I had the privilege of attending the Annual Chatham House London Conference from the 23-24th of October 2017. This particular conference was supposed to have been held in early June. However, it had to be postponed owing to Brexit. The election of Trump in the US with the attendant pronouncements to lessen that country`s role in institutions such as NATO, the WTO, UN has unsettled global leaders as it sends a message that the global governance system established post 1948 will unravel. In addition, the decision by the UK to exit the EU has sent similar alarm that one of the successful post war projects aimed at guaranteeing European and global peace could be at stake. It was therefore fitting that the theme of the conference was: In the Balance: A Future World (Dis) Order.
The keynote speaker at the conference was the UK Secretary of Foreign Affairs, and strong proponent of Brexit, Mr. Boris Johnson. The conference itself was a phenomenal event attended by foreign secretaries from different countries including India and Saudi Arabia. In addition, there were former secretaries of state, diplomats, CEOs of leading firms, politicians, foreign policy and security experts among others. While there was a session on Africa, as an African I got the sense that the continent was under represented. This is because in all plenary sessions, no issue was directed at Africa, a continent of a billion people; needless to say the plenary had no African thinker or diplomat on the panel. The closest that the conference came to having an African on the plenary was when Zimbabwean born American, James Manyika, who heads the McKinsey Global Institute, participated on a panel that was not focused on anything African. Besides the plenary focus on the Middle East and Russia, one got a sense of being in an echo chamber where the guardians of the old order were deliberating on how to shape a new order, without reflecting on how exclusive the Bretton Woods institutional framework has been.
Maybe the irony of the absence of notable African representation at the conference was reflected in the theme of a well constituted side session on Africa. This side session dedicated to Africa was focused on African Agency wherein this piece draws its title from. The side session, moderated by Alex Vines of Chatham House, had African scholar and thinker Dr. Carlos Lopez and Botswana Diplomat and former Commonwealth DDG Ms. Seretse-Mwamba as panelists. One could therefore ask who would have legitimately represented Africa in the plenary. Previously, in a world in which South Africa played a proper role in international affairs, one can imagine that the plenary would have had someone from the country and due to the country`s participation in different global fora such as the G20, BRICS, UNSC etc., it would also have been easier to find an all-encompassing continental theme. Such an imagined continental theme could have focused on anything from revisiting the role of the ICC, African representation in global economic governance institutions, to third termism and migration.
Generally, the conference focused on the threat to the global governance system that was established at the Bretton Woods conference in 1948. There was a general sense among various participants that that particular governance system, which was later characterized by massive globalization, is under threat. Nationalism, or a recession towards sovereignty and ethnic identity, were identified as the main drivers of this harking back to a pre-globalized world order. Right wing and populist leaders were identified as the agents of these destabilizing movements, with President Trump and Secretary Johnson marked as giving a human face to this new phenomenon. At the core of the discussion was the role of the United States in the current crisis which might lead to disorder. There was a sense that the US, UK, and even the EU are abandoning multilateralism in favour of bilateralism. One of the panelists, a former US Assistant Secretary of State with a CIA background argued strongly that President Trump is reflective of the post 2008 financial crisis. This former diplomat further averred that President Trump represents a total shift in American politics and the next US President would not be very different from him. At the core of this assertion was the submission that Mr Trump represents a structural shift in US politics. There was a strong sentiment from the former US diplomat that the US is tired of paying for the world through their substantial contributions to NATO and the UN. Mr Trump was described as a transactional and situational president who is different from other previous US presidents in terms of leadership style.
