technology intermediaries (PTIs): industrial research and manufacturing centres, technology transfer offices, production extension services, bureau of standards and related labs/facilities, investment promotion centres, incubators etc. De-valued Linkages between Mfg firms and PTIs: Lack of public funding and integrated technology offering schemes (mixed public-private financing services) Outdated facilities and equipment, lack of personnel Lack of visibility and knowledge about their technology offering and production services
MANUFACTURING SYSTEM POLICIES
Manufacturing system policies 1. Micro system intervention PTIs and technology infrastructure development 2. Macro system intervention within an industrial policy package framework (Andreoni 2015) Policy measures alignment Policy governance coordination Policy synchronisation
1. Micro system intervention: PTIs and technology infrastructure development Providing quasi public good infratechnologies and related infrastructure services including measurement methods (metrology), testing facilities (conformity assessment), specifications and quality control techniques (standards), evaluated scientific and engineering data and technical dimensions of product interfaces Providing translation research : translate new findings and discoveries from fundamental research into engines of innovation and, thus, new industrial products, processes and services and their scale up/manufacturability. Bridging and transferring knowledge across different sectors and, thus, facilitating various forms of inter-sectoral learning (Andreoni 2014)
1. Micro system intervention: towards valuable linkages development Linking-up GVCs Harmonization with international standards Standardisation for new regional VCs Accreditation of suppliers Quality certification Creating and capturing value in domestic mfg systems Interchangeability Inverse engineering and re-engineering Product functions characterisation Scaling-up of improved technologies and processes
Tanzania case: SIDO (Small Industries Development Organisation) In 2012, a total of 174 new technologies were discovered for the purpose of increasing production. Further, SIDO manufactured 604 new machines of various types and 2,472 spares including crushing machines for cashewnuts and groundnuts, milling machines for maize and rice, and grinding machine for processing sun flower oil ( ) a total of 1,764 entrepreneurs were provided with trainings on how to process cereals and fruits. Further, 143 courses were offered whereby 2,054 entrepreneurs were given training on processing sun flower oil, manufacturing soap, candles, chalks, modern mizinga and how to process honey. In addition, 63 more entrepreneurs were offered with techniques on how to process hides products. A total of 8,880 entrepreneurs were given training skills on how to improve production activities through 368 courses that were offered. Further, the Government through SIDO continued to provide entrepreneurship services whereby 10,964 entrepreneurs were offered with various trainings and total of 16,138 entrepreneurs were given consultancy and extension services. Moreover, 1,518 entrepreneurs were enabled to participate in trade fairs by issued with 4,387 loans worth 4.18 billions from National Entrepreneurs Development Fund.
2. Macro system intervention Manufacturing system-level policies Industrial policy as a package of interactive measures (Stiglitz, 1996) in East Asia, free trade, export promotion (which is, of course, not free trade), and infant industry protection were organically integrated, both in crosssection terms (so there always will be some industries subject to each category of policy, sometimes more than one at the same time) and over time (so, the same industry may be subject to more than one of the three over time). (Chang, 2009)
Policy package framework Policy measures targeting different production factors Policy models & Levels of policy action Andreoni 2013 & 2015
Andreoni 2015 2. Macro system intervention Towards more coordination, alignment and synchronisation
Example: Varieties of industrial policy packages Andreoni 2015
Varieties of industrial policy packages
Concluding remarks Manufacturing industries are structurally heterogeneous > different industrialisation challenges (also in relation to country specificities) Value creation and capture is the result of a social construction of competitive assets Valuable linkages can be fostered by Micro interventions (PTIs and tech infrastructure) Macro interventions (Managing policy packages)