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Explainer: African Leaders Should Accelerate Industrialization Without Short-Haircut Processes

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At the end of their four-day deliberations, African leaders and participants have issued a joint statement relating to the future of economic diversification and industrialization in Africa. The summit provided the opportunity to take stock of the progress made during the year on the drive towards industrialization, it also provided a policy dialogue platform to firmly recommit to accelerating structural transformation. 

Convening in Niamey, Niger, the Extraordinary Summit on Economic Diversification and Industrialization, the ministers and participants collectively, in a the report, suggested that the key policies and regional integration issues should be drastically addressed to support industrialization in Africa, reminding further that Africa is widely seen as a future investment and development frontier given its extraordinary economic potential in Africa.

It was, however, acknowledged that it was held at the backdrop of a completely uncertain global landscape owing to the prolonged effects of the coronavirus pandemic, the pressing challenges posed by climate change and the Russia-Ukraine conflict that have disrupted the global supply chains with huge consequences globally and more fundamentally on African economies.

According to the summit reports these circumstances have revealed the extreme fragility of African economies against external shocks and reinforced the need for structural changes necessary for the acceleration of productive transformation through a determined shift towards sustainable and resilient industrialization in the years and decades ahead, the statement says.

The summit highlighted the role governments and other non-government actors play in addressing the constraints to industrial development, strategies for countries to re-invigorate the role of development finance institutions to promote industrial financing while drawing lessons from existing challenges, strategies for the countries to deal with global issues such as climate change in their efforts to industrialize, and reflected on the experience on industrial policy, design, implementation and monitoring its new industrial strategies. 

Ms. Aissata Tall Sall, Minister of Foreign Affairs and Senegalese Abroad and the current Chairperson the Executive Council, underscored the critical role of the private sector in supporting innovation in high-potential areas such as agriculture, agro-industry, health, education, infrastructure, and especially energy, which remains a crucial issue in advancing industrialization. 

She observed that “this decision has a high strategic significance because the aim of the industrialization and productive transformation process in our countries is to improve their capacity to take advantage of the many human and natural resources that the continent has to offer. Indeed, the industrialization of Africa can unlock the continent’s potential for inclusive growth by expanding access to the economic opportunities thus created to all segments of the population, especially women and youth. In addition to these challenges, all of which are important, there is the issue of mobilizing domestic resources to finance our economies, as well as the fight against illicit financial flows that encourage tax evasion and corruption.”

Massoudou Hassoumi, Niger’s Minister of Foreign Affairs and Cooperation emphasized on the urgency for inclusive industrialization that harness the demographic divide of the youth, which he noted would also sustainably address issues of irregular migration, manipulation and recruitment into outlawed groups.

He added that “industrialization and economic diversification are therefore a lasting economic legacy that we must leave to the younger generation, because it is a solution to the challenges of the moment, especially those related to insecurity. In this regard, it is important to reiterate the African position for a fair and equitable transition to defend the right of our countries to exploit their available resources such as gas, alongside their efforts to develop the energy mix.” 

To accelerate the progress made in operationalizing the African Continental Free Trade Area, Moussa Faki Mahamat, Chairperson of the African Union Commission restated the need to conclusively address the structural challenges that hinder the optimal functioning of the common market. 

“The major challenge here is to be able to strengthen trade between African countries that are more open to the outside world through agreements that have already been signed and that manage the bulk of their trade. It is therefore a matter of developing the capacity to successfully transform our productive structures with a view to increasing the complementarity of intra-African trade. It would also be necessary to ensure convergence by reducing the major gaps between Member States and between the Regional Economic Communities in terms of development and level of integration. The AU Commission’s State of Integration in Africa 2022 report has highlighted the reality of such gaps,” according to Moussa Faki Mahamat.

Africa possesses 60% solar irradiation in the world, 70% of cobalt global production and significant reserves of other battery minerals, world class carbon sink assets in our forests and peatlands, huge green hydrogen potential, which Antonio Pedro, UNECA Acting Executive Secretary noted can position the continent to become a powerhouse and a globally competitive investment destination for multi-sectoral investments combining climate action, job creation and industrialization. 

“As we drive industrialization, we also need to realize that industrialization is not an event, but it is a process, and a long one at that. And, of course, we should be mindful that industrialization is not the business of Ministries of Industry alone. Instead, the implementation of true industrial policy requires a whole of government and beyond approach and action. It requires aligning industrial, trade and other sectoral policies and putting science technology and innovation at the centre to ensure that we remain globally competitive beyond our initial endowments and comparative advantages,” noted Antonio Pedro.