As is typical of discussions about Africa without Africans, there was a debate around why the US is not playing a more principal role in Africa. It was felt that the US should have a more strategic role in Africa to complement that of the EU and challenge the increasing dominance of the Chinese in the continent. The counter argument was that under the Trump administration there would be more US commercial presence in Africa. This discussion was quite relevant for Africa in that since the rise of China, the continent has been focused on that relationship sometimes to the detriment of traditional partners. South Africa is also guilty of this focus on China at the expense of the EU. Having more suitors on the continent provides Africa with an historical opportunity to leverage its positions and interests due to more choice. While the conference did not give the African continent what can be deemed to be due consideration, it can be hoped that the discussion at the side session has been heeded. This is because the interventions from Dr. Lopez in the side session highlighted the need to take Africa seriously. It can be argued that the lack of African representation could also be symptomatic of an old global governance system that treated Africans as junior partners and second class global citizens.
Dr. Lopez noted that the Africa rising story helped a great deal in profiling Africa. He however lamented that Africa is missing the middle part in its economic structure and urged the continent to find ways of establishing a manufacturing base in order to create employment. Dr. Lopez cited recent examples of African agency in global governance. The first was unity in climate change negotiations where Africans started to proactively push for certain positions which was a departure from past practice where they would generally be passive. This behavior of Africans was unique in that Africans have been taken for granted by the G77. However, this time around the G77 allowed the African Union to dictate the agenda. Secondly, Dr. Lopez stated the initiative taken by Africans in developing financing mechanisms for development. He gave an example of a summit in Morocco in which over four thousand delegates convened to engage on this particular issue. The third example that reflects maturity on the side of Africans was the AU initiative to probe illicit financial flows, led by President Thabo Mbeki. This was further complemented by a realization that Africa needed a new path resulting in the Kagame Panel led by Dr. Carlos Lopez. The fourth instance that reflects a unified agency in the African continent was the way the continent engages with other external partners such as China.
The role of non-state actors as agents was also highlighted with various examples being cited. These included the role of civil society in exposing corruption and state capture in South Africa. This role had the effect of bringing down established brands such as Bell Pottinger, KPMG, SAP and McKinsey. In addition, the role of the judiciary in nullifying the controversial election results in Kenya was pointed out.
The focus of the Chatham London House Conference on the possible threat to the Bretton Woods global governance system could not have come at a more opportune time. It was important to have the UK Foreign Minister provide a keynote address considering he is one of those involved in the disruption of the current system. Africa`s peripheral role in the conference theme, both literally and figuratively, is symbolic of the relegated status of the continent in current global governance frameworks. It is commendable that the panelists in the side session focused on the increasingly important role of the continent. One can only hope that those in the plenary sessions did heed the messages coming from the breakaway session on Africa. It is undeniable that if South Africa was still a formidable player in the international stage, the continent might have found a seat in the plenary sessions.
In light of the chronic problems in the Euro Zone, the crisis in emerging markets, and the Chinese economic downturn, the export-oriented German economy should consider alternative markets. Rather appropriately the German Engineering Federation Association (VDMA) has recently emphasized once again that Africa is awakening “from its slumber”. The Association has also expressed concern about the German economy’s continued neglect of Africa, not viewing it as a viable new market. This concern coincides with the general German perception that Africa is a continent in crisis: stricken with disease like Ebola and AIDS, and ravaged by civil wars and Islamic terror from which citizens desperately flee. To be fair these are also the headlines dominating news from Africa.
Nonetheless this perception is rather skewed. First, Africa is very diverse, rather than a single unified continent and people. Africa has a total of 54 States (close to a third of all states recognised by the UN), which could not be more different. In addition to well-governed and secure countries like Botswana and Rwanda there are also “crisis” or “failed” states where chaos reigns; the Democratic Republic of Congo (DRC) comes to mind. This means that an opinion on Africa as a single entity cannot be endorsed.
Second, Africa has more to offer than crises and dramatic headlines. The economic growth rates in the past decade were as high in Africa as any continent, out of the ten fastest growing economies in the world currently six come from Africa. Remarkably, this growth is not just commodity driven; since the beginning of the commodity bear market no significant braking effect could be observed.
