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Posted on Thursday, 24 September 2015 13:50

Nkosana Moyo: Africa needs its own version of the Airbus project

By Nkosana Moyo

altIn private equity, as is indeed true in virtually all other areas of human endeavour, if you want to optimise cooperation between individual entities you have to create a maximal alignment between the intended participants' interests.

 

The contributions to the collective have to cater simultaneously to the individuals' goals.

It is my belief that if African countries used this approach, as it was applied to the European Airbus project, African economic integration would get a substantial fillip.

Airbus, a consortium of European aerospace companies that produces aeroplanes, was so cleverly engineered that it was easy for the politicians from all the participating countries to explain to their constituencies why they should be part of this manufacturing club.

The benefits of job creation and contributions to gross domestic product are very easy to explain in this model.

The rationale for creating a virtuous circle through purchasing the finished product for a national carrier's fleet is also very easy to see.

This last part is what made it possible for Airbus to take on Boeing in a market that the latter had dominated for decades.

Economies of scale are another very compelling reason for African countries to realise that this is the only model that will save them as producers of anything beyond unprocessed commodities.

Assuming quality and productivity issues are taken care of, the only way to reduce unit costs and hence become globally competitive is production in significant volumes.

Although not an absolute requirement, a significant home market is a very good stepping stone towards volume production and competitive unit costs for the global market.

African national markets are way too small to provide an intermediate stage towards becoming global suppliers.

Given the closed and very fragmented nature of African markets, attracting the investment required to start on this journey is practically impossible.

A more unified African market on the other hand would, literally at the stroke of a pen, create the scale for which investment for significant production levels would become much easier to attract.

In the Southern African Development Community, there has been a lot of talk about industrialisation of late.

This is not an unreasonable aspiration. If the approach, however, is that each country seeks to achieve the desired industrialisation on a self-sufficiency basis, then clearly this will remain nothing but a pipe dream.

If countries in a sub-region, say platinum producers, take a joined-up approach to the building of a sub-regional value chain for platinum, I think this would be entirely feasible.

Zimbabwe and South Africa are both well-endowed with mineral wealth.

The building of beneficiation or downstream industries deliberately structured to strengthen regional economic integration is not only feasible but actually the only sensible way forward.

The construction of the Mozal aluminium smelter in Mozambique rather than at Saldanha Bay in South Africa is a very good example of this managed economic integration.

In the late 1990s, South Africa facilitated the project to enable the necessary foreign direct investment flows for the financing of the smelter.

A more unified African market would make it easier to attract investment for production

Just as in the case of the Airbus project, larger regional economies have to see the bigger picture rather than taking a narrow nationalistic perspective.

Between them, just Germany, France and the United Kingdom could probably have done the Airbus project.

This approach would, however, have failed to create the cohesion that led to an almost captive market for the Airbus.

Each country that participates in the Airbus project in supplying components and sub-assemblies has a self-interest in purchasing the aircraft to keep the virtuous circle going.

African countries continue to discover natural resource deposits of global significance.

Along the east coast of Africa, Mozambique, Tanzania, Kenya and Uganda all have significant hydrocarbon reserves.

The exploitation of these resources could benefit from a cooperative approach at a number of levels, including the setting up of centres of excellence for technical training and the constructing of refineries.

It could be that these consultations are taking place and I am just not privy to them, but President Yoweri Museveni seems to want to build a refinery in Uganda on a stand-alone basis.

I am sure I do not have to elaborate on what the likely reaction of the countries in Uganda's neighbourhood will be.

The bottom line in the framework I am proposing is that African countries do a few things to support the development of intra-Africa trade.

If neighbouring countries all have agriculture as a priority sector, then agricultural mechanisation and manufacture of pesticides and fertilisers should be opportunities they can explore together.

They could, for instance, produce tractors using their combined market to attract the investment required.

The options to explore would include the manufacture of different tractor sizes in different countries and the assembly of components in facilities that are deliberately distributed amongst the countries involved.

This manufacturing architecture would create quantifiable benefits and at the same time deliver a more economic 'domestic' market.

A lot of products for the bottom-of-the-pyramid market also create an opportunity for newly industrialising countries to hone their skills for the more discerning and more demanding global markets.

The creation of a truly African market requires the removal of nation-state-level hindrances to trade.

No matter how advanced an economy gets, citizens will demand and, more often than not, get protection against foreign competition.

This is very clearly evidenced by the tensions on the intra-European Union (EU) movement of people.

A framework that can easily show and quantify the benefits that would accrue to governments contemplating opening up their markets to each other will be easier to implement than one that is simply based on economic theory.

The majority of any country's citizens do not hold economic degrees. I dare say, most politicians do not hold economic degrees either.

The size of virtually all African countries is sub-scale for purposes of large-scale production underpinned by a domestic market.

Size is a contributory factor to the global competitiveness of the United States.

That is also why European politicians will leave no stone unturned to try and keep the EU bloc intact in the face of a lot of challenges.

This is not to be confused with why the EU came into being in the first place.

Where we are today, the EU has become an economic rather than a security necessity.

Scale matters and scale underpinned by reciprocity is both politically defensible and easier to sustain.



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