To rally the support of the private sector, Dr. Amany Asfour, started the commitment by the AfroChampions Initiative to mobilize the private sector to enhance the public-private partnership as the continent moves from commitment to action on industrialization and trade. Empowering the private sector through market-based solutions and resolving finance barriers remains critical.

Among the recommendations of the minsters of the appointment of the African Union Champion for Sustainable Industrialization and Productive Transformation to provide political leadership, awareness and ensure effective implementation of Africa’s industrial development. And further considering endemic factors that have stifled the Africa’s economic transformation, it is important to reassess the continent’s capabilities in the face of external shocks. 

In this regard, it is important for the African Union members to set up innovative and inclusive institutions capable of designing and implementing effective industrial policies and processes that will advance socio-economic transformation, as stipulated in global and continental frameworks such as the African Union Agenda 2063, the United Nations Sustainable Development Goals and the Third Industrial Development Decade for Africa.

MD Africa Editor Kester Kenn Klomegah is an independent researcher and writer on African affairs in the EurAsian region and former Soviet republics. He wrote previously for African Press Agency, African Executive and Inter Press Service. Earlier, he had worked for The Moscow Times, a reputable English newspaper. Klomegah taught part-time at the Moscow Institute of Modern Journalism. He studied international journalism and mass communication, and later spent a year at the Moscow State Institute of International Relations. He co-authored a book “AIDS/HIV and Men: Taking Risk or Taking Responsibility” published by the London-based Panos Institute. In 2004 and again in 2009, he won the Golden Word Prize for a series of analytical articles on Russia's economic cooperation with African countries.

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From unidimensional to 3D: the contours of the post-Bretton Woods world

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The start of the year 2023 was marked by a series of statements coming from representatives of BRICS countries concerning plans to create new currencies. In particular, Brazil’s President Lula called for the creation of common currencies among BRICS and MERCOSUR countries, while Russia’s Foreign Minister Sergey Lavrov stated that the creation of the BRICS common currency would feature in the discussions at the BRICS summit to be held in South Africa this year. And even as a lot of these changes in the international monetary system will take time, the vector of this transformation is becoming increasingly clear. The new international monetary system will be increasingly geared towards the creation of new regional currencies that will aspire to take on a global reserve status alongside the current pantheon of the select currencies of advanced economies. A multi-regional international monetary system in which the key regions of the developing world form their regional currencies may offer greater optionality to the global financial markets and will reduce the dependency on the few select reserve currencies.

A fragmented global financial system consisting almost exclusively of national currencies leaves scope for excessive dependency on the currency of the dominant economy. This in turn creates sizeable vulnerabilities in the form of a “moral hazard” and “too big to fail” considerations – the debt ceiling in the US is duly elevated to avoid default, while the “exorbitant privilege” of the US dollar as the global reserve currency is feeding “moral hazard” patterns in the form of greater fiscal profligacy and the emergence of related theories such as MMT.

As stated in the recent IMF report, “despite the weaknesses of the current reserve system (the “New Triffin dilemma”) any significant shifts away from the status quo are only possible if and when there are viable alternatives to the dominant currencies.”[1] . This recognition by the Fund of the fundamental weakness of the current monetary system (while conditional on the emergence of alternatives) is an important testament to the rising doubts regarding the “infallibility” of the current monetary system. One way to look at some these deficiencies is to realize that high inflation in advanced economies is currently undermining the value of these countries’ state debt – the ratio of US state debt to GDP by the end of 2022 declined by nearly 9% of GDP compared to Q1 2021 on the back of an inflated (due to price growth) nominal GDP. This depreciation in the value of US public debt is adversely affecting the reserve holdings of those countries that have opted to invest heavily in US dollar-denominated assets. At the same time, along with the inflation-related reduction in the debt-to-GDP ratio the nominal stock of US debt continued to grow and forced repetitive increases in the US debt ceiling over the past years. This time around in 2023 the risk of a US default due to the fragilities in the balance of power in US legislature came as yet another scare to emerging markets and a reminder of the perils of high dependency on one sole center of “gravity” in the global economy.

To overcome this high dependency and the fragmentation of the currency space in the Global South developing countries can form larger currency blocks – whether regional (as in the case of the proposed currency for MERCOSUR economies) or transregional (as is the case with the proposed R5 BRICS currency basket). This process of aggregation in currency unions across the Global South if continued may lead eventually to the formation of currencies with sufficient economic weight in terms of the underlying GDP and reserve size of members to merit their inclusion into the group of global reserve currencies.

