Industrialization Strategy in Developing Countries An approach from

Industrialization Strategy in Developing Countries - An approach from JICA November 13, New York Go Shimada, Director Research Program Division, JICA Research Institute 1 ©　Shinichi Kuno and Kenshiro Imamura

PURPOSE OF THE STUDY n Aims of the study 1. 2. 3. 4. n Accelerate Industrial development in Africa Mainstream this as an international agenda International setting of TICADV (Japan, UN (UN secretariat and UNDP), WB, and AU) Publish discussion papers and hold a side event at TICAD V Aim of today’s presentation n Introduce JICA’s approach and lessons from industrial cooperation in Ethiopia 2

POSSIBILITIES AND CHALLENGES OF ECONOMIC TRANSFORMATION OF AFRICA (1) n Bright forecast n n EIU (2012) forecasted that average growth of the regional economy in 2013 -16 will be around 5% year Challenges n n n Decreasing demand for region’s exports, and falling financial flow (FDI, aid and remittances) Doing business is still not good for private sector Youth unemployment (60% of unemployment is young people) 3

3. 5 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 % of GDP AFRICA HAS DEINDUSTRIALIZED Manufacturing as Percentage of GDP Sub-Saharan Africa 17. 5 15. 5 13. 5 11. 5 9. 5 7. 5 5. 5 (John Page 2012)

AFRICA HAS DEINDUSTRIALIZED EXITING HIGH SOPHISTICATION INDUSTRIES (John Page 2012)

POSSIBILITIES AND CHALLENGES OF ECONOMIC TRANSFORMATION OF AFRICA (2) n deindustrialization since the mid ‘ 80 s ü ü ü n A declining share of output and employment Declining sophistication Anemic manufactured export growth Key n n n Transform economic structure from rural agricultural based economies to more diversified economies (creating job opportunities) Industrialization is the main driver of the change Harness human capital, filling the knowledge gap 6

DEBATE ON ECONOMIC TRANＳFORMATION (1) n n n OECF (current JICA, 1993 a) argued in favor of infant industry protection and of credit subsidies for selected industries that are believed to have export potential, in opposition to bank’s approach WB (1993). East Asian Miracle, which endorsed industrial policy but only for export promotion, not on import protection and credit market intervention, OECF (1993 b) disagreed with its view. But, mainstream policy has not changed and industrial policy was sidelined 7

DEBATE ON ECONOMIC TRANSFORMATION (2) n n n n Emerging economies development “Return of industrial policy” (Rodrick 2007, Lin and Chang 2009, Cimoli, Dosi and Stigtitz 2009, The Economist 2010, Hausmann, Rodrick, Velasco 2010) DCED (Donor Committee for Enterprise Development) (2010) GDI (German Development Institute) (2008) Human Development Report (2012) KDI (Korean Development Institute) (2012) JICA 8

ECONOMIC TRANSFORMATION IN AFRICAN CONTEXT AND THE INITIATIVES AT TICAD IV n n 2008 African Union Summit “The industrialization of Africa” AU (2008) adopted AIDA (Action for the Accelerated Industrial Development of Africa) “no country of region in the world has achieved prosperity and a decent socioeconomic life for its citizens without the development of a robust industrial sector (p 1)” ACET established 2008 Economic Report of Africa (2010) 9

AFRICA AND ASIA n GNI/capita in 1970 n n n Zambia $432 Malaysia $392 GNI/capita in 2011 n n Zambia $1, 452 Malaysia $9, 656 10

LESSONS FROM THE ASIAN GROWTH EXPERIENCE 11 n n n “Industrialization Strategy” as a process – NOT a piece of document A trial and error process: be aware, some may end up in flops, but it has be embraced as part of the game Support measures adopted in accordance with institutional capacity – one may as well begin with neutral – cross sectorial – measures

DIVERSIFIED PATHS OF DEVELOPMENT IN ASIA 12 n A self-owned process of strategic responses to the changing environment and challenges/opportunities n n n Diversity across countries ü Domestic Capital-Dependent vs. Foreign Capital. Dependent ü Natural Resource-Rich vs. Natural Resource-Poor ü Interventionism vs. Liberalism Diversity over Time ü IS → EO → (IS ⇔ EO) → Globalization Diversity in growth-leading Industries ü Heavy industry, consumer electronics, textiles, agroprocessing, human resources, ICT …

Transition of Development Strategies in Asia 13

INDUSTRIAL POLICY SUPPORT TO ETHIOPIA 14 TICAD IV (May 2008) G 8 Hokkaido Toyako Summit (Jul. 2008) The Initiative for Policy Dialogue (IPD) ：African Taskforce Meeting in Addis Ababa (Jul. 2008) Symposium : Economic Development in Africa and the Asian Growth Experience (May 2008) Follow up Japan’s enhanced support to Africa

INDUSTRIAL DEVELOPMENT SUPPORT FRAMEWORK IN ETHIOPIA 15 Request from Prime Minister Meles （July, 2008） Support to formulate development policy Exchange of views on industrial development strategy, and recommendations by the Japanese side based on Asian development experience. Support to nurture private companies Technical cooperation of JICA for enhancing competitiveness of private companies on the basis of JICA’s experience in Tunisia. The project of policy dialogue on industrial development The project on quality and productivity improvement (KAIZEN)

FINDINGS FROM POLICY DIALOGUE n n Mutual dialogue based approach ⇔ HRV “Growth diagnosis” Industrial Policy Dialogue = 5 Year Development Plan (Macro) + Sectorial Policy + SME Development Policy + Learning (L 2 C: Learning to compete) n n n Leaning = Management + Skill Selective learning from neighbors Key = PPP + Practical Planning + Intergovernment coordination 16

(Source: Otsuka and Sonobe 2011) 17

Company Remarkable results Average quantitative benefit is 500, 000 ETB (29, 200 USD) per company. Given that the average number of employee is 402 per Overall company, average benefit per head is 1, 240 ETB (73 USD), which compares to prevailing gross monthly wage (75 USD). Recovered 118, 995 ETB (6, 960 USD) as additional value. Per. Company A (Metal) head value is 1, 000 ETB (58 USD). Company B (Metal) Reduced lead time from 2 weeks to 1 week. Halved time wasted by 780 min. /month for a certain process and Company C (Textile) 624 min for another process Reduced overproduction waste by 50% Company D (Chemical) Increased motion and movement by 100% Additional production at 12, 000 lit. /day, which accounted for Company E (Agro) 204, 000 ETB (11, 900 USD) Regained reusable material which is worth 2, 400, 000 ETB Company F (Metal) (140, 000 USD), which compares to its capital 770, 000 ETB (45, 000 USD). Per-head regain is 58, 500 ETB (3, 420 USD). Identified, repaired and reused machinery and equipment which is worth 3, 250, 000 ETB (190, 000 USD), which compares to its Company G (Agro) capital 20, 000 ETB (1, 170, 000 USD). Per-head benefit is 9, 420 ETB (550 USD). 18

Pictorial Presentation of some of the achievements obtained in the pilot companies Fig. 1 Sort, Set-in-order & Shine (3 S) are implemented to standardize the inventory stock Fig. 2 In-process stock is repositioned to avoid Muda of transportation Before After

SPREADING OUT THE KAIZEN MOVEMENT FROM ETHIOPIA TO OTHER AFRICAN COUNTRIES

Thank you! 21