Download INDUSTRIALIZATION AND DEVELOPMENT

INDUSTRIALIZATION AND DEVELOPMENT
During the last three decades, developing countries have tried to
improve their economic status and overall standards of living through
the process of industrialization. This inspiration has been reflected in
various governmental policies and strategies. Since then most
economics have shifted emphasis and resources towards
industrialization as an indispensable strategy. Industrialization need
to be defined as the process of transforming various raw materials
with the help of human resources and capital into consumer goods
which permit further production, social overhead , capital which
further together with human resources provide new services created
by industrialization.
Industrialization as such does not need to be justified today. That
industrialization is key to development is not all that debatable. But
nevertheless one cannot think of industrialization in isolation of
agricultural development. This is because the two sectors are
interwoven.
The growth of the industrial sector depends on
agriculture while industry induces agricultural development.
Economists who argue for concentration on agricultural sector can
point to the fact that agricultural growth. IN the first place, in
developing countries, where a large proportion of income is earned in
agriculture, an increase in agricultural incomes means an increase in
effective demand for manufactured goods. Given that in most
manufacturing industries there is some minimum viable size of plant,
expansion of agricultural incomes may be pre-requisite for
establishing efficient industries. Secondly, increased agricultural
productivity can, by permitting necessary food supplied to be
obtained with less labour, release labour from the land for work in
industry. Apart from increasing the supply of labour directly in this
way, it may do so indirectly by cheapening the supply of fuel; this may
improve the terms of trade, between the industrial and agricultural
sectors and permit employers to pay lower wages for their hired
labour. This will improve the industries viability in the home market
and their competitiveness abroad. Beyond this, increased agricultural
incomes are likely to pave way to increased savings and increased
fax revenue to the government which can then be spent on social
overhead capital hence a pre-requisite for industrialization. And if the
incomes arise out of increased agricultural exports, the additional
foreign exchange earned will permit increased imports of the
machinery and intermediate products required by industry and
frequently ease a restriction on faster industrial expansion. Finally,
agriculture provides raw materials for direct use in industry, and thus
offers forward linkages with industry. These may be very important
as in the case of cotton growing giving rise to ginning and textile
manufacture.
STRATEGIES FOR INDUSTRIALIZATION
Developing societies view more than ever need to adopt national
policies and strategies that will lay a strong foundation for LDCs
industrial transformation required to enable them emerge as a new
industrialized nation within thse economies. In order to enhance a
sound industrial policy, and, restructure the LDCs industrial sector, it
is necessary to use instruments that are likely to improve the
efficiency and competitiveness of the industrial sector, and re-orient it
towards increased production for exports and increased domestic
resources. The industrial reform process to this critical end need to
have the following objectives:a) Improve industrial efficiency/productivity
b) Stimulate on rate sector participation
c) Increase the sector’s net foreign exchange earnings while
diversifying its base.
d) To accord priority to the development of industries having local
comparative advantage.
e) Liberalized and efficient capital and credit markets.
f) Attracting long term foreign investment
g) Efficiency and flexibility in the utilization of factors of production
h) Development of a strong industrial research and development
of industrial technology and manpower.
Intermediate and capital goods industries are relatively under
developed. The sector relies heavily on imported intermediate inputs
and machinery thus making it highly import-dependent. This is a
clear manifestation that industry has not created strong domestic
linkages. This therefore calls for deliberate efforts to promote
linkages among industries and sectors to enhance the spread effects
of industrial growth and to facilitate the transfer of technology skills
and growth of small-scale industries.
The next phase of the country’s industrialization need to focus on the
expansion of existing industries using locally available resources. IN
doing so it will be quite appropriate to equally address the constraints
relating to minimum efficiency plant size of domestic and regional
markets, exports prospects and the issue of human resource
development and institutional capacity building. Experience has
shown that before a country can move into a higher path of rapid
industrialization it has to achieve certain critical mass in human and
infrastructural and appropriate policy framework.
Key features of industrial strategy to be outlined need to include
strengthening of rural-urban linkages, the encouragement of small
informal enterprises and efforts to increase employment in the
manufacturing sector. Decentralization of industrial policy should be
key with used as planning units for industrial development. The key
policy intervention need to be strengthening of the micro-enterprisebased informal manufacturing and service sector which is regarded
as a key source of not only employment but also for establishing a
strong industrial base. This calls for greater emphasis on the
promotion of the small scale and medium sized industries and
integrating industry more closely with agriculture.