This growth needs investments, especially in infrastructure. Just think of energy supply (about two thirds of Africans are still not connected to the electricity grid) and transportation; where a lack of well-developed East-West road links and good flight connections persists. If it is to succeed Africans need to better integrate into so-called Global Value Chains (GVC) for which a strong hard-infrastructure backbone is essential. This has also been recognized in the donor community, and a number of initiatives to improve infrastructure have been started. Luckily German companies are already quite well positioned in the field of energy supply, but still not at full capacity.
But what seems even more important for the long run is Africa’s growing middle class. The water supply is improving, the level of education is increasing, as well as female economic participation. Even though the Millennium Development Goals have not yet been reached many abuses have been eliminated. In fact the middle class is not only economically important, they can also contribute significantly to political stabilization.
Africa’s middle class growth is significant for the German economy as demand for European, and especially German, products is likely to manifest in the future. German products already enjoy an excellent reputation in Africa, as elsewhere on the planet. This refers to both capital goods industries as well as consumer durables; the reputation of German automobiles for example is legendary.
In addition to export potential, investment opportunities need to be considered; not only penetrating individual African markets but also to take advantage of the locational benefits of African regions. Many countries try to process raw materials within their own borders, this is where German know-how can help, especially considering that German companies have different ethical standards to, say, Chinese companies.
Of course there is competition. As mentioned, Chinese companies especially have been able to gain a foothold in Africa in recent years. However, it must not be forgotten that Chinese involvement in many regions of Africa has not been viewed with undivided enthusiasm: some investors behave harshly, too few jobs for locals are created, and the products and investment projects are often of poor quality.
It also fits into the picture that China itself is getting into difficulties. Within China, market opening and privatization efforts should be pursued but this obviously does not occur, as recently criticised by the European Chamber of Commerce. It’s here where the reforming zeal of the Chinese leadership seems to end, where economics threaten to combine with political freedoms.
China is difficult as a market and competitor, thus it will have a harder time in the future if its economic dynamism decreases. This presents risks and opportunity for the German economy at the same time.
The difficulties of Chinese enterprises in connection with the dissatisfaction of African customers, with the often cheap and poor quality goods, provides an opportunity for German workmanship as awareness of quality has increased dramatically in Africa in recent years. Germany may well enter new markets and diversify its export base.
It’s not that African markets would be easy in any way. Cultural differences, different needs, management problems, corruption and many other questions constitute high barriers. But it seems fair to say that the German exporters are experienced enough to meet these challenges.
The original article was published on the 11th September 2015 by WirtschaftsWoche, available here in German.
Andreas Freytag recently had an interview with ECONWATCH explaining the TTIP and its potential as a path to greater prosperity.
For our German readers the original article is available here in German.
The EU is in the midst of strengthening regional integration efforts with the Trans-Atlantic Trade and Investment Partnership (TTIP) taking the foreground. The impact these negotiations will have is not limited to party states and will have an indirect effect on their trading partners and the EU’s attempts to strengthen other regional integration efforts.
European-African relations are directed by the Economic Partnership Agreements (EPAs) between the EU and regional African trading groups, which has been problematic since colonial times. Making integration efforts harder is the reality that within the African trading groups are states at various levels of development. Managing a coherent and regionally uniform agreement has proved difficult as Europe’s preferential trade schemes do not apply equally to both Least Developed Countries (LDC’s) and non-LDC states. An additional hurdle is African attitudes towards further opening their economies, since the prevailing strategy for African states is that of targeted industrial policy and import substitution to avoid competing in the global economy. This also means that Africa will take a step back in participating in Global Value Chains (GVC’s) and potentially miss out on the economic growth presented by GVCs.
Customarily the TTIP is expected to realize trade creation within the parties and cause trade diversion from non-members, however recent research shows that with increasing global division of labour and the spreading of GVCs the effects of trade diversion can be small. It follows that if Africa reacts to the TTIP with the aim to be included in GVCs then TTIP could serve as a stimulus for further economic growth.
