Getting it right

Nobody questions Africa's industrialization process - only how it should Happen, where and with whom

Generally speaking, there is no argument - Africa needs industrialization to provide jobs, reduce poverty and improve economies. Also, that it needs overseas investment for this to happen, and that China is in a good position to provide it.

But when it comes to details and practicalities, there is a great deal of debate over how this can be done, or even whether it can be done at all.

There are 55 recognized countries in Africa, all differing from each other in many respects. Most may share the same problems and general wish for investment and industrialization to overcome them, but not the capabilities, conditions, cohesion or consensus needed to do so.

China is currently involved one way or another in the development of more than 50 African nations, and without doubt is at the heart of the issue over the industralization of the continent.

"Massive industrialization based on commodities in Africa is imperative, possible, and beneficial," states the 2013 edition of the Economic Report on Africa, co-authored by the United Nations Economic Commission for Africa and the African Union, and released earlier this year.

The report, "Making the most of Africa's Commodities: Industrialization for Growth, Jobs and Economic Transformation", argues that Africa needs to frame specific policies for commodity-based industrialization for each country to ensure initiatives that foster linked development, and to speed up that process through leveraging the continent's abundant resources and high commodity prices.

Individually and collectively, African countries must embark on a "bold transformation" toward a commodity-based industrialization strategy to allow the continent to take charge of its own development, the report says, which is necessary if African countries are to be able to address youth unemployment, poverty and gender disparities, and other challenges.

The report suggests that African countries should form industrial and other development policies to promote value-added production, and to reduce dependence on producing and exporting unprocessed commodities.

Rick Rowden, a development consultant for the UN Conference on Trade and Development, says despite the important gains in services industries and per capita incomes, Africa is still not rising, and services alone will not create enough jobs to absorb the millions of unemployed youth in Africa's growing urban areas.

"Instead, steps must be taken to revise WTO agreements, and the many trade agreements and bilateral investment treaties currently being negotiated, so that Africa has the freedom to adopt the industrial policies it needs in order to make genuine progress," he writes in Foreign Policy magazine.

China is at the forefront in arranging bilateral investment and development agreements with African nations, most of which are impressed and encouraged by China's own spectacular economic rise.

In recent weeks, Kenya's President Uhuru Kenyatta on his first official visit to Beijing echoed the wishes of many other African nations in calling on China to invest more in his country to establish factories, create jobs and boost its economy.

However, according to Arthur Mutambara, former deputy prime minister of Zimbabwe, choosing a correct and suitable way for Africa's industrialization is vital. For Africa, it must be value-added, manufacturing and export-based, not import or supermarket-based.

"You can't industrialize as a supermarket," he says. "No country would be industrialized through trade or selling raw materials, buying finished products.

"We just need to be clever as Africans. Sometimes we just sell raw materials for cash, but if you produce value- added products, the profit could be 10 times bigger than it is now."

He says China and Africa have been successful in many fields through bilateral cooperation and this can continue with Africa's industrialization.

"The Chinese could come to Africa to help Africa process raw materials and sell them to China, the US and other parts of the world," he says.

"For instance, we can work with the Chinese in Africa to design and make computers and sell them in Africa and China."

Justin Yifu Lin, former chief economist and senior vice-president of the World Bank, said in a conference organized by the China Macroeconomic Research Center in July that China must transfer its manufacturing and labor-intensive industry to other countries to ensure a sustainable and rapid economic development, and Africa is one of the best choices.

"Transferring labor-intensive industries overseas is in line with the rule of history and economics," he says. "Although disparities still remain among China's eastern, central and western regions, moving operations within the country has become quite limited as cheaper labor from the west has moved to the east and the salary gaps among regions are being bridged. So moving overseas is a must."

Japan transferred its labor-intensive textile industry to the Four Asian Tigers (Hong Kong, Taiwan, Singapore and South Korea) in the 1960s, and come the 1980s these economies moved manufacturing plants to the Chinese mainland.

"China has performed an economic miracle with an annual 9.8 percent growth on average over the past 33 years, and the Chinese average annual income reached $6,100 in 2012, more than four times that of Africa," Lin says. "China still has a huge gap compared with other developed countries, but with huge potential to become a high-income country in 2020."

To maintain the momentum of development, Lin believes industries must be updated and structurally reformed, especially labor-intensive manufacturing, which has contributed enormously to China's success.

"The industry must be updated at both ends of the value chain's smiling curve, which are research and development and marketing with more added value," he says. "And the structure needs to be reformed with technology-intensive manufacturing."

Africa is an ideal destination for this to take place, as China's neighboring Southeast Asian countries have limited population that cannot satisfy the needs of this transfer, Lin says.

As an example of a successful relocation, he cites the 2011 move of Chinese shoe company Huajian to Ethiopia, where it has recruited more than 2,500 workers locally with plans to increase that to 30,000 in the next three to five years.

Lin says Africa could be the "blue sky and green sea" for Chinese labor-intensive manufacturing providing a base for the second boom of the industry.

"More importantly, it will also largely enhance Africa's economic development and lift the living standards of African people," he says.

Huge potential

Based on China's past experience and lessons it teaches, Africa has huge potential to develop industrialization, according to Teng Liliang, chief marketing officer of the China-Africa Development Fund.

"African countries have witnessed China's successful build-up on the basis of industrialization during the past few decades, so now they are quite enthusiastic about doing that themselves," Teng says. "But they could do better, as they have abundant natural resources and minerals as a foundation for development, which China didn't have when it started the process."

