The Technological Response to Import Liberalization in SubSaharan Africa

This is a study of the impact of import liberalization on manufacturing technology in three countries of SubSaharan Africa: Kenya, Tanzania and Zimbabwe. These countries are opening up their economies to import competition as part of a broader strategy of policy reform and structural adjustment. Each is at a different stage of the liberalization process, and each starts with different bases of industrial and technological development. Each is ‘adjusting’ in the hope that exposure to market forces and the removal of the legacy of inefficient interventions will stimulate rapid industrial development and export growth. In each, as in much of Africa (the term is used here to refer to SubSaharan Africa), the response to liberalization has been weak, faltering and disappointing.

There appears to be at least implicit agreement among neoclassical development economists on certain propositions: free trade (at least as a benchmark ideal) optimizes global resource allocation; increased import competition leads to greater industrial efficiency, increases welfare in developing countries and allows specialization in accordance with natural comparative advantage; trade interventions are justifiable only under particular restrictive conditions, and even then are nearly always a second-best measure; and developing countries that pursue liberal trade policies industrialize faster and more efficiently than those that intervene in trade. According to this view, the role of government in promoting industrialization should be restricted to alleviating rather narrowly defined market failures. The concomitant and largely neoliberal policy prescription is that, where trade interventions exist, their rapid removal is likely to be the best policy. This is particularly the view of the Bretton Woods institutions, constituting what John Williamson has called the ‘Washington consensus’. The government, in this view, can at best act as a mild corrective force in enabling a natural and largely given development path.

In the mid 1960s Kenya launched an import-substituting industrialization strategy, with high levels of protection for manufacturing and a large role for the public sector in industry. By the 1980s it had achieved a high level of industrialization by SubSaharan African standards — the share of manufacturing in GDP averaged 12.3 per cent in 1975–80 compared with about 10.0 per cent for the region as a whole. However, after an initial spurt, manufacturing growth began to slow down, from 11.6 per cent per year in 1970–75 to 4.9 per cent in 1975–80; the share of manufactured products in total exports stagnated at 16.0 per cent during 1975–80.

After nearly two decades of trade restrictions, Tanzania launched a series of trade liberalization measures in the mid 1980s. Economic and manufacturing growth, which had collapsed in the ‘crisis years’ prior to liberalization, recovered modestly thereafter. This chapter examines the extent to which manufacturing firms responded technologically to trade liberalization, and whether their performance in the post-liberalization period can be explained in terms of their relative technological efforts and capabilities. It also sheds light on micro-level supply-side factors that determined the capacity of firms to upgrade technology and improve economic performance under the conditions of trade liberalization. The analysis deals with two subsectors — engineering and garments — and is based on a cross-section survey of 65 firms.

Industrialization began in Zimbabwe (then Southern Rhodesia) in the first two decades of this century, very early by African standards. By the early 1940s Rhodesia had a comparatively sophisticated industrial base, with the only integrated iron and steel plant in SubSaharan Africa and a range of consumer and producer goods industries. Manufacturing accounted for 10 per cent of GDP and around 8 per cent of exports. Further import substitution took place before, during and after the Second World War. In 1953 the two Rhodesias (now Zambia and Zimbabwe) federated with Nyasaland (now Malawi), forming a common market. Southern Rhodesia became the location for most of the manufacturing serving the region.

This chapter presents a comparative analysis of technology upgrading and firm performance in the three countries as a group, using a pooled sample of 130 firms for which relevant data are available. It seeks to identify common factors that determine technological dynamism in the three countries, and examines whether the positive relationship between technology and firm performance obtains across all the countries when country-specific effects are controlled for. It compares the extent to which manufacturing firms in the three countries have responded to trade liberalization by upgrading technology and technological skills and capabilities, and looks at micro-level supply-side factors that determine the capacity of firms to upgrade their technology and skills. The behaviour of firms with respect to export orientation and employment growth is also examined.

This study has produced a wealth of findings on liberalization, technology development and manufacturing performance in Kenya, Tanzania and Zimbabwe. However the interpretation of these findings is not straightforward. All three countries are opening up at a difficult and uncertain period in their economic life — not an ideal setting for studying technological development, which thrives in a growing and stable environment. The impact of liberalization is (as usual in these studies) difficult to disentangle from that of other factors affecting enterprise behaviour. The degree and nature of liberalization itself differs between countries, making cross-country comparisons difficult; moreover the two activities studied, garments and engineering, face differing exposure to import competition. Then there are the inevitable difficulties in generalizing from the experience of individual firms to a broader industrial setting or to different countries.