For African exporters to truly take advantage of the mega-integration effort mutual recognition of standards within the TTIP would be necessary, meaning that the USA needs to be open to EU standards and vice versa. This unification of standards would mean that suppliers from non-member states could export to the USA on EU standards and to the EU on USA standards, which increases both the size of the African goods market and incentives to comply to standards.
Considering these particulars Africans would need to change their strategy. Mega-regional trade deals will most certainly continue to occur and if Africa insists on keeping its trade borders relatively closed the effects of trade diversion will heavily weigh in on economic development. African governments have the opportunity to react to the TTIP by joining the EPA’s and insisting on open standards in the TTIP.
While EPAs are finally being concluded, the global and African landscapes are being fundamentally reshaped by the connected phenomena of mega-regional trade negotiations and China’s rapid expansion into the continent. How can the major developed countries negotiating mega-regional and African deals, respond to these developments?
After years of acrimonious negotiations, Economic Partnership Agreement (EPA) negotiations seem to be finally drawing to a successful close. While the overall picture for sub-Saharan Africa is quite murky for those not actively involved in the negotiations, the main regional groupings seem to have concluded negotiations. It looks likely that most non-least developed countries (LDCs) will be integrated into the EPA net, whereas LDCs (even those not covered by an EPA) have guaranteed full access to the European Union (EU) market via the Everything but Arms (EBA) preferential access scheme. And while the EPA agreements are primarily centered on goods market access, they include rendez-vous clauses containing the possibility of broadening and deepening the arrangements in the future.
Yet the strategic landscape enveloping EPA negotiations has changed fundamentally since their inception more than a decade ago. Central to this is the recent emergence of ‘mega-regional’ trade negotiations, and China’s rapid ascent in the African trade and investment landscape.
Mega-regionals as ‘game-changers’[1]
‘Mega-regionals’ attract various definitions. In my view they are preferential trade agreements (PTAs) involving three or more countries; constituting a quarter or more of world trade; and entailing deep, behind the border regulatory commitments. Thus only the Trans Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) qualify.
Led by the USA, the TPP and the TTIP are wide in scope, deep in ambition, and laden with many implications for non-party states and for the global trading system. Partly a product of the impasse in the World Trade Organization (WTO), they have sucked negotiating energy out of the WTO thereby contributing to the difficulties in concluding the Doha round; even as they are strategically aimed at reinvigorating their leadership of the WTO down the line through the process of ‘competitive liberalisation’ (see Box). These PTAs are also a product of China’s geopolitical rise, prompting the USA and EU to lock-in access to key markets and regions. China and other major developing economies are responding with initiatives of their own, such as the Regional Cooperation in Asia and the Pacific (RCEP) negotiations. Hence there is renewed impetus behind PTA negotiations across the world.
The notion of ‘competitive liberalisation’ is associated particularly with Fred Bergsten, former Director of the Petersen Institute for International Economics, and Richard Baldwin. The former argues that as the USA secures PTAs with other countries, so those countries become like-minded with the USA and seek to form PTAs along similar lines with third parties. Soon those left outside emulate the PTAs, and ultimately the logic finds its way back into the WTO in the form of new agreements.
Baldwin identified the ‘juggernaut’ effect, whereby major multinational companies seek regulatory convergence in order to smooth the operation of their global value chains, and lobby host governments to provide it particularly through mutual recognition agreements. This pressure finds its way into PTAs, thereby creating a juggernaut effect reinforced by competitive liberalisation. [See Richard Baldwin “A Domino Theory of Regionalism”, NBER Working Paper, 4465, 1993].
Generally impact assessments on the TPP and TTIP negotiations concur that the effects of tariff liberalisation on negotiating member states will be modest. Similarly there is some concurrence that trade diversion impacts on outsiders will be relatively small, particularly for African states since they mostly do not directly compete with those party to the talks. However, some countries are likely to suffer from preference erosion in key commodities, limited by the fact that tariff barriers in the EU and USA markets are mostly already low. Some studies argue that trade creation impacts, for example increased demand for natural resources in parties to the two agreements, may outweigh those of trade diversion for outsiders, yielding net positive gains.