A pre-requisite for LDCs industrial development is political economic
and social stability. All should be made aware that stability and
governance are about people, the management of human affairs,
sustainable development and the exercise of political power to
manage national affairs. Good governance is synonymous with
efficient public sector management and equitable sustainable
development.
To be in place it calls for effective peoples
involvement, equal opportunities for all and political transparency and
accountability.
As it clearly indicates, no investor will risk long term investment in a
nation where political, social and economic stability does not prevail.
An unstable business climate discourages new investments and
encourages capital flight. Further more an overbearing bureaucracy
or tendency toward corrupt practices are sources of frustration
towards investors hence need to be checked on. Long and slow
bureaucratic procedures, duplication of licensing requirements makes
investments to be costly and a policy on this need to be put in place.
The fight on corruption in this case need to be given the highest
priority out of which a conducive environment for investment can be
enhanced. This needs to be followed by Kenyan men and women to
nature a culture of entrepreneurship. This can be created through a
reward system that cherishes devotedness, honesty, hardwork,
discipline and sacrifice. The motto here need to be Kenya for
Kenyans and each Kenyan should strife to work hard to strengthen
Kenya’s position in regional and international markets.
In order to create a conducive environment for industrial investments
in LDCs there is need for maintaining a sound macro-economic
stability which in turn will build business confidence and enable
exporters to compete with foreign competitors in world markets on an
equal footing. The maintenance of macro-economic stability entails a
number of specific measures; control of money supply, the control of
budget deficit and inflation, steady progress towards free multi-lateral
trade through reductions of tariffs, compete removal of exchange
control, reform of licensing procedures, re-allocation of government
expenditure; proper fiscal incentives for savings and investment and
abolition of price controls.
Recent empirical experiences suggest that effective industrial
development requires an integrated holistic approach:
 The development of an appropriate environment and free
market policies.
 Studies and strategies to match demand with local resource
potentials for substantial local industrialization, effective
employment and sustainable industrial growth.
 Cost effective institutions and processes including training and
follow-up services
 Institutions supporting the industrial growth process and
 Credit facilities.
The availability pf a well trained labour force is critical for the county’s
industrialization process. An assured supply of well trained managers
and skilled technicians at both shop floor and supervisory levels is of
greatest importance to the industrialization process. Equally of no
less importance is the existence of entrepreneurs and managers who
take risks to unrest, by bringing together productive coordination of all
disciplines. In the production chain, physical production, materials
management, maintenance, quality control, infrastructural support
and distribution are important. Each of these areas requires
specialized management skills and training which can only be
enhanced through human resource development and industrial
capacity building. This indeed is critical towards industrialization.
However such high level of training and skill enhancement will require
close collaboration between training institutions and employers of
labor, so that the level of mismatch between output of graduates and
skill demanded can be bridged.
We need to adopt an outward development strategy through
openness. Our export-oriented strategy approach can only succeed
through outward looking development strategies with involvement of
market or private sector oriented approach, reducing price distortions
in the national economy, cautious financial management through
prudent macroeconomics policies to control budget deficits and
inflation. The country equally as vindicated above needs to have
priority to economic growth over social welfare spending with
considerable resources spent on Education and Manpower
development.
If LDCs is to emulate the achievements of the countries that have
generated rapid growth over the past three decades fro example
renown East Asia “Tigers” then a pivotal roles of the private sector
and a conducive public policy, the common fundamentals need to be
apparent.
 Integration of Industrial Development Policies and Strategies
with other economic sectors especially rural development and
agriculture.
 The achievement of macro-economic balance alongside with
social and political stability.
 Maximizing the utilization of natural and human resources.
 Realistic and flexible currency exchange rates.
 Liberalized and efficient capital and credit markets.
 Attracting long-term foreign investment.
 Efficiency and flexibility in the utilization of factor of production.
 Development of a strong industrial Research and Development
capacity through resource allocation and Development
Institutions.
 Integrated functional programs for the development of industrial
technology and industrial manpower.
Attaining the above is not an easy task but it will require total
commitment from the side of the government and workable conducive
industrial policy framework.
