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Part III Sectoral Policy and Economic Growth

Manufacturing Export, Infrastructure and Institutions: Reflections from ECOWAS

Uchenna R. Efobi and Evans S. Osabuohien

Abstract This study examines the extent of manufacturing export in ECOWAS countries, how it has been affected by the extent of infrastructural development and the distilling role of institutions. In retrospect, we present stylized facts that proves that ECOWAS poor infrastructural development has largely being driven by the poor institutions, which promotes private benefits rather than public good (such as infrastructure). In essence, this has hampered manufacturing export and reduced the extent of competitiveness of these countries.

Keywords ECOWAS • Infrastructural provision • Institutions • Manufacturing export • Manufacturing value added

JEL Classification F13 • F31

1 Introduction

The main focus of this paper is to examine the role of institutions in underscoring the linkage between infrastructures and manufacturing export in countries in the Economic Community of West African States (ECOWAS).

The manufacturing sector plays a vital role in enhancing countries' global competitiveness and the extent of their internationalisation drive. This includes their ability to adequately provide goods and services that are able to compete effectively in the international market, where demand is mostly based on the quality and efficiency of the products being sold. This has brought about the reiteration that countries in Africa should pay more attention to improving the manufacturing sector, unlike the traditional export baskets that include the composition of primary products like those from the agriculture or natural resource. The address by the World Bank's president in 2014 clearly states that the hope of African countries should focus on developing the light manufacturing sector, which could help in the development of industrialization, export diversification, and job creation (Kim 2014). Kim also stated that recent analysis suggest that the development of this sector could create about seven million new jobs in the continent and the drastic effect on a continent that currently faces unemployment situation, is immeasurable.

The issues relating to the development of the manufacturing sector cannot be discussed in isolation. There are catalysts to this development, called infrastructure. Infrastructure encompasses those physical components or structures that is needed to enhance the operation of a particular process in a society. With regard to the manufacturing sector, infrastructure plays two important roles: the enhancement of the input and the output process in a production system. With regards to the input process, infrastructure enhances the procurement of material input and also in the preservation of these inputs. The output processes involve the use of infrastructure in preserving, securing and transporting the finished products to the potential market.

The cost of poor infrastructural development is seen in the increased cost of trading, in the form of production and transportation cost (Limao and Venables 2001; Abe and Wilson 2009). For instance, the recent industrial migration from Nigeria to neighbouring countries—like Ghana—was attributed to increased cost of production due to poor power supply and port congestions that consequently resulted to increased overhead cost of production of manufacturing companies (Sunday Trust 2013). Likewise, industries in most of these countries (African countries) experience increased trade cost on transportation of raw materials and finished goods, as a result of poor infrastructural facilities (World Bank 2013). Actually, poor infrastructural development in African countries (including ECOWAS countries) is one of the main impediment to trade development. This cannot be denied seeing the Statistics that shows that limited road access in Africa reaches only about 34 % of the rural community, compared to the 90 % for the rest of the world (African Development Bank-ADB 2010a). Likewise, less than 40 % of the region's population have access to electricity and about one-third, living in rural areas, are within 2 km of an all-season road, compared to two-thirds of the population in other regions (ADB 2010b; Obilomo and Ojo 2013).

The World Bank (2013) predicted that for African countries to be effectively competitive in the global sphere, there is the need for an annual investment of about US$93 billion until 2020 for infrastructural development. Noting this prediction, most African countries have resorted to the consideration of increased inflow of Foreign Direct investment (FDI) and Official Development Assistance (ODA) to offset the huge infrastructural deficit. It is no wonder that across Africa, over 70 % of the public funding comes from foreign aid (Moyo 2009); Asiedu (2006) earlier confirmed that the need for African countries to attract FDI in order to fill their resource gap is needed for development projects. The inflow of these forms of capital is not without a cost. Apart from the fact that the continent has experienced increased poverty and institutional breakdown as a result of these funds (Moyo 2009), the uncertainty of these funds is another encumbrance to their reliance for developmental projects (African Economic Outlook 2014).

In the light of these, the quality of institutions and governance structure is considered as a sustainable alternative. In essence, we argue that African countries can begin to play less on depending on foreign resource for financing their infrastructural deficit, by improving their institutional and governance structure to effectively manage funds and reserves to aid this. This argument stems from the fact that African countries experience huge resource leakages from fund outflow that is predicated on poor institutions. For instance, in 2002, the African Union estimated the annual cost of corruption on the continent to be US$150 billion [1]. Putting this in perspective, African countries will experience a windfall from public resources (in the form of channelling these funds to development projects like infrastructural development) if institutions are developed and the governance structure is enhanced.

The theoretical justification for this argumentation is intense, as proponents of institutional economics (e.g. Acemoglu et al. 2001; Blair-Henry and Miller 2008; Acemoglu and Robinson 2012; Osabuohien and Efobi 2013; Efobi 2015), have argued that the distinguishing factors between countries—in the global sphere—is the strength of their institutions and policies. Acemoglu and Robinson (2012) portrays a compelling discuss by noting that institutions are political forces that creates incentives for government and politicians and determines the quality of policies that are put forward by them. Sometimes, these forces are either overt or explicit, but the common peculiarity is that these rules—no matter the form— structure social interactions (Hodgson 2006). Some other contributors to the literature on institutional economics include North (1990, 1991) and a host of others like Osabuohien and Efobi (2013), Asongu (2014). Putting this in perspective, we suspect that the reason why African countries—ECOWAS inclusive—have not recorded much progress in infrastructural development that would have hitherto enhanced growth is because of the poor institutional forces that exist in these countries. Analogically, political actors in these countries would have had incentive to pursue the development of infrastructure for trade facilitation if only the extent of institutional development was emphasised.

Noting this, policy analysts have consistently presented a wake-up call for the strengthening of the institutional framework of African countries to pursue improved infrastructural development. For instance, in the ECOWAS region, the regional community is beginning to emphasise the need for regional actions that will propel member states to put in place policies to enhance infrastructural development. Some of these actions include the Supplementary Act of 2007 that focused on the harmonisation of policies and regulatory framework for the development of soft (ICT) infrastructure in the sub-region. Article 33 of the Act provides that member states should participate in the modernisation and development of infrastructure in order to provide reliable interconnectedness, both for regional and international communication (ECOWAS 2007). Among the notable achievements of this effort is the declaration for the support of the deployment of submarine cable project that links member countries to Southern Europe (Osabouhien and Efobi 2014).

It is on this note that this study intends to empirically examine the linkage between institutional development and its effect on infrastructure and manufacturing export in African countries—especially ECOWAS countries—to be precise. The main reason for focusing on ECOWAS countries is highlighted in the subsequent section (stylized trend) of this paper. The remainder of the paper is organised as follows: Sect. 2 presents discuss from the empirical literature, while Sect. 3 provides some stylized facts. In Sect. 4 we present some bi (and multivariate) relationships between the three elements of study. Section 5 concludes with policy implications.

  • [1] Considering that African countries' average inflation rate of 7.08 for 2003–2010 (according to the United Nations Statistics, available at un.org/en/development/desa/policy/wesp/ wesp_archive/2012annex_tables.pdf), then the value for US$150 billion in 2010 would be about US$1 trillion, which is over 11 times more than the annual contribution required for infrastructural development.
 
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