Crucially, all studies concur that removal of non-tariff barriers to trade, particularly through regulatory harmonisation, will have the most significant impacts both on parties and non-parties, although the effects are very difficult to measure let alone predict. Some worry that standards will be raised so high that non-parties will be locked out of erstwhile markets; others argue that mutual recognition agreements backed up by extension of conformity assessments amongst negotiating parties will increase market access for outsiders substantially. The devil is in the detail, and only product specific assessments will reveal the likely impacts. Either way there is concurrence that regulatory standards negotiations are very much here to stay as part of the modern trade diplomacy landscape; a fact that African states have largely avoided in the EPAs, but will have to adapt to.
It is important to understand potential scenarios for how mega-regionals may unfold, since the strategic implications for African states vary substantially. In a full success scenario, competitive liberalisation would march on triumphant, with the regulatory agenda manifesting strongly in the WTO and in demands for reciprocity from African states, which they would find difficult to resist. Under a partial success scenario important aspects of the regulatory agenda and trade impacts described above would manifest, but Western hegemony over the global trading system would not have been decisively reasserted. This would offer a ‘balance of power’ prospect to African states, nuanced according to sub-region and degree of exposure to Chinese influence in particular. But the search for reciprocity in bilateral trade relations would move up the major developed countries’ radar screens, with attendant negative implications for preference schemes. Under a failure scenario, the implications just described would manifest quicker and more intensely as the Western powers scramble to shore up traditional ‘spheres of influence’. Furthermore, and particularly if the current Chinese economic reform programme is successful, African countries would face a China dominated trading system earlier, perhaps, than previously anticipated. In all three cases the shifting sands of geopolitics are set to intrude ever more sharply into African trade and investment relations.
The evolving trade landscape[2]
The backdrop to the mega-regional effort is that sub-Saharan African nations are concurrently engaged in discussions with major partners over institutional arrangements of long-term developmental and strategic importance. The African Growth and Opportunities Act (AGOA) – the centrepiece of the USA’s economic relations with the region since 2000 – is up for renewal in 2015 against the backdrop of a fair degree of uncertainty regarding the terms of any new agreement. AGOA has been characterised by its unilateral and non-reciprocal nature, features that are up for discussion, specifically with regards to sub-Saharan Africa’s biggest economies and most dynamic markets. An important factor behind American calculations is that the EU will shortly cement the EPA process, which is built on reciprocity, hence preferential access to African markets for European firms.
Since 2000, the Forum on China-Africa Cooperation (FOCAC) has served as the main stage for Sino-African bilateral relations. Recently, there have been moves to formalise trade and investment arrangements with African regional groupings through initial Framework Agreements with the East African Community (EAC) and the Economic Community of West African States (ECOWAS). China, too, may start to demand reciprocity with certain partners in response to EPAs.
So shifting geopolitics are manifesting at a time when the continent’s trade and investment patterns are undergoing a profound shift from traditional economic partners to intensified relations with fast-developing centres of world commerce. The EU as a bloc remains sub-Saharan Africa’s largest trading partner, yet its share of total trade halved between 1989 and 2011 from 50{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} to 25{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1}. In 2011, the USA accounted for 12{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1}, while China had become sub-Saharan Africa’s single country biggest bilateral trading partner with 15{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} of the region’s total trade. The speed and scale of China’s engagement with the continent has been a game-changer.
What can the EU and USA do to assist African states?
From the standpoint of sub-Saharan African states, and regardless of which mega-regional agreements negotiation scenario prevails, the immediate tendency may be to gravitate towards European and US partners – especially if existing preference schemes are strengthened and the EU makes African economic development a strategic priority. In this light, generous preference schemes in developed markets with rules adapted to the realities of modern trade could spur African export diversification. The TTIP, in particular, could provide an opportunity for the EU and the USA to jointly revisit trade preference schemes to support the development objectives of sub-Saharan African low-income countries. The Trans-Atlantic partners apply distinct non-reciprocal arrangements through AGOA and EBA that offer special access to African nations and least developed countries. Liberal access to developed markets could help stimulate investment and job creation into African LDCs agricultural, manufacturing and service export sectors.
