In this episode, Andrew Dabalen, Chief Economist for the World Bank Africa Region, is back on People First Podcast to answer the big question left hanging from his previous appearance: what kind of policies can actually drive job creation across the continent?

The focus this time turns to industrial policy, the strategies, tools, and trade-offs that African governments are using to transform their economies and create jobs at scale. From tariffs to special economic zones, from natural resources to the promise of the African Continental Free Trade Area, the discussion gets into what works, what doesn't, and why discipline matters as much as ambition.

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Sequences

00:00 Introduction

00:34 Global revival of industrial policy

02:42 Go-to tools and invisible ingredients

05:50 Conditions to leverage Africa's natural resources

07:08 Governments and the African Continental Free Trade Area

09:26 Building an ecosystem for productivity and jobs

11:12 Conclusion

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The World Bank Group is one of the world's largest sources of funding and knowledge for low-income countries. Its five institutions share a commitment to reducing poverty, increasing shared prosperity, and promoting sustainable development.

Today, we’re diving into the latest Africa Economic Update. Joining me again is Andrew Dabalen, Chief Economist for the World Bank Africa Region.

Last time, we talked about jobs. This time it’s all about industrial policy. What’s changing, what’s working, and what needs to catch up.

Andrew, good to have you back!

Andrew Dabalen: Thank you for having me again.

The world is seeing a revival of industrial policy-from Washington to Abuja. What’s behind this global comeback, and how is Africa part of that story?

Andrew Dabalen: So, industrial policy hasn't really gone away. It's just that it has become more accelerated. I think the motivation for rich and poor countries is different. For rich countries, the motivation is this geopolitical competition, the supply chain crisis that you see whenever there is a war or conflict in some part of the world. And so, there is a need to build domestic resilience. For emerging economies or Africa, the motivation is really about jobs, which is what you started with. It's how you use industrial policy to transform your economy in such a way that you can create jobs at scale.

Rama George: How is today’s wave of African industrial strategies different from the ones we saw in the 80s or 90s?

Andrew Dabalen: In the '80s, a lot of the industrial policy tools were mostly geared towards import substitution. So, you impose a tax on imports, raise the price, protect what they call “infant industries,” and hope that in fact they will mature, become more competitive globally, and therefore, create a lot of jobs and expand.

I think that that pretty much failed because these firms never really learned, and instead they used those kinds of protections permanently, right, as a way to just continue to, be monopolies become the “favored companies” something like that. Now, the story has changed.

First of all, we've learned a lot from around the world [from] countries that have experimented with industrial policies and have actually succeeded. We’ve learned what it takes to actually succeed.

Secondly, the orientation is no longer internal markets, but external markets, and there is some discipline that comes from that, right? You cannot be high cost, you cannot be very uncompetitive and survive in the external market. So, the external market is a form of a disciplining process. You have to become nimble. You have to become more productive. You have to become more competitive, more efficient and so on…

Andrew Dabalen: African countries rely on tariffs, export bans, not because that's their first choice, but it is because it's what is possible, right? So, the first choice instrument for industrial policy will be to support production. That will be the best. Why? Because when you support production, a firm basically learns what works, what doesn't, what kinds of new ideas actually are possible, which new products are possible, and so on.

But subsidies require fiscal space. You need to have deep pockets as a government or at least have substantial sources of taxes and revenues. A lot of countries in Africa don't have that. They have high levels of debt. They're very small. They don't have large markets for big firms to enter and learn and support that. So, the reason why African countries resort to what we call trade taxes, such as imports, export taxes, maybe even export bans, is because they're very small, they have low fiscal space, and they don't have a lot of the ecosystem in order to be able to actually support competitive firms.

Rama George: Let’s talk about those “invisible ingredients”-electricity, roads, skills, finance. How does that supporting environment make or break industrial progress?

Andrew Dabalen: Absolutely important! Let me give you an example. So, imagine that you decided as a country that you're going to build an industrial park. That's your industrial policy tool, right? So, you are able to provide a lot of these things. You can provide power maybe because you have a generator that you can use for that prescribed space, logistics for the firm. You can do the registration very quickly. You can process their export licenses easily, and so on. You can even bring available credit. So, in some sense, you're creating conditions for these firms to succeed.

