In a politically appealing policy plea, Zimbabwe’s President Robert Mugabe recently called on Southern African countries to enhance efforts to add value to their raw material for exports.
He said that while the region “is potentially one of the richest regions in the world, most of its agricultural and natural resources are exported unprocessed, which earns the region 10 percent of their actual value. Through beneficiation we will be able to increase our returns ten-fold”.
African leaders are right to stress industrial development. But they are misguided in thinking that adding value to natural resources, or beneficiation as it is called, should be the entry point for industrial development.
My colleague Ricardo Hausmann at Harvard Kennedy School has argued that ideas about beneficiation are “worse than wrong: they are castrating, because they interpret the world in a way that emphasises secondary issues – say, the availability of raw materials – and blinds societies to the more promising opportunities that may lie elsewhere”.
The focus on beneficiation is increasing foreign exchange earnings with industrialisation as a byproduct. As Mugabe put it to his Southern African counterparts, the “process should assist us in our efforts to industrialise and in turn, increase employment opportunities for our people”.
Building technological capabilities
There is little historical evidence to support the view that countries industrialised by adding value to natural resources. African countries continue to stress this line of thought partly because they have intuitively accepted that their place in the world is defined by their abundant natural resources.
Let us look at a few examples of countries that have taken different paths. Taiwan’s leading exports in the late 1950s were mushrooms and shrimps. But within a couple of decades Taiwan emerged as a world leader in semiconductors. It did not do this by adding value to mushrooms or shrimps.
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South Korea’s first exports after its split with the north were wigs and false teeth. After a few decades, the country became an industrial powerhouse. It did not do this by adding more value to rice.
In Africa, Kenya became the origin of the money transfer industry that has since gone global. The country did not achieve this by adding value to coffee, tea, or cut flowers. Kenya’s example echoes to some degree the historical case of Finland, whose rise as a leader in mobile technology was not a result of the beneficiation of its traditional timber industry.
These examples underscore the fact that industrialisation and economic diversification result from the acquisition of technological capabilities that can be easily combined to create an increasingly diverse set of products. Some technological capabilities generate more combinations that others. Chemical or semiconductor industries are an example of such platform or generic technologies.
As Hausmann so aptly explains, industrial development is like a game of scrabble. Countries with more technological capabilities are better capable of generating more words. Some letters may have higher values, but they do not combine easily to form words. Industrial development and economic diversification is essentially a result of new combinations of different capabilities.
Raw materials, for example, fall in the category of letters that do not lend themselves easily to the creation of new products except for those who already have a wider portfolio of technological capabilities. African countries need to focus on building technological capabilities that have wide industrial application, and not limit themselves to the narrow tasks of adding value to natural resources.
The focus on building technological capabilities is not an argument against adding value. It is a case against inverted reasoning. Industrial development should be the priority; adding value to natural resources should be a byproduct. There are major policy implications for such a radical shift in the strategic outlook of the continent.
A new industrial development vision requires African countries to focus on searching for existing and emerging technologies that have wider industrial application.
Emerging technological opportunities
Information and telecommunications technologies serve as essential motherboards for other industrial activities. Unfortunately, most African countries view these technologies as products and services, not as platforms for industrial development.
There are many other emerging platform technologies of relevance to Africa. For example, the rise of 3D printing could do for Africa what semiconductors did for Taiwan in the 1960s. The expiring of critical 3D printing patents has resulted in explosive growth in the sector, estimated at 23 percent per year.
Another emerging platform technology of relevance to Africa is genetic engineering. So far the role of this technology has been discussed in the narrow context of genetically modified (GM) foods. The intensity of the controversies surrounding the issue, however, has blinded African countries to the benefits of acquiring and applying the same techniques in fields such as the development of vaccines and drugs against emerging infectious diseases.
A poignant example is that the drug for Ebola – ZMapp from Mapp Biopharmaceutical, which has been at the centre of ethical controversy regarding experimental use – was produced using GM tobacco. In fact, this technique is now being used to develop drugs for many other infectious diseases. Countries such as Zimbabwe that grow tobacco and have basic capabilities in biomedical research can adopt genetic engineering as a platform technology for pharmaceutical development.
Building platform technologies benefit from the export of raw material but in different ways. For example, countries can mandate that part of the revenue from exports should set aside to help support the development of new technological capabilities. Some of these might be related to value addition as a starting point.
For example, nearly 25 percent of the copper available worldwide is obtained through bacterial leaching processes. Bioleaching reduces the cost of processing copper, but more importantly it can serve as a foundation for bioengineering and the development of new services and products. This requires focusing on the underlying knowledge, not on the resource that is being processed.
This mode of thinking behooves Africa to shift its focus from raw materials to technological capabilities that underlie all economic activities. This approach will also require that greater cooperation between the productive sector and knowledge-based institutions such as technology-oriented universities and research institutes. More importantly, it will take concerted efforts expand the base for training young Africans in practical fields such as engineering and entrepreneurship.
Africa’s desire to become a knowledge-based economy is within reach. But it is not being helped by economic policies that emphasise raw materials instead of building versatile technological capabilities that can drive industrial diversification.
Adding value to raw materials is essential in its own right and should be aggressively pursued. Fronting it as a strategy for rapid industrialisation and economic diversification, however, is as misguided as it is ineffectual.
To borrow from Professor Hausmann’s analogy, uncritically advocating the dogma of value addition is like clinging onto the letters Q, X, Y, and Z and hoping to win a game of scrabble using long words. It is wishful thinking.
Calestous Juma is Professor of the Practice of International Development and Faculty Chair of the Innovation and Economic Development Program at Harvard Kennedy School. He is author of The New Harvest: Agricultural Innovation in Africa.