LDCs should also significantly expand their manufactured exports.
Such expansion must be at the expense of its neighbours a a policy
of competitive devaluation. The present concern to correct the
assumed “anti-export” bias of industrial policy must be examined in
this context. It has been shown that LDCs manufactured exports are
primarily oriented to regional markets. Multi-lateral technical
assistance could there be sort for strengthening the institutional
framework for the development of a regional industrial policy involving
investment cooperation, macro-economic policy harmonization and
trade integration. Here the strategy for increasing manufactured
exports will have to concentrate on a narrow range of products, with
the export drive steered to promising destinations.
A rapid pace for industrialization is essential to achieve high rates of
economic growth and to generate employment and raise incomes.
But the past patterns of industrialization leading to small areas of
affluence surrounded by much larger areas of poverty and
backwardness need to be avoided. Our future strategies need to
improve on the previous ones. Emphasis should be on the
development of a mass market for basic goods, the strengthening of
industry’s links within the national economy, increased and more use
of more use of local resources, economy in the use of energy
resources and imported inputs and enhanced competitive exports,
particularly of manufactured goods.
Even though capital-intensive techniques will be required in many
industries, incentives as well as publicly support research and
development, should favor small scale, labour intensive industries
and rural enterprises processing local materials. These increase the
employment generating effects of industrialization leading to
beneficial links with agriculture and help to narrow rural-urban
disparities. The reform of industrial trade and exchange rate policies
should aim at building up a dynamic export sector and efficient import
substitution industries. Expanding the production of goods for exports
to provide the finance for imports of essential capital and consumer
goods needs to be an important component of LDCs industrialization
strategy. In any case indiscriminate and subsidies in order to promote
efficiency and technological dynamism. A flexible system of
protection can play a useful role with protection rationalized. Full
advantage should be taken of the substantial opportunities including
export opportunities, open to the services sector. Efficient service
industry can help a great deal to enhance the competitiveness of
agriculture and industry.
Policy makers need to be sensitized to the need to adopting
necessary measures to promote small-sale industries. This can be
done through:
Conducting studies at national, regional and sectoral levels to
identify demand opportunities, gaps in the production system
and the availability and advantages of resources (products, raw
material, available skills, e.t.c.) that should be used as bases of
industrial development.
Approaches and strategies should be developed to encourage
investment in the small-scale industries.
Networking of inter-firm linkages and cooperation among smallscale enterprises need to be promoted alongside the existing
industrial firms.
Priority should be given to the establishment of necessary
incentives such as: financial and non-financial support
programs to encourage the flow of small-scale industrial
investment.
There is urgent need to create a conducive environment in order to
encourage both foreign and domestic and enterprise linkages. The
environment is bound to create efficient enterprises that can compete
in local and international markets. At present on should realize that
the environment is not very conducive for three main reasons; there
is a crisis in confidence in the government, inefficient production
structures and significant legal and regulatory impediments. The
patchy and intermittent commitment to policy and reform by the
government of Kenya and the discretionary behaviour of policy and
law enforcement agencies over the years has created mistrust
between the public and private sector. At present confidence the
system is too low hence very few investors are planning for new
projects while upcoming projects are on hold.
A modernization programmed aimed at replacing the rapidly aging
and inefficient capital stock is urgently needed. However care should
b taken to ensure that the introduction of new technology does not
increase the capital-intensity of manufacturing production. Increasing
the efficiency of manufacturing enterprises for raising the diffusion of
entrepreneurship and technical skills throughout the Kenyan
economy. The encouragement of sub-contracting links between large
scale and manufacturing enterprises on the one hand and medium
sized on the other can be an important means fro increasing the
indirect employment generating capacity of manufacturing
investment. Such links can also strengthen integration between
agriculture and industry and reduce the very wide income differentials
that currently exist in Kenya.
There is need to strengthen the financial systems in the country for
this is a prerequisite towards accelerated industrialization. The
development of a robust financial intermediation system requires first
and foremost financial liberation, the freeing of interest rates and
reduction of excessive government intervention in the economy. To
end this, the government needs to follow sound macro-economic
stability, which is essential for build an efficient financial system. This
means the need to improve the banking sector and building sound
and efficient payment systems: deepening capital markets: and
extending sector finance to include the development of infrastructure.