Another advantage is Africa's huge population as a potential consumption market and provider of labor for the processing industries.

"Many harbor doubts about China's intentions in helping Africa start industrialization, but they should also realize Africa's industrialization would also help China in the future," he says. "From a macro perspective, China and Africa are now deeply interdependent on each other, so a better Africa makes for a better China."

China now has an excess of production in many fields, including processing industry, electronic appliances and textiles, which are all desperately needed by Africa, so it's vital many Chinese entrepreneurs move factories there, Teng says.

"They would be closer to the raw materials and markets, which would greatly reduce production and transportation costs," he says.

According to Teng, China's skill and technology transfer to Africa would be a process of mutual learning. It is crucial for developing Chinese companies to grow alongside African skills and markets, and those who go to Africa earlier would have more opportunities.

"Industrialization for Africa is a necessary foundation for any future economic boom," he says. "For China, it's a strategic opportunity to reach common development. So, from an investment perspective, it's crucial to catch the 1 percent chance and turn it into 100 percent success at this special time."

However, people do not have a clear understanding of Africa and have over-generalized the situation, says Jorge Maia, head of the research and information sector of the Industrial Development Corporation in South Africa,

"It is extremely important for us not to look at the continent in an abstract way, and take a broad-brush approach," he says. "The African countries are so different. The moment you focus on one country, you realize how distinct it is from others."

Investors should generate more detailed and specific proposals for business in different regions and countries, rather than making decisions on a rough idea or general understanding that could lead to failure.

Typical obstacles to investment in many countries include the disconnect between business, social and governmental entities.

Shamal Sivasanker, director of consulting for Deloitte in South Africa, goes a step further.

"I don't think Africa is capable enough at present to go through industrialization," he says. "If we look at the industrialization programs China carried out between the late 1980s and where we are today, and the level of coordination needed between government departments and private sectors, no one has actually talked about that level of collaboration and participation in Africa.

"The challenge we have at this moment is that there are a lot of good intentions in Africa about industrialization and its benefits, but it is the supporting regulations and actions behind these that really determine whether Africa could be industrialized."

South Africa has infrastructure programs that meet the basic requirements for more manufacturing, but the country lacks economic policies and the financial support to achieve this, he says.

"We know Africa does not have the skills and capability to roll out industrialization by itself, nor has it funding for it," Sivasanker says. "When we start looking at India, China, Brazil, the US and so on, the intention should be able to attract more investors, build a solid base in an African country and try to localize some components of industries."

When a country starts to impose the number of jobs that a foreign company needs to create locally, it becomes more politically aligned, he says.

"The real industrialization policy is to see what local manufacturers could contribute, and let the market decide how it is done and decide how many jobs it needs to create," Sivasanker says. "The answer to the social issues lies in how industries adapt in South Africa and how we allow a more free trading environment, or alternatively a more regulated environment or policy to foster the environment."

He says a brain drain is also a threat to the future development of Africa, and governments should focus on encouraging better-established education policies to nurture talent and skills needed by personnel in the industrialization process.

"From an education and skills development perspective, there's no policy supporting education infrastructure or development," he says. "Chinese companies should also support certain parts of the education system in Africa to produce more engineers, rather then producing more Chinese engineers here.

"India has seen the benefit of a strong education system that was established 60 years ago. But within Africa, we don't have the capacity now.

"The country that is able to start and accelerate the industrialization process should win the talent war."

Xue Xiaoming, vice-chairman of the Nigerian Chinese Chamber of Industry and Commerce, and also managing director of Feiteng Industry Nigeria Ltd, says the slow progress in industry and manufacturing in Africa, judging by what is happening in Nigeria, is due to a difference in approach and vision between foreign investors and local government and industry.

"Nigeria is a total and absolute free market, which has no preference toward any particular industry or field," Xue says. "So, although it has strong intentions to develop its industry and manufacturing, so far there has been no prominent support from policies, regulations, finance and laws."

Besides, he adds, it demands great courage to commit to industrial development in Nigeria, because poor infrastructure remains a major barrier - as it does in most countries in Africa.

"Developing industries require sustained electricity supply, smooth transportation and other very basic infrastructure facilities, which at present are still far from enough to ensure operations," Xue says. "And industrializing a country is not only to develop or establish one or two industries, but a complete industry chain that involves a lot of plant and other facilities."

Also, Chinese expectations, regarding national structure and policy preferences in African markets, are too high, Xue says.

"It's too much to expect a strong, privileged policy framework toward foreign investment in manufacturing and other industries, and do what China did in the late 1980s to boost its industrialization," he says. "Nigeria has a well-established trade network across the whole world, so it's very difficult for it to give preference to the development of particular industries."

Therefore, Xue says, the best of Chinese manufacturers do not have enough incentive to come to invest in Africa, and small to medium-sized companies that are willing to develop in Africa are likely to face more and tougher challenges locally.

"What the large Chinese companies have been doing in Africa regarding infrastructure is not only good for the living conditions, but more importantly, for the future industrialization process," he says. "But the two processes must go in parallel, and investors should adapt to this new environment."

lilianxing@chinadaily.com.cn

Customers check out Cway water dispensers at a trade fair in Nigeria. Provided to China Daily

(China Daily Africa Weekly 09/06/2013 page1)