African%20Industries:%20Primary%20processing

1
African Industries Primary processing

• African Economic Development
• Renata Serra Feb. 22nd 2007

2
What are the main obstacles to African
industrialization?

• Colonial legacy
• Comparative advantage in non-dynamic commodity
  sectors
• Geographical disadvantages
• Lack of big regional investor! Will South Africa
  play this role?
• Policy risks policy reversal and instability
• Unstable and not well defined property rights and
  inefficient institutions
• Poor infrastructures and high transaction costs
• This makes markets work ineffectively
• Lack of capital can FDI help?
• Small domestic market
• Can this limitation be overcome by exporting?
  What are the difficulties?

3
What is primary processing?

• Processing primary commodities
• Canned or frozen fruits and vegetables
• Frozen fish and shellfish
• Shelled and packed (and flavored) nuts
• Wood pulp, or laminate
• Cotton fiber
• Cocoa powder and chocolate
• Etc. etc.

4
What are the advantages from primary processing
industry?

• Further specialization
• Building on production for domestic markets
• Possibility of capturing higher value added
• Higher employment
• Increase in export earnings
• Processed commodities face rising non declining
  demand
• Greater stability in export earnings
• Scopes for domestic sector linkages

5
Trends

• SSA countries increased primary processing during
  the 1960s and 1970s but this trend reversed
  during the 1980s
• Some countries have made a come-back since the
  mid-1990s
• Kenya (canned fruits and vegetables)
• Senegal (frozen shrimps)
• Seychelles (prepared fish)

6
What are the disadvantages of primary processing
industry?

• Barriers to entry into OECD markets
• Increasing with processing stage
• Applicable now after preference erosion
• Market dominance by large and vertically
  integrated firms (often MNCs)
• Sophisticated consumer needs
• Need for high-quality, and speedily-delivered
  products

7
Lessons from Mozambiques cashew nut processing
industry case

• Limits of reducing debates to one policy issue
  e.g. export tariff on raw cashew
• Farmers may not respond to farm-gate price
  increases
• Right sequencing of policies essential
• Failure to take into account international market
  constraints e.g. Indias demand
• OECD competition may not matter for failure
• Internal structural constraints are huge
• If the international market is not competitive,
  then skilful state intervention is necessary