There are four types of monetary and credit facilities facing the SSEs.
i). They are unable to provide adequate collateral to obtain loans
for industrial establishment.
ii). They are charged higher than normal rates of interest.
iii). Bankers are not knowledgeable enough to give them suitable
help and
iv). Government monetary policies which do not facilitate credit.
Experience shows that some cultures have initiated interest rates
reduction plans (United States) or have set up alternative finance and
credit schemes to facilitate small enterprise development. At present
however, lower and subsidized interest rates are opposed by
international finance institutions. Solutions to the problems lie
primarily in the availability of costs in-training bankers to deal with
small-scale industrialists sympathetically.
LDCs strategy for industrialization must concentrate on two
approaches. First, the domestic market for manufactured goods must
be expanded markedly. Second, LDCs industry must be restructured
to become much more efficient and capable of exporting goods
profitably and competing against goods with moderate protection.
LDCs path to becoming newly industrialized nations must be
established on a sound raw materials base taking into account weak
forward and backward linkages now characteristic of the country’s
manufacturing sector. Consideration must be given to the operational
constraints and technological capacity of the country. Consequently
within the next few years, much focus need to be placed on the
expansion and new investments in light manufacturing resource
based industries in which the country has both operational and
technological capacities, while laying the ground for intermediate and
capital industries.
A legal environment needs to be enhanced for sound industrialization
to be put in place. Law plays a very important role in business
creation, expansion and administration. Law is needed for
incorporation, establishment of ownership and liabilities assessment
of business and financial risks, as well as enforcement of contractual
agreements. A lack or absence of a well-defined legal system can
constrain the efforts of a country’s industrialization efforts.
The process of industrial transformation here will require enormous
financial investment and sound human resource development,
institutional capacity development and environmental protection.
The process of industrial transformation will therefore require new
thinking and approach within the following guidelines.
- Maintenance of a stable transparent and accountable political
and economic climate that is likely to generate business
confidence, projects peoples properties and rights and upholds
the rule of law and administration of justice.
- Provide administrative and social services such as education
and training health and other social services.
- Provide and maintain the basic infrastructure at reasonable cost
to customers. Involvement of the private sector in providing and
maintaining infrastructure need to be encouraged.
- Investment in primary production in order to increase
productivity.
- Restructuring of the financial markets by scrapping of the
import and export licensing, decontrolling prices, and freeing
the foreign exchange markets.
- Liberation of trade activities selectively.
- Diversification of the Kenya economy with greater focus on the
Kenyan agriculture.
- Special emphasis needs to be put on new product
development, competitiveness in quality, processing packing,
styling and design.
- LDCs industry must be restructured to become much more
efficient and capable of exporting goods profitably and
competing against imported goods with moderate competition.
- Government needs to venture into identifying new partners in
industrialization exercise particularly when it comes to foreign
investments.
CONSTRAINTS TO INDUSTRIAL DEVELPOMENT
Despite the observed achievements by the LDCs manufacturing
sector and the supporting institutions the sector indeed is faced with
serious challengers which unless properly addressed are likely to
slow the pace of the economies industrialization process. The
problems appear within the industries and plants, but sometimes
these difficulties arise form deficiencies in the government’s
implementation of industrialization policies. It is quite apparent from
the constraints discussed in this section that, many investors,
industrialists and entrepreneurs still do not regard the LDCs business
environment as sufficiently conducive to attract both domestic and
foreign investors. Some of these issues are basic to overall
investment climate and must be tackled in the context of preparing
the country for entering rapid industrial growth.
LDCs infrastructural sector poses a lot of challenges to the country’s
industrialization process. It is not worthy that the weakness of
physical infrastructure in LDCs is one of the principal causes of the
unsatisfactory performance the country’s industrial sector; and partly
accounts for the low level of investments within the country.
Infrastructure is essential for industrialization. It provides vital links
between centers of production and markets in economic sectors, and
facilitates flow of industrial goods and raw materials and people.
Reasons for the continuing state of insufficient infrastructure include:
poor tendering and procurement procedures, a poor maintenance
culture which results in the erosion of accumulated assets and
inadequate public sector financial resources to undertake new capital
asset creation. The major physical infrastructural shortfalls are in
power and water supply, telecommunications, roads, rail and port
facilities.
