Industrialization Strategy in Developing Countries

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Industrialization Strategy in Developing Countries
- An approach from JICA
November 13, New York
Go Shimada, Director
Research Program Division,
JICA Research Institute
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© Shinichi Kuno and Kenshiro Imamura
PURPOSE OF THE STUDY

Aims of the study
1.
2.
3.
4.

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

Introduce JICA’s approach and lessons from
industrial cooperation in Ethiopia
2
POSSIBILITIES AND CHALLENGES OF ECONOMIC
TRANSFORMATION OF AFRICA (1)

Bright forecast


EIU (2012) forecasted that average growth of the
regional economy in 2013-16 will be around 5%
year
Challenges



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)
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1965
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
3.5
(John Page 2012)
AFRICA HAS DEINDUSTRIALIZED
EXITING HIGH SOPHISTICATION INDUSTRIES
(John Page 2012)
POSSIBILITIES AND CHALLENGES OF ECONOMIC
TRANSFORMATION OF AFRICA (2)

deindustrialization since the mid ‘80s




A declining share of output and employment
Declining sophistication
Anemic manufactured export growth
Key



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
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DEBATE ON ECONOMIC TRANSFORMATION (1)



OECF (current JICA, 1993a) 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 (1993b) disagreed with its
view.
But, mainstream policy has not changed and
industrial policy was sidelined
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DEBATE ON ECONOMIC TRANSFORMATION (2)







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
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ECONOMIC TRANSFORMATION IN AFRICAN
CONTEXT AND THE INITIATIVES AT TICAD IV




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 (p1)”
ACET established 2008
Economic Report of Africa (2010)
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AFRICA AND ASIA

GNI/capita in 1970



Zambia $432
Malaysia $392
GNI/capita in 2011


Zambia $1,452
Malaysia $9,656
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LESSONS FROM THE ASIAN GROWTH
EXPERIENCE
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


“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
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 A self-owned process of strategic responses to the
changing environment and challenges/opportunities



Diversity across countries
 Domestic Capital-Dependent vs. Foreign CapitalDependent
 Natural Resource-Rich vs. Natural Resource-Poor
 Interventionism vs. Liberalism
Diversity over Time
 IS → EO → (IS ⇔ EO) → Globalization
Diversity in growth-leading Industries
 Heavy industry, consumer electronics, textiles, agroprocessing, human resources, ICT …
Transition of Development Strategies in Asia
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INDUSTRIAL POLICY SUPPORT TO ETHIOPIA
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TICAD IV
(May 2008)
G8 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
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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


Mutual dialogue based approach
⇔ HRV “Growth diagnosis”
Industrial Policy Dialogue
= 5 Year Development Plan (Macro)
+ Sectorial Policy
+ SME Development Policy
+ Learning (L2C: Learning to compete)



Leaning = Management + Skill
Selective learning from neighbors
Key = PPP + Practical Planning + Intergovernment coordination
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(Source: Otsuka and Sonobe 2011)
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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. PerCompany A (Metal)
head value is 1,000 ETB (58 USD).
Company B (Metal)
Reduced lead time from 2weeks 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 20,000,000 ETB (1,170,000 USD). Per-head benefit is
9,420 ETB (550 USD).
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Pictorial Presentation of some of the
achievements obtained in the pilot companies
Fig.1 Sort, Set-in-order & Shine (3S) 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!
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