"Stemming the Tide of Globalisation"

Op-Ed, Business Daily, (Africa)

August 9, 2007

Author: Calestous Juma, Professor of the Practice of International Development; Director, Science, Technology, and Globalization Project; Principal Investigator, Agricultural Innovation in Africa

Belfer Center Programs or Projects: Science, Technology, and Globalization; Science, Technology, and Public Policy

Foreign direct investment (FDI) has been touted as the tide that would raise all development ships.

But according to a recent United Nations Conference on Trade and Development Report (UNCTAD) report, most Africa countries cannot swim with the current of globalisation because they lack the basic capacity to benefit from imported technology and generate jobs.

The Least Developed Countries Report of 2007 argues that the FDI that has flooded into these countries has propped up extractive industries, which benefit foreign investors more than they support the domestic economy. 

The report documents significant reversals in industrialisation in many countries which have compromised development goals, especially in Africa.

These countries have been importing machinery for extracting natural resources instead of building local economies. For example, between 2000 and 2005, construction, mining, and metal crushing equipment made up 13 per cent of all African capital goods imports. 

At the same time, imports of manufacturing equipment declined, leading to de-industrialisation. 

These trends have two major impacts on Africa.  First, much of the continent is not building the domestic production capacity needed to produce many of the capital goods (machines used to make other machines) essential for domestic manufacture and exports. 

Second, without building such production capacity, Africa’s capacity to import manufactured goods from the industrialised world will diminish.  In effect, their capacity to be part of the global economy will continue to decline. This will go hand in hand with a rejection of the global trading system as an unfavourable arrangement that punishes the weak.

But Africa and its friends need not feel pessimistic if at least three conditions can be met.

First, African countries need to build the basic capacity that will enable them absorb imported technologies and help diversify their economies.  Such absorptive capacity requires investment strong human capital, dynamic entrepreneurship, quality institutions, developed infrastructure and the will to advance.

Secondly, FDI must be integrated into the host country through linkages with local business, government and university systems. This suggests that many of the free-standing export processing zones (EPZs) are poor vessels for promoting mutually-beneficial FDI.  

Finally, FDI must be a significant source of employment for the local people. The image of “sweat shops” that migrate from country to country seeking cheap labour and leaving behind empty warehouses needs to be replaced by more humane production systems.

The UN report offers a few good role models for this on how to link foreign and local firms. The Norwegian Matchmaking Programme, for example, helps to connect businesses in Norway with counterparts in the developing world. 

Through practical business models like joint ventures, outsourcing, subcontracting and licensing, this programme creates wealth while building local capacity. The programme also creates jobs through the joint ventures that result from its spin-offs.

But the ultimate responsibility must lie with the African countries. They need such institutions as well as policies and incentives that can help domesticate imported technology. Without practical measures that promote the absorption of foreign technological flows, these countries will continue to be swept aside by the rising tide of globalisation.

Prof Juma teaches at Harvard University’s Kennedy School of Government where he directs the Science, Technology and Globalisation Project

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http://www.bdafrica.com/index.php?option=com_content&task=view&id=2369&Itemid=58
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