Africa Unlikely to Follow China’s Goose

18/08/2010
Source: blogs.wsj.com

Can Chinese investment inject some Asian-tiger-like vigor into African economies? That’s certainly the hope of many – including World Bank President Robert Zoellick, who has urged Chinese companies to expand beyond infrastructure and resource-extraction projects and also invest in manufacturing in Africa.

Reuters

And with China’s labor-intensive industries, like textiles, increasingly challenged by the rising salaries they need to pay workers, there is pressure for to shift to lower-cost locations.

That is, after all, a trend that aided China itself in earlier decades, when the textile and garment industries shifted from Japan and Taiwan as costs in those economies rose. Japanese scholars dubbed this phenomenon the “flying geese” model: One economy, like the first goose in a V-shaped formation, can lead other economies toward industrialization, passing older technologies down to the followers as its own incomes rise and it moves into newer technologies.

Something like this seems to still be happening in Asia, where countries that are poorer than China — such as Vietnam, Bangladesh and Cambodia — have in fact been picking up some of the textile and garment business in recent years as Chinese costs go up.

But a new short paper published by the Vale Columbia Center on Sustainable International Investment, at Columbia University, casts doubt on whether China’s low-end industries will actually shift to Africa in “flying geese” style.

First of all, say authors Terutomo Ozawa and Christian Bellak, China’s own hinterland is large and still relatively poor, which means factories seeking lower-cost locations can find them inland, before having to look abroad. “China’s own vast interior seems more attractive as new production sites than any faraway countries,” the paper says.

Second, China’s government seems in no hurry to give up labor-intensive industries to African or other countries. Pointing to the government’s policy of restraining its currency’s appreciation against the dollar, the authors say “China is not quite ready to dismantle labor-intensive industries that still provide much-needed jobs at home.”

And third, the authors argue, many African countries are not well equipped to take such Chinese investment even if it were on offer. “Infrastructural deficiencies (e.g., unreliable power and water supply, transportation, communication, poor governance, inhospitable regulatory environments, work ethic) in Africa are well known. This explains why foreign multinational enterprises in general, let alone China’s, have not yet seriously advanced into the continent in search of low-cost labor,” they write.

– Andrew Batson