The abraise of governmental policy concerning certain issue and the
malfunctioning implementation of the existing policies restrain LDCs
industrialization process. In other cases intense conflicts of interests
between those desiring to increase local production and those
preferring to make fast money through imports of locally producible
items hamstrings efforts to impose restrictions on imports (e.g. for
garments, shoes, cars, refined sugar). Too often importers find
political allies to facilitate their requests hence sabotaging the nation’s
interests in industrial development, job creation and even revenue
generation. An examination of the areas where policy has been
inconsistent or absent will illustrate the ways these conflicts thwart
improvements in industrial efficiency or increase in local production
and a reduction of imports.
Inappropriate technologies need to be regarded as on of the major
constraints on industrialization process in LDCs. Many inappropriate
and even dangerous products are made and sold locally though they
throw artisans out of work and waste foreign exchange. Fro instance
LDCs makes plastic baskets for the local markets even though
hundreds of women weave sisal baskets for their livelihood. LDCs
makes many other inappropriate products that eliminate jobs e.g.
plastic chairs and throw carpenters out of work.
LDCs industrial growth depends heavily on the success of agriculture
given the strong links of the sector in the country. Agricultural output
and incomes create a growing demand for manufacturers and a
source of the savings needed to finance industry. Unfortunately lately
the agricultural sector has been has been performing very poorly and
is a major problem in the industrialization process. However,
agriculture suffers from vagaries of weather and agricultural
commodity exports suffer from price and revenue instabilities due to
inelasticity in their demand and supply.
The LDCs industrial sector seems to be developing within an
environment of a liberalized market unlike the case of newly
industrialized countries in Asia. Markets are also rapidly being
globalized and the new information technologies within a low growth
region exposed to regional conflicts. To industrialize in such
environment LDCs manufacturers are required to produce goods and
services that are regionally and internationally competitive both in
price and quality.
The cost of and limited access to credit poses a lot of challenges
towards industrialization in LDCs. This factor has continued to be a
major constraint for the private industrial sector. Inspite of the
structural reforms on LDCs financial sector, there remain problems
facing many entrepreneurs, in particular the small scale enterprise
and women. These include; the absence of an efficient financial
intermediation mechanism which can effectively channel resources
towards private productive investment, attitudinal problems arising
from the persistent distrust between lenders and borrowers, poor
marketing strategies of the banks and the continued competition for
limited funds and very high interest rates. Further, there does not
exist, adequate incentives and guarantees for bank to encourage
financing of small and medium scale enterprises. This situation is
worsened by the absence of a credit rating agency for borrowers and
a credit reference for individual borrowers.
Inadequate managerial, technical and entrepreneurial skills indeed
undermine the country’s efforts to industrialize. The LDCs still suffer
from shortage of critical skills in finance, production, material and
project management and technical capability which among other
factors accounts for low productivity within the industrial sector.
The link between LDCs industry and research and development is
very weak. There is no structured mechanism for identifying problems
and priorities in industrial growth and development. Consequently
research activities and findings from research institutions have made
very little impact on the overall industrialization process either due to
their inappropriateness or poor transition of research findings into
production.
Research and Development (R&D) plays a key role in
industrialization by facilitating the identification, characterization and
development of material bases, new products and new processes for
industrial activities. Its application in generating technologies will
influence effective utilization of local resources.
Bureaucracy and corruption forms the major source of frustrations to
industrial investors in the country. Long and slow bureaucratic
procedures, duplication of requirements and lukewarm attitudes of
public servants to processing applications for approvals and licenses
required by the business is costly and discourages final investors.
The legal environment in which business operate in LDCs is not
sufficiently efficient. This is a consequence of the underdeveloped
legal information culture. In particular the incomplete collection and
publication of legal materials, the inadequate and slow
disseminations of laws when passed and the persistent existence of
irrelevant, outmoded anti-market laws not in line with modern times
and requirements.
Low domestic resource mobilization national savings is a major
bottleneck to the country’s industrialization process. National savings
are a major element of sustainable industrialization. They are
necessary for investments in human resource development,
infrastructure and social services, and for industrial investments.
There has been a general decline in public savings, a factor which
accounts for the poor performance not only of the national economy
but also the industrial sector. Expansion of the country’s industrial
sector is seriously contained by these factors hence if any
breakthrough is to be made; they need to be seriously addressed.