Growth Path in Africa and The Chinese Influence (Must Read Article)

By Andrew Moody and Zhong Nan (China Daily)
Dec. 17, 2012

“Ethiopia is following a development path similar to that of China” – Ethiopia’s minister of finance and economic development

As African economic prospects brighten, there is debate about which model best suits the continent

Ahmed Shide admits his country is following a development path similar to that of China but not any sort of model.

The youthful Ethiopian state minister of finance and economic development was speaking from his office in the government buildings area of central Addis Ababa.

“It is not about copying absolutely the Chinese model, but the history of how they managed their development process has been influential, particularly in targeting economic sectors and unleashing the forces of the market in terms of attracting foreign direct investment,” he says.

The dusty streets of Addis Ababa, one of the highest-altitude cities in the world, may still look a world away from China’s modern cities of Shanghai and Guangzhou, but China-style policies are much in evidence.

The government has set up special economic zones, including one, the Eastern Zone, set aside for Chinese companies, to encourage foreign direct investment and foster industry.

It has also adopted five-year plans to give itself targets for economic development.

The haunting Live Aid images of famine and disease of the mid-1980s are no longer being allowed to define the nation.

“The way China has industrialized and grown their agriculture and the way they have delivered a government-led process of development has been something to learn from,” Shide says.

As many commentators have observed, not just Ethiopia but other African countries are now looking eastward rather than to the West for their economic inspiration.

They have become frustrated by the policy prescriptions for Africa that have prevailed since the late 1980s. This so-called Washington Consensus – central to the thinking of the Washington-based institutions of the World Bank and the IMF – has put pressure on African countries to look for private-sector solutions to their problems and also initiate reforms in order to get development assistance.

Chinese loans and major investment in infrastructure in much-needed roads and bridges have proved to be a breath of fresh air over the last decade.

And since the collapse of Lehman Brothers in 2008 and the financial crisis emanating from the West, there has been a greater interest in the sort of state capitalism that has featured strongly in Asia’s development.

Martyn Davies, chief executive officer of Frontier Advisory, a research and strategy-consulting firm based in Cape Town, believes there has been a real change of mood in Africa.

“We have gone from almost a market fundamentalist position of the post-1989 Washington Consensus to a more interventionist form of state capitalism,” he says.

“Words like privatization and free-market trade have almost become dirty words, and you are never likely to hear them at a South African political forum. The Western financial crisis has been used to justify this.”

Ethiopia was one of six African countries that made it into the top 10 fastest-growing economies in the world over the last decade, according to research by The Economist magazine using IMF data.

Perceptions of the continent are changing, and some have argued that the Lions of Africa may give the Asian Tigers a run for their money in the development stakes of the 21st century.


Clockwise from top: Ahmed Shide, Ethiopian state minister of finance and economic development; Gong Jianzhong, China’s ambassador to Ghana; Ngari Gituku, vice-chairman of the Kenya China Friendship Association. Photos by Feng Yongbin / China Daily

Indeed, the same research projected that African countries would grow faster than Asian ones in the five years to 2015. While Africa may be trying to catch up with China, parts of Asia and even the developed nations of the West, it does not necessarily mean that one development model will suit all.

There are huge differences among the 54 countries that make up the continent – some are rich in resources; some have coastlines, making it easier to trade; and some, usually the most disadvantaged, are landlocked and without resources.

Following on the tail of the Asian Tigers would be difficult for many African countries.

Economies like China, Singapore and South Korea all built their initial success on exporting low-priced manufacturing goods.

In China’s case, this has been made possible by an abundant supply of labor, which until recently had kept wages relatively low. China’s population of 1.3 billion is, in fact, higher than the 1 billion of all the African countries combined.

Many African countries are resource-rich, whether it be in oil, copper or diamonds, which most Asian countries, including China, lack.

Having resources has also been a curse as well as a benefit to many African countries, making them vulnerable to international commodity prices as well as exploitation.

About 4,000 kilometers to the west of Ethiopia, Ghana’s economy is set to be transformed by the discovery of oil, which was found off the coast near the city of Takoradi in 2007. The government’s own forecast is that oil will more than double GDP growth, from 5 to 12 percent, this year.

Some have argued that far from following a manufacturing-led model of development, Ghana should now become a resources and service-sector-led economy and promote itself as a major regional banking and financial center of West Africa.

Hanna Tetteh, the country’s charismatic and forceful 45-year-old minister for trade and finance, insists that while financial services will be an important future dynamo for the economy, it will be impossible to bypass the manufacturing stage.

“We have moved from agrarian to mixed. Manufacturing is not out of the equation, but it is only part of the economy,” she says.

Gong Jianzhong, China’s urbane and quietly spoken ambassador in Accra, believes the idea that Africa should follow any sort of China or Asian model is inappropriate.

“I disagree with the term ‘China model’. Socialism with Chinese characteristics is only suitable for China, and it does not mean it is universal. There is no way that China will export its model. Africa needs to go its own way and do the things which are suitable for its own people.”

Gong was speaking in his embassy compound in the baking hot West African city, which, with its plush hotels, supermarkets and new roads, is now visibly affluent.