But imagine that these firms start expanding and they need suppliers, and those suppliers need to come from the domestic market. Right? They're outside of this industrial park, and they don't have electricity that's reliable or cheap. They don't have workers who have the skills. They cannot get financing from the banks. The road that they will need to get to the industrial park to supply is broken and potholed. And then they don't have any mechanism for standards that certify that in fact this input meets the standards that are needed for export.

So, if you look at that, then it's possible that it will completely break down. The industrial park will not be able to get reliable suppliers. And if they can't get reliable suppliers, the benefits that can come from industrial park then gets diminished. That's why this ecosystem is so, so important.

Andrew Dabalen: The big lesson is just because you have a resource doesn't mean that you will actually succeed in becoming an industrial power in that resource. And the reason that that is the case is because to be able to succeed you have to have market power, global market power. Imagine what a competitor will do. They'll just go to the next country that have that resource and either, get their resource from that country or locate there. Very few countries have that kind of market power. If you are DRC, and you have cobalt that supplies sixty to seventy percent of the world cobalt supply, you have market power, so you can leverage that.

The second thing that is necessary and very important is, you must have domestically the ecosystem to allow you to produce at cost. If you're going to leverage this natural resource, try and process it domestically, but then produce it at a cost, that is higher than the global cost, you're not going to be competitive, there will be less demand for that product, and you will not succeed. So those two things are very, very important in order to be able to leverage the natural resource.

Andrew Dabalen: [chuckles] …You know, that is the most difficult thing to do in industrial policy. The easiest thing to do is to just immediately go and pick an instrument. "Oh, I'm going to use export ban," or, "I'm going to use an import tariff," or "I'm going to build an industrial park." Those are the easiest things to lean on. But the most difficult thing to make industrial policy work is actually to put in place systems to learn. Okay? To learn that in fact what these firms are doing is exactly what you wanted. So, you can say "Wait if you don't meet these benchmarks," whether that is defined in terms of export performance or particular innovations, then “We withdraw the support."

Secondly, you can say, "You know what? We're going to support this industry or this sector for the next five, 10 years, and after that, if it doesn't really achieve the goals that we aim for, we will withdraw the support."

So, unless you put in place those kinds of tools for disciplining, monitoring, and learning about the performance of these firms, it's very possible that what started off as an industrial policy tool becomes basically an industrial policy rent. Rent meaning just money that companies collect, but they don’t create jobs or do innovations.

Rama George: Small markets can limit progress. How can the African Continental Free Trade Area change that equation?

Andrew Dabalen: The continental free trade area or market integration in general is foundational to the success of industrial policy. Now, if you recall what I mentioned at the beginning about the kinds of things that actually make African countries choose certain instruments rather than others, market size was one of them, right? It's really, really important, in addition to fiscal space, to ecosystems, to industrial base. So, what the continental free trade will enable these countries to do is to actually have a bigger a set of tools for industrial policy. I think market access, market size is what regional integration will allow these countries to do, and also amplify the tools that they can use, but also enables other tools.

Andrew Dabalen: [laughs] How do I spend a billion dollars? Um, w- I'll tell you what I will not do. I will not invest in one single thing. I will not invest it in one company or in one product or one sector. I would not do that. Instead, I will have maybe fifty percent of it on building the ecosystem that will improve productivity across the economy, such as energy, roads, standards. I will put another quarter into skills for the industrial parks or the industrial farms that are needed. And another quarter as a matching fund for high growth farms that are going to create innovation and growth.

Rama George: Bring this down to the household level-how could better industrial policy show up in someone’s daily life?

Andrew Dabalen: Jobs. That's what it means. If your industrial policy is successful, what that means is that these companies are actually more productive, that they're expanding, and as they expand, they're going to demand more of everything: more land, more energy, more people, in order to be able to take market share. And as that happens, you'll get more jobs and high-quality jobs. So, for people, for households, a successful industrial policy is effectively a jobs agenda.

To our audience, you can dive deeper in the latest edition of Africa’s Economic Update on our website. We’ll link to it in the transcription of this episode.

I'm Rama George, and you've been listening to People First, the podcast featuring not only the voices but also the programs and initiatives supported by the World Bank Group in Western and Central Africa. We hope you enjoyed listening.

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