The international monetary system formed on the basis of macro-regional currency unions will present greater opportunities for advancing new candidates for the position of global reserve currencies. Across the Global South there may be at least three regional currencies with sufficient economic weight to be potentially included into the set of global reserve currencies:

  • A Latin America common reserve currency
  • An African common reserve currency
  • An Asian common reserve currency

The Latin American track has already been promulgated by Lula da Silva in Brazil. In Africa the formation of the AfCFTA as well as the rising global prominence of the African Union (likely to become a full-fledged member of the G20 in the coming years) bode well for gradually moving towards greater coordination in the economic policies of not only the national economies of the African continent, but also its regional integration and currency arrangements. In Asia, several proposals have already been unveiled in the past several years, including the possible creation of a Pan-Asian single currency as well as a common currency for the members of the Shanghai Cooperation Organization.

All these regional currencies have the potential to carry enough economic weight and scale in the form of their respective integrated regional blocks to enable them to attain the global reserve currency status. The potential for regional currencies to become integral parts of the global financial system is expanded by the optionality in the modalities of regional currencies/regional agreements in the monetary sphere that may include:

  • Regional baskets
  • Regional currencies that replace existing national currencies
  • Regional swap lines
  • Digital regional currencies/currency baskets
  • Regional accounting units 

The new currencies, whether regional or trans-regional, will need an anchor or a reference point, a role that has thus far been primarily filled by the US dollar and the euro. The rise of China as the main trading partner of the economies of the Global South implies that it may be time for the developing economies to change the reference point away from the dollar and the euro towards the yuan and/or the BRICS reserve currency (in which the yuan would likely take a sizeable share). In particular, those developing economies with fixed/pegged exchange rate regimes could consider the possibility to shift towards pegging their currencies to the BRICS basket and/or employing this new currency increasingly as an accounting unit. This would accord well with the trends of the past decade characterized by growing importance of South-South trade; it would also provide more favourable conditions for further expediting the diversification of foreign trade and investment towards the South-South track after decades of under-trading among the developing economies (including among the regional partners in the developing world).

The latter point may need some elaboration – for decades the trading patterns of the developing economies were largely characterized by high shares of trade with the leading advanced economies such as the US and the EU and lower-than-potential trade shares accorded to the regional neighbours of these economies. The indications of the gravity model that traces trade intensity to distance among countries and their economic weight (as measures by GDP) suggest that there is tremendous potential to boosting regional trade given the lower gravity of distance. Regional economic integration and the creation of regional currencies, like the planned launching of the regional currency SUR in Latin America, would serve to realize this potential for South-South regional trade for the benefit of global economic growth. 

The three key pillars of a revitalized international monetary system will need to include the following Post-Bretton Woods principles, or 3D principles as per below:

  • Demonopolization (Poly-centricity): a system that is predicated on a set of reserve currencies that include a number of regional currencies as well as possibly trans-regional baskets of currencies – the resulting pattern is that of a co-existence of reserve currencies from EM and DM without a “core-periphery” pattern setting in the global monetary system
  • Depoliticization: the new international monetary system will also need to contain a “de-politicization clause” as one of its key foundations – the reserve currencies will need to carry a legal affirmation of the non-use of these currencies in imposing sanctions and other restrictions
  • Dis-inflation: with the “exorbitant privileges” of the DM currencies dissipating, inflationary fragilities in the global monetary system may be attenuated; at the same time the competitive edge in the global monetary system will start to gravitate towards those currencies that are credibly backed up with reserves/resources.

Compared to the unidimensional paradigm of the current monetary system, these 3D principles are meant to render the vision of the international monetary system more objective and real – the new system needs to reflect the changing realities and dynamics in the world economy, including the emergence of new regional economic centers; it also needs to address the growing demand on the part of the international community for currencies to be real, i.e. duly supported by countries’/regions’ reserves/resources.

Another way to picture the 3D vision for the international monetary system is to introduce a regional layer into the monetary system that is represented by the regional integration blocks, their currencies and development institutions. This regional layer would complement the layers of national economies at the bottom and the global economic institutions (such as the IMF and the World Bank) at the top. The main ingredients for the regional layer of the international monetary system are largely in place and consist of the following three key elements:

  • Regional financing arrangements (RFAs)
  • Regional development banks (RDBs)
  • Regional currency mechanisms

For the financial markets an international monetary system characterized by the emergence of regional economic and currency blocks may result in a decoupling of emerging markets (EM) from developed economies (DM) – contrary to the current paradigm whereby the dominance of US and EU financial markets determine to a large degree the overall direction of market dynamics in the developing world.

