Building African Competitiveness and Value-Added from Natural Resources Aluminum and Diamonds Many African countries continue to depend on a few primary commodities for their export earnings (see chapter 2). A number of economic studies support the hypothesis that Africa’s comparative advantage is in natural resources. This often leads to a pessimistic view that, because Africa does not have a highly skilled workforce, with only a few exceptions, manufactured exports are likely to remain unprofitable in Africa for the foreseeable future. The recent rapid increase in trade and investment between Africa and Asia is largely driven by economic complementarities between the two regions based on factor endowments—skilled labor and more advanced technologies in Asia, and the abundance of natural resources and unskilled labor in Africa. Can Africa build competitiveness based on its endowed natural resources? International experience shows that developing local value-added activities can indeed help countries build competitiveness based on natural resources. Supported by stable and sound economic policies, several resource-rich developing countries, ranging from Chile to Malaysia, have been successful in developing value-added resource-processing industries in the early stages of industrialization and then using these as a springboard to even higher value-added resource-processing activities. These natural resource success stories stem in large part from the establishment of favorable behind-the-border investment climates—analogous to what has been behind other developing countries successes in building higher value-added competitive manufacturing sectors. Commodity processing requires significant investment. FDI can alleviate the domestic shortage of financial resources. Such investment can also bring the technology required. Equally important, a competitive domestic market environment engenders the development of local backward and forward linkages to the extractive process. Quality of infrastructure services, particularly power and transport, is also critical to building export competitiveness. The following two cases highlight how these factors have been influencing the development of natural resources processing in Africa. 06-Chap6:06-Chap6 10/9/06 2:39 PM Page 296