However, despite their successes, both schemes suffer from sharp limitations: AGOA excludes and applies tariff quotas to key products the region can produce competitively; EBA provides full duty-free quota-free coverage but only to countries classified as LDCs, thereby driving an arbitrary wedge into various African regional groupings; the rules of origin required for product eligibility militate against the development of value chains; and AGOA’s annual review mechanism added to the uncertainty of the scheme’s renewal post-2015 reduces security of access.
Harmonisation of preference schemes does not seem to be on the TTIP’s agenda. Nonetheless, the EU and the USA could mutually recognise requirements covering rules of origin under AGOA and EBA. This would reduce information costs and ease compliance procedures for African exporting firms, and potentially allow preference-qualifying products imported from African countries to be granted reciprocal access to EU and USA markets.
What can Africans do?
While sub-Saharan African economies have grown faster than other regions of the world in recent years, primary commodities have driven much of this growth. Most African nations need to implement reforms that improve their business environment and attractiveness as investment destinations so they can develop their potential in manufacturing activity and agricultural productivity. Modernised infrastructure and backbone services (logistics, telecommunications and transportation) are further preconditions for competitiveness and the ability to tap into sophisticated global value chains.
Securing greater depth and coherence to existing regional integration efforts will also be an important element in creating an environment conducive to the expansion of value chains. Currently weak regional integration is partly driven by the lack of complementarities between the region’s economies, but also by the prevalence of high barriers to trade that severely restrict the ability to form regional value chains. Thus Africa will remain dependent on external forces for a long time. However, initiatives at the regional level could be used as laboratories for reform and for building regional value chains with an eye on graduation into global production networks.
Footnotes
[1] This section is taken from Draper P., Lacey S. and Y. Ramkolowan. 2014. “Mega-regional Trade Agreements: Implications for the African, Caribbean, and Pacific Countries”, ECIPE Occasional Paper, No. 2. The title is taken from World Economic Forum. 2014. Mega-regional Trade Agreements: Game-Changers or Costly Distractions for the World Trading System, Geneva: World Economic Forum.
[2] This section is taken from Draper P. and S. Ismail. “The Potential Impact of Mega-regionals on Sub-Saharan Africa and LDCs in the Region”, in World Economic Forum, op.cit.
This article was published by the European Centre for Development Policy Management (ECDPM) in GREAT insights Volume 3, Issue 9 (October/November 2014).
The recent issue of the Japan Center for Economic Research (JCER) Asian Economic Policy Review (AEPR) focused on the impact of China’s interaction with the rest of the world. In the words of the AEPR editors:
“The single biggest development in the global economy over the past generation has been China’s opening up from self-imposed isolation and its reintegration with the world economy. This process, which began 35 years ago, is still incomplete and will continue to shape the world economy for some time to come.”
The paper focuses on the changes in the domestic political-economy environment in China and how these changes can impact its relations with Africa. Historically China’s interest in Africa has been carefully planned, with the Forum on China–Africa Cooperation (FOCAC) serving as the umbrella, and State Owned Enterprises (SOE’s) underpinning China’s commercial ties with the continent. But as China gears up for economic reforms towards a domestic consumer based market, the historic shift has implications for African growth and development strategies that are as yet not fully appreciated.
China’s political and security policy concerning Africa is anchored in non-intervention and unconditional aid. Critics argue that this legitimates persistent human rights violations and international crimes. However with China’s increasingly younger top leaders a natural shift towards liberal policies can be expected in time, specifically concerning human rights and the environment.