In the end, the international monetary system is not out of the woods just yet – the fragilities that resulted in the rising frequency of global downturns throughout the past several decades are yet to be addressed. One of the key pathways out of the limitations of the current Bretton Woods setup is to expand the array of reserve currencies with the new regional currencies that could emerge in the Global South. The evolving international monetary system cannot be disassociated from the future progression of the global economy, including its trade structure and patterns of investment flows. In this respect the regionalization of the global economy and the rise in the prominence of trading blocks and their regional development institutions (regional development banks and regional financing arrangements) will increasingly call for greater regionalization of the international monetary system.  


[1] Aiyar, Shekhar, Ilyina, Anna, and others (2023). Geoeconomic Fragmentation and the Future of Multilateralism. Staff Discussion Note SDN/2023/001. International Monetary Fund, Washington, DC.

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Friend-shoring: India’s rising attractiveness for an emerging partnership

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There are numerous forces currently affecting investment flows in the global climate for foreign investment. Investor concern has been caused by the many geopolitical issues, which had repercussions even as countries were recovering from the pandemic. Businesses are being forced to re-evaluate the global business environment and potential fault lines as a result of these disruptions. India has constantly improved the business environment (EoDB). It may now advance by utilising the advantages to strengthen its place in the global economy and fulfil the ambitions of its sizable, primarily young population. The country’s business and investment climate has significantly improved as a result of the fast and steady pace at which reforms have been implemented.

Apart from the fact that India is one of the largest economies in the world with the quickest rate of growth, the government’s emphasis on infrastructure and manufacturing, strong consumption patterns, digitization, and a burgeoning services sector all contribute to this optimism. The persistent efforts of the Indian government to lower regulatory hurdles are also fuelling MNCs’ favourable opinion of India. However, India’s expanding domestic consumer base and digital economy are the greater draws. After the US and China, the estimated actual growth in consumption is the third-highest. Given that all of these markets are sizable but relatively saturated and growing at a slower rate, India presents a particularly good opportunity for MNCs seeking growth opportunities in the ensuing ten years.This has acquired more traction in the US context as it has become clear that the nation cannot overcome all production issues on its own and that cooperation with friendly or ally nations is essential for all-around development. The term “friend-shoring,” a hybrid of the terms “onshoring” and “near shoring,” refers to forming business alliances with people who have similar principles and interests.

In a world driven extensively by globalisation, it is inevitable to not just make ally’s or create partnerships that are not only strategic and synergistic, but also facilitate a purpose driven iterative connection between two nations. A strategy used by the US to persuade companies to relocate their sourcing and manufacturing operations to friendly shores—often back to the same shores in the case of the US—is known as friend-shoring or ally-shoring. And the goal is to protect their supply networks against countries with less compatible policies, like China. But is it the best course of action? Global supply chains have changed production by enabling businesses to produce things wherever it is most affordable, thanks to decreased tariffs, lower transportation, and communication costs. This typically means that low-end production shifts to emerging markets and developing countries, while high-value-added inputs (such as research and development, design, advertising, and finance) are provided from established economies.

A commitment to cooperate with nations that “have a strong adherence to a set of norms and values about how to function in the global economy and about how to govern the global economic system” was described as “friend-shoring” in Secretary Yellen’s statements of April 13, 2022. But is it the best course of action? Any type of protectionism will worsen the already shaky global supply chain after the years-long Covid-19 shutdown has had an impact on the world economy. Despite its political unrest, China has been devoting its resources to manufacturing since the 1990s, and many businesses have already established manufacturing operations there since their suppliers are all nearby.

Even though Vietnam, India, and Thailand are also known for their low-cost manufacturing, moving the manufacturing sites could be expensive and risky for businesses because they would need to reorganise their entire supply chain for all materials required. In addition, other Asian countries might not have the full infrastructure needed to support manufacturing in some sectors. The world of today is at its best because of international cooperation. Each country’s disadvantage is made up for by having it use its greatest asset to boost global economic growth. Although there are many differences and even disagreements between nations and we are still far from full globalisation, offshoring does not seem like a good answer for a better future for the global supply.

