Critically assessing space sector development in Africa – Part 2
Governments in Africa will likely be influenced by the trend of governments around the world increasingly intervening to develop their national space sectors. They should, however, carefully consider their approaches to intervention before committing to them. Stakeholders, in turn, should critically assess government initiatives; they should assess how these initiatives align with their own goals and then react to them accordingly. One way to critically think about space sector development initiatives is to consider whether they are “enabling” or “steering” market activity. Both approaches have potential positive and negative consequences. Stakeholders can better assess how to react to space sector development initiatives if they consider the extent to which the initiatives “enable” or “steer” market activity.
Below is the second part of a three-part article on this subject. To see the rest of this article, please find the first part here and the third part here
“There are two potential approaches to space sector development which, for convenience’s sake, can be described as ‘enabling’ and ‘steering’”
The benefits and drawbacks of “enabling”
Both approaches have benefits and drawbacks. One benefit of the “enabling” approach, for instance, is it encourages firms to respond to demand; firms succeed because they devise products and services for which other market actors are willing to pay. A second benefit of the “enabling” approach is that it catalyzes entrepreneurialism; if an important determinant of government support is firms’ business cases, then firms will compete with each other to create innovative ideas. A third benefit of the “enabling” approach is that firms are more resilient in the face of economic or political turbulence; firms will be less affected by restrictions in government spending, whether restrictions are due to market downturns or changes in policy.
The negative outcomes of the “enabling” approach are also worth considering. One potential negative outcome, for instance, is the approach is unlikely to result in an abrupt transformation since there is no top-down direction. This could be a problem if slower more gradual change is undesirable for some reason. It may be, for instance, that change must happen quickly, otherwise an opportunity will be lost. There are only so many countries that can host launch facilities, for instance, and latecomers who want to host facilities will be at a disadvantage.
A second potential negative outcome of the “enabling” approach has to do with the direction rather than the pace of change. Certain business areas may be “enabled” because firms will independently choose to pursue them, but there may be a reason why those business areas are undesirable. If firms specialize in lower-value activities, such as providing components rather than designing end products, for instance, this could arguably hinder economic development.
A third potential negative outcome is absence of certainty about complementarity between business activities. In the space sector, different value chains are composed of niches, and there are complementarities between niches both within and between value chains. If a country has a strong launch services sector, for instance, this would complement a strong satellite integration sector; the satellites could easily be moved from the integrators to the launch facilities. Such complementarity arguably produces more business activity and more value. An “enabling” approach does not ensure that this outcome will happen; it is rather left up to the firms to decide what to do, and it is by no means certain that the firms will complement each other.
“The ‘enabling’ approach focuses on removing barriers to business, supporting firms with solid business plans, and helping firms further refine their strategies.
The ‘steering’ approach focuses on cultivating desired areas of business activity, supporting firms already in those desired areas, and providing firms with financial incentives to grow the desired areas. ”
The benefits and drawbacks of “steering”
The “steering” approach has its own sets of benefits and negative consequences, which essentially mirror those of the “enabling” approach. In the “steering” approach, one benefit is that policymakers can better influence the speed of industrial development; they can ensure firms establish a niche in a value chain before it is too late. A second benefit is policymakers can control the direction of business activity; they can incentivize the development of a particular business area that will benefit the country. A third benefit of the “steering” approach is that policymakers can coordinate complementarity; they can orchestrate the growth of different business areas, like launch services and satellite integration, which complement each other.
The potential drawbacks of the “steering” approach are also significant. One potential negative outcome is that firms became insulated from market demand. They may start to respond more to government contracts than to what other market actors are willing to pay for. If the government wants to build a new type of satellite thruster, for instance, firms will vie for contracts to develop it, even if there is no market demand otherwise for a new thruster.
A second potential negative outcome of the “steering” approach is that it hinders firms’ entrepreneurial thinking. Firms can start to look too much to government for guidance on what sorts of business activities they ought to engage in. They can begin to specialize in accessing government contracts rather than in generating innovative ideas. They can become complacent, in other words, no longer competing to be the most entrepreneurial firm.
The third potential negative outcome of the “steering” approach is that firms in the space sector become more vulnerable to shocks if government funding changes, whether that be due to economic conditions (e.g. a recession) or political factors (e.g. a new president). Firms come to depend on government support, and when that support is modified, there may no longer be a market rationale to keep doing what they were doing for the government. Firms will have become focused on providing services to the government which may not have significant market demand outside government. Firms may furthermore have become too complacent, and they will struggle to survive against firms that have been competing in the private market.