In this regard, two regulatory documents were recently drafted and implemented to address the social and environmental impact of Chinese SOE’s. The Corporate Law of China provides a legal framework for Corporate Social Responsibility (CSR) while the Guidelines for Central State-Owned-Enterprises lays down best CSR practices or “human oriented” policies for SOEs. Nonetheless, while Chinese CSR undertakings are being implemented across the social sphere, (education, health and infrastructure) critics argue that the reported contributions have been superficial and for Chinese firms CSR is a non-essential business endeavour.
The prevailing China-Africa economic interaction consists of resource extraction, mainly commodities, from Africa in exchange for infrastructure development and Chinese manufactured goods. While infrastructure investment addresses Africa’s supply side shortcomings it could also be argued that the increased infrastructure derived from investment could increase China’s rate of extraction, furthermore the influx of cheap Chinese consumer goods is having a detrimental effect on Africa’s efforts to develop manufacturing value chains. This argument is validated when considering that the majority of trade and investment from China flows towards resource rich countries.
The environmental impact of China’s entry into Africa mirrors China’s domestic attitude “which has prioritized economic development over the environment”. Efforts are being made to decrease China’s environmental impact on the continent but the effectiveness of these efforts is debatable.
Considering the details of China’s expansion into Africa, dominated by SOE’s and mostly perceived as self-serving, the new wave of economic rebalancing “offers the prospect of a structural shift in the patterns of China’s economic engagement with Africa.” Beijing’s pursuit of “growth at all costs” is being swept aside for a new focus on developing the domestic consumer market, aiming for quality and sustainable growth. This reform should cause China’s economy to cool down; as China’s growth slows so will gross fixed capital formation by the state which in turn should mean a relative decrease in the state’s ability to influence SOE’s and direct its interests into the global economy. Private firms, under this new consumer driven economy, should find the domestic market increasingly crowded and look for greener pastures outside the borders. China’s light industrial manufacturing sector is also reaching a point where the rising cost of production is outweighing increases in productivity and, in the medium term, would need to relocate these functions offshore to remain competitive.
Peter Draper presenting the paper at the WTO public forum 2 October 2014 – Geneva, Switzerland
Therefore, the new economic rebalancing wave is expected to compel private Chinese firms, representing real competitiveness, to follow the SOE’s move into Africa. A shift from resource extraction to manufacturing, forged by market forces, is expected as Beijing pursues this reform. Tendencies to offshore labour intensive manufacturing to Africa and other regions should increase. East Asia’s growth model, referred to as the flying geese pattern, will most likely flock initially to lower cost production countries like Vietnam, but down the line could include African countries experiencing the same political economic impacts as previous goose nests. The move is inevitable as Africa has the advantage of being rich in natural resources, has relatively low labour costs, rapidly growing, youthful populations, and is in close proximity to global markets.
This being said geographically closer states (Bangladesh, Indonesia etc.) will enjoy nesting before Africa does not only due to their proximity to China but also due to their comparative advantages: having higher literacy rates, larger young populations, and lower labour costs than most sub-Sahara African states.
For Africa to enter Global Value Chains (GVC’s) openness towards investment from Multinational Corporations (MNC’s) is imperative, but for MNC’s to invest African countries would need to embrace less restrictive/protective trade regimes, develop strong infrastructure backbones, improve the quality and quantity of available human capital, improve global and domestic logistic capacities, enhance customs and standards procedures, and provide safe investor environments.
The paper is available on the Wiley Online Library for registered users here, and the presentation on the paper is available for download here.
For further insight listen to this Classic FM interview – a preview of Frontier Advisory’s recent China-Africa Forum – in which Peter Draper discusses China’s strategic game, what the upshot for Africa’s businesses will be, and the move from SOE’s to private firms.
In light of the chronic problems in the Euro Zone, the crisis in emerging markets, and the Chinese economic downturn, the export-oriented German economy should consider alternative markets. Rather appropriately the German Engineering Federation Association (VDMA) has recently emphasized once again that 
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