USA is believed to pursue the “friend-shoring” strategy of deepening economic integration with dependable trading partners like India to diversify away from nations that pose geopolitical and security risks to supply chains. This is in response to an “extremely challenging” global economic outlook and geopolitical instability. She claimed that some economies’ debt loads were becoming unmanageable due to the Russia-Ukraine war-related spike in food and energy costs, and that steps to reduce these debt loads would need to be explored. Countries that already have well-established production and business service networks are those that are seen as friendly partners in the US context. India is attempting to draw MNCs that are moving their subsidiary supply chain networks and activities in this wave of supply chain restructuring and diversification of their specialised ecosystems.

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Pakistan’s elite and the current economic crisis

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Former Pakistan Finance Minister Miftah Ismail in a media interview made some very interesting points. While Ismail lashed out at his successor and current Finance Minister Ishaq Dar saying that the latter’s Anti International Monetary Fund (IMF) approach was one of the key reasons behind the current economic crisis in Pakistan. He also underscored some other points.

 First, he said that if countries like Bangladesh and India have left Pakistan behind, there are some serious deficiencies in Pakistan’s governance model.

Second, Ismail stated that different forms of government – democracy, parliamentary democracy, dictatorship – have been tried out, but the country is invariably ruled by a small elite, and this is amongst the key reasons for the numerous challenges the country is facing today.

In recent years, has been increasing criticism of Pakistan’s foreign policy and its excessive economic dependence upon other countries for its economic survival.  While earlier strategic commentators and analysts questioned the skewed nature of Pakistan’s ties with the US, in recent years several strategic commentators have begun to question the excessive dependence upon Islamabad and the terms and conditions of China Pakistan Economic Corridor (CPEC), and the lack of transparency of the project.

If one were to look at the current economic crisis which has engulfed Pakistan, there have been a series of opinion pieces critical of domestic policies, the country’s dependence upon external sources for aid not just the US, but also Gulf Countries and China and how the IMF rescue program would impact certain sections of the population more than others.

Maleeha Lodhi, a former Pakistani diplomat, and a prominent writer and commentator, in a hard hitting article titled Elite Politicsfor Dawn (December 5, 2022)argues:

‘The availability of external resources as a result of Pakistan’s foreign policy alignments during the Cold War and beyond created a habit of dependence on ‘outside help’. This habit urged successive governments — representing rural and urban elites — to avoid economic reform, mobilise adequate revenue or tax its network of influential supporters’. 

Touqir Hussain in an article An underwhelming foreign policy written for The News (November 23, 2022) highlights how Pakistan’s dependency upon China could harm the bilateral relationship. Says Hussain:

‘Because of the dependency syndrome, even the China connection has become ever more important for Pakistan, and not for all the right reasons. It is fomenting a popular view that with China at its back Pakistan does not need to care about other relationships, inciting anti-Americanism which has become in the public mind a badge of ‘independent’ foreign policy’.

S Akbar Zaidi in an article IMF as Saviour for the Dawn (January 26, 2023) makes an interesting point about how the unequal impact of the IMF program and how the elite would not just be able to deal with it but also benefit in the long run. Says Zaidi:

‘A fistful of dollars coming in, prices being upwardly adjusted, an exchange rate which is supposedly ‘market-driven’, will offer false hope to our elite while it grumbles about the tough measures of the IMF’. 

There has also been a suggestion to rethink Pakistan’s approach towards India and focus more on geo-economics. Shahzad Chaudhry, a prominent strategic commentator, in an opinion piece published in Express Tribune praised India’s foreign policy for managing to balance ties between the US and Russia, in the aftermath of the Ukraine crisis. While praising India for having been able to strike a balance he dubbed this as diplomatic coup. Chaudhry also said that Pakistan should rethink its foreign policy vis-à-vis India and focus on ‘geo-economics’.

Pakistan PM, Shehbaz Sharif in an interview to Al Arabiya TV (a Dubai based channel) had himself stated that Pakistan could not afford another war with India and had also alluded to his willingness to resume talks (The Pakistan PMO however said that Pakistan would only resume talks with India if the latter reversed the decision to revoke Article 370 in Jammu and Kashmir).

In conclusion, while Pakistan clearly has its task cut out if it is able to realize the pitfalls of excessive dependence upon external countries will it be able to put its economy firmly back on track. It is also important for Pakistan to strengthen economic ties with neighbours in South Asia rather than looking at the outside world. For this it will require Pakistani leaders to think out of the box.

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