“I think Africa has actually to learn from our mistakes. For the last 30 years the economy has been booming but at a huge cost to the environment. I was brought up in the countryside, and you could swim and drink water from the rivers. Nobody can do this today,” he says.

Whatever development path African countries are taking, few would deny the rapid progress that has taken place over the past two decades.

At the turn of the millennium, The Economist controversially described Africa on its front cover as The Hopeless Continent, but came up with the more optimistic cover line The Hopeful Continent last year.


James Shikwati, director of the Inter Region Economic Network. Photo by Feng Yongbin / China Daily

Sven Grimm, director of the Centre for Chinese Studies at Stellenbosch University in Cape Town, says it is an encouraging development, even though people should not get carried away.

“You could argue that it is not difficult for these economies to grow because they are doing so from a very low base and they aren’t actually booming yet, but it has to be seen as positive news,” he says.

Grimm believes it would be difficult for Africa to replicate the China model of development because of the shortage of labor.

“Labor is not cheap in Africa, so it is difficult to manufacture. When it comes to attracting foreign direct investment, the markets are minuscule compared to those of China, where there is always the lure of a billion consumers. It is a very different starting base.”

Harry Verhoeven, a researcher in the department of politics and international relations at Oxford University and a convenor of the China-Africa Network there, says one of the key factors that kickstarted China’s huge growth was Deng Xiaoping’s land reforms in the 1970s, which has yet to take place in Africa.

“One of the main barriers to African development remains poor productivity of African agriculture in terms of output per acre. The other problem is the extreme dependence on commodity exports, which goes back to the colonial era and makes their economies extremely vulnerable to all kinds of price shocks.”

Verhoeven says countries that are dependent on oil and other commodities have no incentive to develop the economies, with political elites able to live off the rent from the foreign multinationals that move in.

“It is addictive. It is such easy money. You don’t have to work for it. You don’t need to do anything,” he says.

“You don’t need to develop productive enterprises because you don’t need the tax from them. The money gets channeled into real estate and consumption, particularly of foreign goods. I won’t say that all of Africa’s growth in recent years has been illusory, but I would caution against those who see Africa as the emerging next frontier.”

On the terrace of the Hotel Boulevard in Nairobi, Ngari Gituku, a journalist with the magazine Diplomat East Africa and vice-chairman of the Kenya China Friendship Association, believes it is difficult to foster a manufacturing culture in Africa.

“When you have a factory here owned by an Asian, most of the Africans who work there as machine operators do not take much notice about how this operation works. They just fit in, and that becomes their world. They don’t think they could set up a similar operation.

“We must try to find a way of bridging the gap. Africans have this belief that they are not born to industrialize, and this is something our education system needs to change,” he says.

Back in Addis Ababa, Shide insists Ethiopia, which is one African country that does have a nascent manufacturing base, is well aware of the need to develop human capital.

“We are focusing on the education system to produce the skill level the economy needs. That is why we want to ensure that 70 percent of our university intake studies mathematics, science and technology and just 30 percent humanities and sciences,” he says.

Many in Africa are hopeful that they will benefit like countries in Southeast Asia and pick up some of the 80 million manufacturing jobs to be shed by China over the next five years, according to a recent World Bank forecast.

Davies of Frontier Advisory, who is also a senior lecturer at the Gordon Institute of Business Science at the University of Pretoria, says that is the major question.

“Are we going to become the next Vietnam? It has taken Africa some 300 years of development to get to 10 million blue-collar manufacturing. If we were to pick up just 10 percent of the jobs leaving China that would almost double our manufacturing employment figures in less than a decade.


Hanna Tetteh, Ghana’s minister for trade and industry. Photos by Feng Yongbin / China Daily

“It is not as straightforward as that, however. Manufacturing is not just about cheap labor anymore. We have had some successes in this area with countries like Kenya, in particular, doing well.”

Some argue that whatever path they take, Africans themselves are culturally different and cannot adapt to the work ethic that drives Western and Asian economies.

Verhoeven at Oxford University rejects this view.

“I don’t think there is an inherent cultural problem in African countries, that they appear to be lazy etc. I think all this has a lot to do with the conditions they find themselves in,” he says.

He says the problem for entrepreneurs is that they are operating in a market where regulations and the rule of law are often weak.

“I know some people who run a business who know that if they work harder, 95 percent of that money will be confiscated off them by a rival business elite which will get the court to take over their business. You cannot blame a guy for not working hard in that situation.”

Grimm at StellenboschUniversity says one of the reasons Africa will find it difficult to replicate the development that took place in China is that they lack the diaspora of wealthy of overseas Chinese, who played a major role in the early stages of China’s development after reform and opening up.

“The African diaspora tend to be younger and many of them don’t have wealth to invest. There are supposed to be more nurses in London from Malawi than there are actually in Malawi.

“There is some evidence of people returning to Ghana wherever there is an opportunity in their own country but the numbers are not great.”

With the tropical rain crashing down outside his office, one of Africa’s new generation of thinkers James Shikwati, director of the Inter Region Economic Network think tank, says Africa should not make any choice between a Western or Eastern mode of development.

“We are in a unique position to gain from both sides. If we are able to negotiate between them right we hit the goal,” he says.

Contact the writers at: andrewmoody@chinadaily.com.cn and zhongnan@chinadaily.com.cn